Comments on: Chart of the day, reverse-causality edition http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Kennen http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46710 Mon, 22 Apr 2013 09:17:58 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46710 It makes perfect sense that higher debt would cause slower growth. It also makes sense that slower growth causes higher debt. The data bear both out to be true. The idea that only one can be true is a false paradigm.

Your analysis shows that “>90% debt level hardy effects growth”. A ridiculous result should cause you to take a more careful look.

I suspect that the analysis is flawed because nations whoutout a strong economic base and tradition tend to not be able to extend their borrowing much beyond 90%. For example, the US may be able to achieve a 200% debt level, while Greece has a crisis at 125%. Data from Greece will thus never be represented on the right side of those graphs.

It is also likely that the majority of the astronomical debt levels on the right side of those graphs represented debt accumulated during each world war. Reinhart-Rogoff concluded that war debt did not have as strong negative effect on growth. That makes your left graph consistant with their findings.

]]>
By: QCIC http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46703 Sat, 20 Apr 2013 05:10:59 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46703 Its not government debt as much as the whole suite of government policies. I think people who don’t like the policies use the debt as a straw man and it leads them into intellectual trouble.

There is nothing magic about 80% debt/GDP, or 90% or 100%.

Each situation is different and what matters is whether you are making good use of that debt and whether your growth prospects warrant it.

]]>
By: Basho http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46701 Fri, 19 Apr 2013 22:41:55 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46701 Examining this issue without reference to private debt levels seems a somewhat pointless exercise.

Take Spain, since it’s been mentioned. Between 2000 and 2008, its household and non-financial corporate debt rose by 103% of GDP, most of it the consequence (and cause) of a real estate boom. Financial institutions added another 58% of GDP. The cumulative current account deficit for those years was about 56% of GDP. In other words, it was primed for disaster.

Except for Greece (and to a degree Portugal), sovereign debt wasn’t a primary contributor to the recent crises. Instead, unsustainable growth based on excessive private sector credit finally stumbled, and sovereign debt rose rapidly as a direct consequence.

]]>
By: Basho http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46696 Fri, 19 Apr 2013 09:34:43 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46696 Examining this issue without reference to private debt levels seems a pretty pointless exercise.

Take Spain, since it’s been mentioned. Between 2000 and 2008, its household and non-financial corporate debt rose by 103% of GDP, most of it the consequence (and cause) of a real estate boom. Financial institutions added another 58% of GDP. The cumulative current account deficit for those years was 56% of GDP. In other words, it was primed for disaster.

Except for outliers like Greece (and to a lesser degree Portugal), high sovereign debt isn’t generally a primary contributor to crisis. Instead, unsustainable growth brought on by excessive private-sector credit finally stumbles, and sovereign debt rises rapidly as a direct consequence.

]]>
By: mm463 http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46695 Fri, 19 Apr 2013 02:04:30 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46695 Krugman? Really?! Talk about disqualifying your comments from the outset.

No where do you make mention of the 800-lb gorilla in the room … namely, unproductive and unsustainable levels of social expenditures among Europe’s periphery, as you refer to them.

The evidence of “Macro 101″, as you attempted to condescendingly tell us, in fact reveals that the Keynesian-Krugman model of ever higher deficit spending is sub-optimal at best and perilous at its worst. Debt and deficit spending only work when they are married with rigorous requirements for high return on capital (viz., an interstate highway system, an improved power grid, but only with strict cost management).

Furthermore, it is not true that reducing spending necessarily leads to a depression. That is utter nonsense. Canada, New Zealand, Switzerland and a host of other countries have disproven that Krugman-esque bunk.

]]>
By: perfctlyGoodInk http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46691 Thu, 18 Apr 2013 18:49:32 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46691 “The 800 pound gorilla in this room is Europe. If debt to GDP ratios don’t matter then why is Europe experiencing a near depression is not an actual depression?”

Also maybe because Europe, unlike the U.S., actually tried implementing austerity?

Nobody is arguing that debt to GDP ratios don’t matter. Reinhart and Rogoff make a very specific and very strong claim (not in the paper itself, but in their op-eds and talks with Congress citing the paper) that there is a tipping point where debt higher than 90% of GDP causes low GDP growth. That is the argument that has been debunked thoroughly.

]]>
By: WCVarones http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46689 Thu, 18 Apr 2013 17:04:25 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46689 Weren’t Reinhard and Rogoff talking about long-term growth (~20 years)?

3-year forward growth seems a red herring.

]]>
By: Auros http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46688 Thu, 18 Apr 2013 16:57:27 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46688 Also, it’s worth remembering that Spain came into the crisis with relatively low debt, and a surplus in their gov’t budget. To believe that gov’t debt caused the EZ crisis, you have to be both stupid AND blind.

]]>
By: Auros http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46687 Thu, 18 Apr 2013 16:55:34 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46687 “If debt to GDP ratios don’t matter then why is Europe experiencing a near depression is not an actual depression?”

Oh, come on, are you seriously that ignorant, or are you just a troll? This has been talked about ad nauseam by Felix, Paul Krugman, and numerous other econ-bloggers. (1) Europe’s periphery, thanks to years of capital inflows, has costs that are out of whack with its importers; (2) The periphery can’t adjust via currency depreciation like Iceland has, because they’re on the Euro; (3) The ECB won’t tolerate higher average inflation (say, tolerating a 5-6% inflation rate in Germany for a few years, while the periphery’s costs and wages stay constant); (4) Even the core countries are running austerity policies.

When every player in your economy cuts spending simultaneously, you get a depression. This is Macro 101 stuff.

]]>
By: thesafesrufer http://blogs.reuters.com/felix-salmon/2013/04/17/chart-of-the-day-reverse-causality-edition/comment-page-1/#comment-46686 Thu, 18 Apr 2013 14:54:30 +0000 http://blogs.reuters.com/felix-salmon/?p=21354#comment-46686 The 800 pound gorilla in this room is Europe. If debt to GDP ratios don’t matter then why is Europe experiencing a near depression is not an actual depression?

]]>