James Pethokoukis

Politics and policy from inside Washington

Inflate away the debt? Yes, that is a stupid idea …

Sep 11, 2009 14:53 UTC

As Bruce Bartlett correct observes:

Although it is thought that inflation is an effective way of
reducing the burden of debt, this is no longer true. For one thing, a
declining portion of the debt is financed with long-term securities.
Today, just 3% of the debt consists of bonds with maturities of 20
years or more; 10 years ago, the proportion was four times greater. To
the extent that the debt consists of short-term securities that must
constantly be rolled over, inflation does nothing to erode its value
because interest rates just rise to compensate, raising interest
payments and borrowing, thus maintaining the real value of the debt.

will also cause the dollar to fall on international markets, which will
cause foreigners to dump their bonds. With foreigners now owning more
than 50% of the privately held debt, this may force the Treasury to
issue foreign currency denominated bonds. At this point, our finances
will effectively be controlled by foreigners and the International
Monetary Fund (IMF), just like Third World countries.

No one knows the point at which debt becomes unsustainable. According to an IMF report,
the critical point is when a government is borrowing just to pay
interest on the debt. According to the CBO, we will reach that point in
2019 when the federal government is expected to borrow $722 billion and
its net interest expense will also be $722 billion.


Thanks! That’s a sobering new perspective. Of course, one should never play cards with a magician…

Posted by Pete Cann | Report as abusive

Why strong climate change legislation is dead

Sep 11, 2009 14:44 UTC

My new favorite blog, New Geography, does a fine piece of analysis that reveals why 80 percent cuts in climate change emissions are a fantasy without a radical technology breakthrough:

According to a recent poll by Rasmussen, slightly more than one-third of respondents (who provided an answer) are willing to spend $100 or more per year to reduce greenhouse gas emissions. About 2 percent would spend more than $1,000. … If we do a rough, weighted average of the Rasmussen numbers, it appears that Americans are willing to spend about $100 per household per year.  … At $100 per household, it appears that Americans are willing to spend on the order of $12 billion annually.

At $100 per household, Americans are prepared to pay just $2 per greenhouse gas ton removed. All of this is in a policy context in which the United Nations Intergovernmental Panel on Climate Change suggests that $20-$50 per greenhouse gas ton is the maximum that should be spent per ton. The often quoted McKinsey/Conference Board study says that huge reductions in greenhouse gas emissions can be achieved at $50 or less, with an average cost per ton of $17. International markets now value a ton of greenhouse gas emissions at around $20. At $2 per ton, American households are simply not on the same “planet” with the radical climate change lobby as to how much they wish to spend on reducing greenhouse gases.


Sorry, Drewbie, I gave you half an answer. It takes energy, energy to sort the CO2 out from the N2, O2, etc. in the atmosphere, and then, lucky you, you’ve got a load of CO2 on your hands. You could pump it underground, if you trust that idea. It uses a lot less energy to just not put it in the atmosphere in the first place. And as for plants, give them some water and fertilizer and you’re turning atmospheric CO2 into solid carbon compounds with solar energy, with little or no cost for equipment.You might be interested to know that there’s a company with a process for using electric power to turn CO2 into gasoline. They can take the CO2 from the atmosphere, but they had power plant exhaust in mind to make it cheaper. They were talking about doing this with wind power at night, when they felt there would be a great excess of wind power. But putting the wind power directly into an electric vehicle battery has got to be more efficient. And of course if you burn the gasoline, the carbon goes back into the atmosphere. The essential point is again that this process takes energy.

Posted by Pete Cann | Report as abusive

A case for long-term high unemployment in America

Sep 11, 2009 14:30 UTC

A fantastic article by Joshua Cooper Ramo looking at whether the US is doomed to years of high unemployment. Read the whole thing, but this a key bit:

Many of the ideas Summers developed were codified in a 1986 article titled “Hysteresis and the European Unemployment Problem.” Even today it’s a piece he’s proud of: “Ah, yeah, the hysteresis article,” he interjects when it’s mentioned. Hysteresis is a word that you (and the rest of us) should hope we don’t hear too much of in the coming months. It comes from the Greek husteros, which means late. It refers to what happens when something snaps in such a way that it can never be put back together. Bend a plastic ruler too far, drop that lightbulb — that cracking sound you hear is the marker of hysteresis. There’s no way to restore what has just been smashed.

