(10 am. – promoted by ek hornbeck)
Yes they do. I have heard a statement that bugs me a lot lately and that statement is that this was the go to analysis for the Republicans as if Democrats have never referred to it in any way. I’m here to say that is complete BS and we know this now. The Sequester created by the WH and passed in a bipartisan way, was based on Reinhart and Rogoff’s BS analysis about scary scary long term debt to GDP ratios like their offer to cut Social Security.
So let’s stop pretending this is only coming from Republicans, especially with the Obama administration using deficit lies and errors to come after Social Security. Reinhart and Rogoff’s complete methodology was BS and neither of them understand the nuanced difference between countries with a sovereign currency; fixed exchange rates and floating exchange rates; gold standard countries and those with a fiat currency and how that relates to reserve banking at the Fed and our private current account and trade balance within. So therefore it skews the mean and amounts to garbage methodology even if done correctly.
I love How Mike Norman puts it. It kind of reminds me of how I would say it; those of you that are familiar with my work.
There’s a solid account tying the Obama administration directly to the work of Reinhart and Rogoff. You will learn more about this below the fold.
Everyone knows by now the story of the Reinhart and Rogoff Errors in their Excel spreadsheet and general flawed methodologies regarding their widely cited paper supporting austerity since it was first brought to our attention by Mike Konzcal. This was of course brought to Konzcal’s attention by Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts. They outlined from the data they got their hands on that it excluded five countries, Australia, Austria, Belgium, Canada, and Denmark from the analysis.
Because of that, everyone knows including these countries would make the average growth 2.2% not −0.1 percent as published by Reinhart and Rogoff, and that’s still imagining if their orthodox deficit terrorist economic exercise in complete non peer reviewed BS was done correctly. It wasn’t. Their whole methodology was and is complete crap and so is their work. This is best outlined by the Brilliant MMT economist at the UMKC L. Randall Wray.
But it was all a lie. Yes, a lie. They screwed up their data analysis. Like so many times before-think Larry Summers at Harvard, Chicago’s Gene Fama, or Charles Plosser at the University of Rochester-the economists reach results counter to intuition and the real world.
Their work doesn’t pass the smell test: if it smells like nonsense it probably is nonsense.
Yeva Nersisyan (my brilliant student and coauthor) and I critiqued their book soon after it came out; see here: http://www.levyinstitute.org/p… To put our conclusions as simply as possible, we concluded that they didn’t know what they are talking about.
They argued that “high” government debt ratios-say, 90% of GDP-nearly invariably lead to slow growth and to financial crisis. Our debt hysterians took that and ran-using their book as justification for austerity.
We noticed that their data just did not add up. Leave to the side the silliness of simply aggregating across 8 centuries of experience, and adding up debt ratios of countries as disparate as the USA today or, say, Greece in 1932, let alone some feudal state operating on a gold standard a couple of hundred years ago. As I’ve remarked, any real historian would find the methodology ludicrous.
I highly recommend reading that paper from Randy Wray and Yeva Nersisyanas; it completely destroys the POS book and paper Reinhart and Rogoff wrote; their overall crap methodologically; and their crap averages of economic data they couldn’t even begin to understand. The Obama administration classifies as debt hysterians now because they rely on this complete BS to cause the most vulnerable in our society pain. This is, of course, a fact everyone has learned recently though some of us have known it for a long time.
For instance, despite whether I agree with everyone at CAF(I don’t, especially on the foreclosure fraud settlement) I generally do respect some of Richard J. Eskow’s work, and he did visit the White House back in 2010 when this whole debacle I predicted was in its beginning stages. His first hand account of this meeting and run in with outgoing Treasury Secretary Tim Giethner will disgust anyone with a conscience and a brain. It proves that it happened, with sources, and that the Obama administration touted and relied on the Reinhart and Rogoff Errors so they could push austerity including the sequester.
I don’t think it was in good faith like Eskow specifically because of what Geithner said to him about Social Security. You can see how much disdain he has for the program and how little the President cared in picking him in relation. Overall, It sadly explains why President Obama and his Wall St. Treasury Secretary offered it up on the chopping block; they were relying on the error filled garbage of Reinhart and Rogoff for justification. He had planned to do so for a long time just like many of us said back then despite the embarrassing delusional denials that still persist to this day.
I first learned of the Administration’s plans to cut Social Security in a deep-background briefing which a “Senior Administration Official” held for a small group of writers in August of 2010.
Then the Washington Post revealed that the unnamed official was Treasury Secretary Tim Geithner. Several other attendees did the same. So much for “deep background” …
That’s when things got heated.
Social Security adds to government debt, said the (as yet unnamed) official.
But, I said, the Social Security Act forbids it from drawing down on general funds and adding to the debt. It’s a creditor, not a …
He cut me off. Even your hero agrees with me, he said.
Paul Krugman. Your hero Krugman agrees that Social Security spending is categorized as government spending.
He’s talking on a macro level, I began. But –
The Official cut me off again, turned away and said, Next question.
