Comments on: Breaking the negative feedback loop Sat, 21 Jun 2014 15:30:06 +0000 hourly 1 By: drrck32 Sat, 30 Jun 2012 23:03:03 +0000 It is disturbing that a professor is mis-using the term negative feedback loop, and this problem is being copied by financial journalists.
For example to quote from second paragraph:

“feedback loops are again taking over as falling incomes lead to falling confidence, which leads to reduced spending and yet further declines in income”

This is a classic example of a positive feedback loop where a trend causes influences that cause the trend to increase. A negative feedback loop is used to maintain stablity (provided the feedback is applied in time). Since feedback loop theory is taught in universities worldwide how are we getting into this problem?

By: Tskm Thu, 14 Jun 2012 15:44:15 +0000 One fatal flaw to Dr. Summer’s logic:

He is assuming that the borrower (i.e., politicians, specifically the U.S. politicians) will be responsible with the proceeds from the borrowing.

They often have not been in the past, so it is naive to believe they will be in the future?

I believe spendthrifts, whether individuals, or government officials, should not go deeper into debt, regardless of how low interest rates are!

By: Skippy321 Wed, 06 Jun 2012 00:17:52 +0000 LEEDAP falls into the oh-so-simple trap of assuming that all marginal rates are created equal. To begin with the 90% top marginal rate after WWII kicked in well above the top 1% but using the Obama $250k is rich math we see a much different story today. What’s worse is that s/he honestly seems to believe that all of our fiscal problems are due to insufficient taxes on the so called rich. The reality is that repealing the Bush tax cuts only on those earning $250k and above would raise about $800B over the next decade. Unfortunately, the “middle” class tax cuts are costing the Treasury $3.2T over that same time frame. The sad fact is that it is unfunded middle class entitlements that are driving our dire fiscal outlook and not our marginal tax rates.

Finally, I would remind LEEDAP that we didn’t have Medicare and Medicaid in the years immediately following WWII. Would s/he be willing to revoke those programs in exchange for the higher marginal rates? Somehow I doubt it…

By: Schweitzer Tue, 05 Jun 2012 17:25:46 +0000 Some may sneer, but there are still the “Bond Vigilantes.”
Attempts to bring out more debt, with longer terms, will change the markets instantaneously – and this despite the fact that the rate of return on invested capital (productive assets funding)is now around 1.6%, that rate having declined over 25% since 1965.

To expect funds to move into non-productive assets (government debt) at longer terms, without substantial increase in higher “yields” would seem to require some “suspension of rational e3xpectations.”

And, as noted by others, the emperical evidence of the forms of political disbursements of increased borrowings are more likely to follow the Mancur Olson Theory, which would not produce the results anticipated by Dr.Summers.

By: PseudoTurtle Tue, 05 Jun 2012 16:00:36 +0000 I totally agree with with foiegras’ comment, solely because I think it is the only practical way to rid ourselves of this wealthy-driven government — allow it to collapse under its own greed and stupidity.

ONLY THAT will break the present “feedback” loop.

By: JoeEagar Tue, 05 Jun 2012 15:08:09 +0000 Ah jlpeng, don’t banks love deflation, and the higher real interest rates it brings? They certainly did under the Gold Standard. Why do you think William Jennings Bryan was so popular during the post-civil-war deflation?

By: JoeEagar Tue, 05 Jun 2012 15:06:00 +0000 mulholland, I don’t know what you mean. The basic idea of both Keynesian and neo-classical counter-cyclical policy is to save during recoveries to ease the pain of recessions. That’s what “counter-cyclical” means. The only difference is who does the savings, and whether that savings is achieved through fiscal or monetary tightening.

So yes, recoveries are somewhat less, but that’s because the economy is saving for the next recession, and this happens in one form or another in all modern schools of economic thought.

As for your deflation theory, I would like to remind you that fixed exchange rates are dead and have never lasted more than 70 years; that gold was not used unchanged for thousands of years–sovereigns depreciated gold the same they do money–and thus there is no historical imperative to deflation.

Global deflationary pressure is caused by global demand distortions, specifically the artificially depressed levels of demand in Asian and some Middle Eastern economies, engineered by governments jealously guarding their current account surpluses.

By: jlpeng Tue, 05 Jun 2012 14:29:18 +0000 Can we really borrow more and spend more to get out of the approaching storm of another world-wide recession? In the past any adjustments to fiscal and monetary policies would solve a economic crisis, but only temporarily, and would inevitably lead to the next economic crisis. The world economy is now crying out loud “Deflation!” Why don’t we come up with policies to accommodate this natural trend. The policy makers’ desire to resist this trend is just a desire to protect banking interests and debtors, of which the U.S. is the biggest one.

By: Freethinkerguy Tue, 05 Jun 2012 06:34:11 +0000 I was just thinking of this same thing today, that govts should borrow and borrow and borrow and pay the ridiculously low rates so as to cover their liabilities of tomorrow. Imagine if the USofA borrowed $100 trillion at 1% interest. That would only be $1 trillion/year in payments to handle all the future social security, medicare, and medicaid payments we should have covered already. Better yet, why not just have the Fed print the cash to buy the bonds and then sort of forget about those silly ol’ pieces of paper. I wonder if those good people in Congress would be able to keep their hands off that money? I’ll be they could. 😉

By: GivaFromOz Mon, 04 Jun 2012 22:07:37 +0000 I wonder if Prof Summers has given any thought to why people are prepared to lend money at such low interest rates to governments such as those of the US, Germany and Japan? Could it be that they fear that serious deflation may happen world wide and that it is their best option for safeguarding their money? If they are proven to be right, then these low interest rates could turn out to be handsome investments (with significant real returns). (Conversely these cheap government borrowings would turn out to be very expensive indeed.)