The idea that hysteresis happens to economies is one that economists don’t like to think about. They prefer to consider economies as yo-yos tethered to the sturdy string of the business cycle, moving up and down from growth to slowdown and back. But from time to time, things do snap. And Summers’ argument in 1986 was that unemployment in Europe, the sort that might persist in the face of growth, was an expression of an economy that had snapped. Europe’s economy was hit not only by shocks like an oil-price spike, a productivity collapse and rocketing tax rates but also by stubborn unions that made hiring, firing and adjusting payrolls near impossible.

Hysteresis, Summers explained, could come from all sorts of shocks like this. And that may be what is playing out in the U.S. If you look at the three great job busts of the past 100 years — the 1930s, the early 1980s and today — you find an important difference. The Reagan recession ended with workers returning to jobs that were the same as or similar to the ones they had lost. But 1930s joblessness was structural. The jobs people lost — largely in agriculture — never came back. Workers had to move to the industrial sector, a transition helped by the demands of a war. It was massive national hysteresis. Sound familiar?

Is there where economic growth will come from?

Sep 11, 2009 14:15 UTC

Barry Ritholtz ticks off ten technologies:

My top 10 list (in order of biggest near term potential):

1. Nano Technology (Think of the line “Plastics” in The Graduate).

2. Green (low carbon) Energy  (generation)

3. Battery technology  (storage)

4. Genomics/Stem Cell Research

5. Web 2.0/3.0 — smaller, niche companies using increased bandwidth

6. Robotics — the continued replacement of humans by machine, for both labor and judgement

7. Life extension Technologies (not disease cures, but actual extension technology)

8. Bio-Agriculture (GMF, etc.)  Feeding 15 billion people will require some technological breakthroughs.

9. Atmospheric Engineering — modifying Earth’s biosphere to keep it hospitable to Humans in the face of an ice age or global warming;

10. Terra forming/Extra Planetary Colonization (uh-oh, time to go)


I like the list. Although, I would place Robotics/AI higher on the list. I would also place green energy and Genomics/Stem Cell lower.

My reasoning is this. Robotics/AI/UAV are going to dominate the future US military- that is a lot of R&D and spending. They will also continue to remake manufacturing efficiency. They will become more human like, and there will be greater human-Robot/AI interaction. AI will also factor heavily in advanced web. Matrix here we come!

While green energy is currently the rage, we do not have an energy shortage per-se in this country currently, and not globally except for China & India. It will be a self-sustaining industry, but I doubt it will be a major player.

I also downgrade genomics/stem cell technology, because of the inherent weaknesses in the pharma industry and the fact that the tech is still in infancy. We discovered how to clone years ago, but this has yet to develop into a behemoth industry. There will be a lot of trial and error, and moral/ethical debates. However, genomics/stem cell technologies will contribute to, and advance life extension technology. Really, they should be one category.

Otherwise, a very interesting list. Thanks for posting it!

Posted by greg harkness | Report as abusive

About the Bush tax cuts …

Sep 11, 2009 14:10 UTC

I like the growthy 2003 Bush tax cuts; the social-policy 2001 version not nearly as much. But it is wrong to say these cuts were only for the rich, as the POTUS said earlier this week (from the Tax Foundation):

Every tax rate was reduced. Now, about half of the dollar savings from the tax cuts went to the top 10% of taxpayers (when you include various credits and other tax changes included as part of the packages), but that’s probably because the top 10% pay over 70% of all income taxes. Those on the left side of the aisle may disagree with that approach to tax cuts, preferring targeted relief for lower-income individuals, but it’s disingenuous to say that the 2001-03 tax cuts only went to “the wealthiest few.”