The 90 Percent Solution
Here’s why that exchange matters: The most powerful economic official said in 2010 that a Democratic President needed to cut Social Security, even though it doesn’t contribute to Federal debt, because Social Security payments are classified on the books as “government spending.”
That troubled him because of a policy panic fueled in large part by that now-discredited spreadsheet. That spreadsheet didn’t distinguish between “trust fund” expenditures like Social Security and other forms of spending and debt. It said that things fall apart when aggregate “government debt” crossed a certain line.That would presumably make that nation a poor place to invest, which was the source of Geithner’s concern.
Those conclusions came from a paper published earlier that year by Carmen Reinhart and Ken Rogoff. Reinhart and Rogoff argued that one number represented a kind of tipping point beyond which government debt became a destructive drag on the entire economy.
That number was 90 percent.
This is why we are and always were upset about the President picking the scumbag Tim Geithner with the smug tone about Paul Krugman being Eskow’s hero and agreeing with Giethner while cutting off Eskow in the middle of their debate. As if they ever listened to Paul Krugman(they certainly didn’t on the stimulus which is a big reason for the 2010 losses) even if techncially paying out interest on special issue Social Security securities and redeeming the bonds once they mature is technically tangentially government spending; it goes through the economy and comes back as a credit once the funds are used to invest in these securities.
It doesn’t have to be this way, operationally, and if we were going to change Social Security Law in any way it should be to expand Social Security benefits like the part B extra income plan and to just recognize that we can fund benefits directly without regressive FICA taxes. FICA taxes were put in by FDR as more of a political protection. However, because the President is playing Nixon with regard to China and Social Security in getting Democrats to fall in line and make cuts to the already mediocre benefits of the program seniors cannot live without, perhaps it’s time to recognize that we need to just recognize fiscal and monetary reality and finance the program like we do the military.
The military is thought of as something we cannot do without and won’t really be significantly cut even with the sequester. The war machine is always safe. It is viewed as a necessity even with it’s massive waste and collateral damage or murder of people who could produce things and could buy things we could export to them. In that sense, we need to realign our priorities and enhance our safety net and look upon our safety net in the same fashion; something we must improve for our very survival unlike the carbon blasting military which rules out any promises to take climate change seriously mute like the Keystone pipeline.
There are never concerns with seriously drawing down the military like there are when it comes to discretionary and now even non discretionary spending based on Peter Peterson linked economists and their agit prop and overall garbage analysis looked upon as sacrosanct by a sellout administration that could care less whether it’s true.
So we can look at our safety net and the idle productive capacity that makes up our work force in the era of jobless recoveries and shitty economic data that doesn’t take into account the workforce participation rate or the employment population ratio. People are leaving and giving up lowering the official crap unemployment rate. This is our stark reality. This is the face of bipartisan austerity and the damage of the lies perpetuated by Republicans and Democrats even if the Democrats mean well with so called kinder gentler austerity.
It still doesn’t add up to what we need or alleviate the suffering of the unemployed with the shitty wages that came from a large desperate workforce driving down the cost of labor and ripe for abuse by the owners of capital. This is not change we can believe in to say the least. This is a red line to continuing idle economic disaster and suffering based on lies about public debt and deficits that all of our leaders in this do nothing Congress are continuing and the White House is making things worse.
You might think you will be OK and the inaccurate data being relied on for deficit hysteria by this administration and Democrats in Congress they will get to fall in line on won’t affect you or those you care about as long as you have faith and blame the Republicans exclusively. You would be wrong. As Letsgetitdone referenced from the excellent Marshall Auerback on sectoral balances, it will affect you as balancing the budget off your back and the backs of the less fortunate(even taking it from the rich to pay debt instead of spend in the economy won’t be too helpful) sucking income out of the economy to redeem debt bought with money we created and gave to the banks for nearly free won’t put this money in our economy with velocity to create demand for jobs.
Deficit spending by the government is merely the counterpart of private sector saving. What government deficit spending does is to permit the private sector to achieve its level of desired saving. When the latter changes, government spending ought to be adjusting in the opposite direction to offset it (unless the current account balance happens to do the job).
I’ll add a graph and some links to the Sector Financial Balances (SFB) Model to help more understand it because it’s important to know how austerity will affect you even if you are the President’s biggest fan and think I’m a meanie or [insert insult]. This is also known as the Balance of Payments (BOP).
To understand how this works is to understand that since there are two entries, one positive and one negative between the public and private sector, our system amounts to a double entry bookkeeping system; for every liability there is an asset and vice versa. The balances net out to zero for the same reason a +positive number of equal value cancels out a -negative number, but unlike assuming they have no value, they absolutely do have value like loosely relating them to a positive or negative real integer on a number line just as a loose frame of reference but picture it in a double entry accounting sense(two entries two movements left and right at the same time). That is how our economy and the Sector Financial Balances operate; spending and double entry accounting adding assets and taking them away to each sector numerically.
