U.S. Budget and Economy

Is Obama Rewriting Debt-Limit History? On October 3rd, the Wall Street Journal ran an editorial titled "Kevin Hassett and Abby McCloskey: Obama Rewrites Debt-Limit History" . The editorial begins as follows: As the government shutdown continues, the nation gets closer and closer to the day—probably Oct. 17—when Washington hits the debt limit, and with it the specter of default. President Obama may be getting nervous about what will happen to his negotiating position as that day approaches. He keeps asserting that the debt limit has never been used "to extort a president or a government party." Treasury Secretary Jack Lew is selling the same story, saying "until very recently, Congress typically raised the debt ceiling on a routine basis . . . the threat of default was not a bargaining chip in the negotiations." The editorial goes on to say that this is "simply untrue" and describes "the shenanigans of congressional Democrats in 1989 ove...

Is There a Debt/GDP Threshold at 90 Percent? (Part 2) As mentioned in my prior post , I have posted an Excel spreadsheet which is an extension of one included in a zip file posted by Herndon, Ash and Pollin (hereafter called HAP). I will use data from that spreadsheet to look at the HAP criticisms of the Reinhart and Rogoff (hereafter called RR) paper described previously . A good starting point is the now infamous Excel spreadsheet shown in my prior post and repeated below: After noting the coding error by which 5 rows were excluded, the first question that occurred to me was "where's the beef?". The number of countries on which the 90 percent threshold is based is a mere seven (Belgium having been left out by RR). The HAP critique points out that RR is using only 71 data points (110 after Belgium and 14 other excluded data points are added). Since there were relatively few data points, my first inclination was to try to look at that data so see how it was di...

In January of 2010, Harvard economists Carmen M. Reinhart and Kenneth S. Rogoff released an NBER working paper titled "Growth in a Time of Debt" . The paper's abstract states: Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances. Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. This 90 percent threshold was cited by a number of public figures. For example, Paul Ryan stated the following on page 80 of the House Fiscal Year 2013 Budget Resolution titled "The Path to Prosperity: A Blueprint for American Renewal" . Even if high debt did not cause ...

On March 24th, a reader posted a long comment following my post of November 8, 2010 titled "Do Tax Cuts Increase Revenue?" . It covered a lot of ground so it seemed that it would be useful to answer it in a post. Following is the reader's comment, interspersed with my replies: Hello my name is Marshall and i have some issues with your blog "EFFECT OF REAGAN, KENNEDY, AND BUSH TAX CUTS ON REVENUES" I found some issues here mainly involving the Reagan Tax cuts. you say and i quote "the GDP reached a high 10-year growth rate of 35.2% from 1983 to 1993. However, it reached higher highs of 37.5 from 1992 to 2002, 45.71% from 1947 to 1957, and 50.28% from 1958 to 1968. In fact, the above graph shows that the 10-year growth rate in the GDP has been relatively stable since 1975 to 1985 though it began to drop in 2008 and is projected to stay weak through 2015. Hence, these figures don't provide any strong evidence that the Reagan tax cuts permanently affec...

On January 30th, the Bureau of Economic Analysis issued its initial estimates of the real gross domestic product in the fourth quarter of 2012. Following is the beginning of the accompanying news release : Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent. The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 4 and the "Comparisons of Revisions to GDP" on page 5). The "second" estimate for the fourth quarter, based on more complete data, will be released on February 28, 2013. T...

Did the Assault Weapons Ban Work? (Part 2) As mentioned in a prior post , David Kopel, a professor at the University of Denver, was on the December 17th edition of The PBS Newshour . Regarding the assault weapons ban, he said the following: Well, I think we can look at what happened when she had her 10-year in the past. The Congress, when it enacted that ban, also ordered that a formal study be done of the results of it. The study was performed by the Urban Institute, a very well-respected, somewhat left-leaning think tank in Washington, D.C., and the Urban Institute reported that it had no effect on homicide rates. There was no statistically significant benefit in terms of saving lives. As I described in the prior post , the Urban Institute study reached no such conclusion. In any event, David Kopel was back on the January 16th edition of The PBS Newshour during which he said the following: Well, the Department of Justice conducted a study of the effectiveness of that ban, pub...

On November 29th, the Bureau of Economic Analysis released the preliminary estimate of corporate profits for the 3rd quarter of 2012 (a revised estimate was released on December 20th). Following that, a number of publications ran stories reporting that corporate profits had reached a record high while wages had fallen to a record low. For example, CNN Money ran an online story on December 4th . Following is an excerpt: In the third quarter, corporate earnings were $1.75 trillion, up 18.6% from a year ago, according to last week's gross domestic product report. That took after-tax profits to their greatest percentage of GDP in history. But the record profits come at the same time that workers' wages have fallen to their lowest-ever share of GDP. "That's how it works," said Robert Brusca, economist with FAO Research in New York, who said there is a natural tension between profits and the cost of labor. "If one gets bigger, the other gets smaller." ...