So balancing the public budget will mean less net income, saving, and investment in the private sector during a time of high private debt overhang and low demand. That reminds me, look at the anomaly in this graph; the Clinton surpluses everyone touts as part of the promised land we need to get back to. As economist James K. Galbraith told Congress in 2000 while they all laughed like idiots until they were proven wrong just a few years later in 2002 and then in 2007-9, the surpluses brought on the conditions for the Internet bubble and the Housing bubble and bust. Why?
Private debt bubbles cannot go on forever because no real income/wealth was being created by government deficit spending so the private housing bubble had to be run up off of private households taking out what famed economist Hyman Minsky called Ponzi finance credit like farmers did leading up to 1929; credit that could not be serviced as we now know because of what UMKC economist Bill Black calls control fraud. The trade deficit usually follows the government deficit in it’s movements positive or negative because government spending has to make up for that imbalance in order for real income to be created in the private sector but didn’t during the destructive Clinton surpluses for this reason.
So now that I have adequately explained how any hollow BS lies and propaganda you might hear from Rubinites relies on Reinhart and Rogoff’s debunked debt hysteria studies from the White House or Congress, this whole sequester and coming debt ceiling fight based on these lies should make you angry. The President might think he can help Wall St. pump and dump another private debt bubble onto the public since no real wealth for the 99% will be created with his deficit hysteria because that is the only way real wealth will get to the public in the private sector and that is massive deficit spending until full employment is here.
The illusion of government surplus growth like in the 90s is based on sucking income out of the private sector and having the private sector compensate through a private credit bubble liek what happened; you should know it had nothing to do with the government surpluses on the growth end because there are no confidence fairies either; it was based on private Ponzi finance. One wonders if this is what is behind what the President is selling us through shared sacrifice and growth based on government budget balance.
After all, his FHFA is involved in Wall St’s housing inventory schemes to manipulate housing prices for speculators renting out houses people were swindled out of by the MERS foreclosure process and rental properties can be securitized. Even though housing starts are up and there is some private debt deleveraging from households(not nearly enough though), there are still no underwriting standards. And because there are no underwriting standards that means there is no protection if the 99% get sold out and the banks get bailed out again. This is what you are being sold when it comes to “balancing the budget so we can invest in our future.”
That’s only investing in economic lies and a Ponzi bubble economy based on those lies. Despite whatever form it takes, this will continue, precisely because there have been no prosecutions of Wall St. CEOs. That means there is an incentive for any willing participant to be defrauded again and again with no recourse even if that particular bank launders terrorist drug money in the process. Contrast this with non violent drug users, particularly those in the African American community who will rot for the rest of their lives in jail.
To add insult to the injuries in this magic criminal market Eric Holder and the President believe in which is why they haven’t prosecuted any serious financial crimes, you don’t hear the President issuing any veto threat now that the STOCK Act is being killed do you? It was rather comical in a depressing dark way watching Jay Carney squirm while admitting president Obama is going to sign it into law. Now members in Congress and the Banking Committee can do insider trading on the markets they directly affect but it’s not for you to ask why, it’s for you to go to prison if you try.
It’s a Wall St owned government based on mythical magical austerity that has fictional merit even when based on multiple errors and data methodology that is based on worthless crap. This worthless crap is peddled to all of us as if it’s serious because the so called serious people believe it. We’re supposed to watch our parents and grandparents suffer and even die for this worthless crap by cutting their Social Security and Meal on Wheels.
I get mad when someone uses slick language and recycled propaganda from the 90s to sell me a bill of goods while trying to hold me closer so he can stick the knife in rather than someone who openly opposes me in the ideological political battlefield. Real Democrats don’t cut Social Security or preach austerity now that we have learned the lesson of 1937 as FDR did. Some people can make excuses for this, but they can’t claim they are being pragmatic. They are being lazy if they don’t try to look into this to see what is behind all the lies.
It’s a lie that only Republicans rely on the lies in the debunked Reinhart and Rogoff paper. All the deficit terrorists rely on this garbage from Democrats in the house and Senate to the White House they are going to make Democrats sell their New Deal Democratic soul for a bunch of lies based on fantasy economics that should have no credibility at all. When anyone makes excuses for the sequester and the Social Security and Medicare Cuts on the table to get out of it, they are aiding Reinhart and Rogoff.
By aiding those that would aid and abet them impoverishing the masses while sentencing to a life of indebted misery based their economic propaganda one shows why they got into politics and it’s not to help people. Don’t be fooled. They all support these lies. Demand they care about aggregate demand and deficit spending instead of paying off debt for Wall St. that bought it wholesale with free money. No amount of government debt will ever be a problem with high real unemployment keeping demand pull inflation down which is our only constraint; we cannot default in debt owed in our own currency; currency that we create by a keystroke at the Fed.
So do we want to keep the boot on our neck based on economic lies that have caused mass suicides in Greece and other countries in the eurozone? Hell no! The truth is here. Demand all of our so called Representatives adhere to it instead of lazy recycled worthless austerian Shock Doctrine economic bullshit.