| Thoughts on the National Debt |
[Apr. 30th, 2013|04:08 pm]
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So, how bad is the national debt, exactly? Well, it depends what your concern is. To me, the true concern is that the debt is something that won't go away without a lot of tax revenue - and interest rates on it are really low right now.
What that means: right now, the debt isn't a problem because the interest rates are so low - so it doesn't cost us much - but it will be a much bigger problem when interest rates rise and the interest costs go through the roof.
So, when trying to figure out the potential problem caused by the debt, we should only focus on that debt where we actually have to pay interest.
The gross debt is $16 trillion. But, that's the wrong number to look at. of the $16 trillion about $4.8 trillion is owed to the government itself (say, in the Social Security Trust Fund). So, on this, interest is paid by government to government. It's basically the equivalent of my left pocket borrowing money from my right pocket. It doesn't really matter.
So, that leaves $11.2 trillion to worry about, right? Well, no. Of that, $1.6 trillion is held by the Federal Reserve. While the Federal Reserve isn't "the government" per se, it does hand its profits (including most of the interest earned on its holding of government debt) back to the Treasury. So, we can ignore that, too.
So, we only really have $9.6 trillion of debt we need to worry about. Despite being less than $10 trillion, this is still a considerable number. It's over twice what it was in 2007 - and 10x what it was when I was born in 1983. As a proportion of GDP, it's twice what it was in 2007, and at its highest level since 1951.
The most worrisome thing: In 2013, we're expecting a deficit of about $1.2 trillion. That is, we're going to have to borrow another $1.2 trillion over the course of 2013.
But, if interest rates went up just 1%, that would be another $100 billion of interest owed, adding to that deficit. If interest rates went up to their average over the past 35 years, it would be $500 billion of interest owed - roughly 3% of GDP.
In other words - we have a deficit problem, but the debt isn't a big problem right now. But, when interest rates return to normal, the interest on the debt will create serious problems. These problems will multiply unless we get taxes and spending into line with each other - as long as we spend more than we take in in taxes, the debt (and danger from interest payments) will continue to rise.
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| David Jacks on Commodity Prices |
[Apr. 30th, 2013|10:42 am]
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I've not read the paper yet, but this abstract looks interesting.
In effect, David Jacks is making a few claims:
(1) Real commodity prices (that is commodity prices adjusted for inflation) have increased since about 1950. That means, in the past 63 years, commodity prices have been rising faster than the prices of consumer goods.
(2) Real commodity prices undergo regular medium-term cycles - and we appear to be near a peak at the moment. This suggests that either (A) commodity prices will be falling soon or (B) prices of consumer goods will start rising soon. (Fun fact: "long-term", "short-term", and "medium-term" are all fuzzy terms in economics, and depend very much on how you're talking to. Growth theorists consider 400 years to be "long-term", while many business cycle theorists would consider typically 5 years to be "long-term". Jacks's terminology suggests he's more of a growth theorist - as his "medium-term" cycles are decades long.)
(3) Inside these medium-term cycles are booms and busts in commodity prices - and these booms and busts have been exacerbated over time. This is an important point. If, in fact, prices are meaningfully "sticky", then these booms and busts in commodity prices make no sense. Also, if, in fact, we're trying to use monetary policy the world over to stabilize prices, we're doing a terrible job - worse than 160 years ago before we were trying to stabilize prices - at least if we measure by commodity prices.
Now, I may not be being entirely fair - normally monetary policy is trying to stabilize consumer prices rather than commodity prices. And claims about price "stickiness" also tend to be at the consumer or labor level rather than the commodity level. In any case, Jacks's research should raise a few interesting questions:
(1) Why are commodity price booms and busts getting exacerbated over time, despite increased regulation over the past 160 years (which, one would think, would stabilize business practices)?
(2) Why aren't more stable consumer prices leading to more stable commodity prices, given the standard relationships we expect between goods prices and the prices of their factors of production? (Alternatively, maybe consumer prices aren't more stable than 160 years ago?)
(3) Why are commodity prices rising faster than consumer goods prices?
All interesting questions worth considering... If only I didn't have my own research to work on... |
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| How giving up "Grade As You Go" has improved my life... |
[Apr. 3rd, 2013|03:19 pm]
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One of the worst parts of teaching is grading papers. In the interest of fairness, teachers have to standardize assignments to some degree - which means that papers all sound more or less the same. Very little that is interesting or creative is allowed to sneak in. This makes grading dull. However, this part is unavoidable.
Another thing that makes grading terrible is that grading a paper typically involves deciding how bad it is. This is not a fun process. If the decision is easy, then the paper must be terrible - and no fun to read. If the decision is hard, reading the paper wasn't that bad, but grading it is tricky.
For a long time, I used what I now call the "Grade As You Go" model for grading papers. I assigned papers and told students that I wanted certain elements in them. So, when I hit each element, I'd grade it.
Then, I gave that up. I decided that rather than grade as I go, I'd just make mental (or physical, in the case of grammar errors) notes about things I notice, not actually grading the paper until I had read the whole thing. This makes the process far less painful, as I get to almost simultaneously think about the good and the bad for each paper - rather than just focusing on the bad for long periods of time in which I'm grading it and commenting on it. Grading this way is far better for me. It goes faster, and is less painful. Where grading a single 2-4 page paper used to take me 10 minutes (easy), I can now often do it in 5.
So, when I avoid grading by writing blog posts, it doesn't take me long to get back on track. ;-) |
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| State of the Union Thoughts |
[Feb. 16th, 2013|12:02 pm]
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My wife and I decided that watching the second half of this week's Downton Abbey was a better use of our time than watching the State of the Union. I do not regret that decision. Especially since, in this wonderous age of technology, I can watch a video of the State of the Union any time I want, AND, if I prefer (and I do), I can just read a transcript later. So, that's what I'm doing.
This time, no point-by-point. I'll just highlight some of the interesting issues - well, at least the issues that I think are interesting.
( Various interesting points...Collapse )
Naturally, there were other issues in there that I've not dealt with. But, these are a few highlights. In brief, I find it very disappointing how wrong Pres Obama gets pretty basic economics. But, at the same time, I accept Mises's insight that politicians are bound by public opinion - and I have little doubt that Pres Obama's errors reflect widespread errors among the public. And that's where I think we need to focus our efforts. If we can get the public thinking clearly about these issues, the politicians will eventually have to follow suit.
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| Thoughts on the GDP Report |
[Jan. 30th, 2013|11:21 am]
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So, it's out.
We found out that "the US economy" (as measured by Gross Domestic Product) shrank by about 0.1% at an annualized rate in the last 3 months of 2012. In other words, the economy shrank by about 1/4 of that in the last quarter of last year.
( Which isn't as bad as it looks, though there are bigger problems ahead.Collapse )
Which is why I'm not particularly optimistic about the medium term, even if things right now aren't that bad. Things are reasonably stable (if stably mediocre), but there are still adjustments that will have to take place at some point, and when they do, it won't be fun.
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| Inaugural Address Analysis |
[Jan. 22nd, 2013|03:36 pm]
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Yesterday, Pres Obama was inaugurated for his second term. As is traditional, he gave an inaugural address. As I occasionally like to, here are some of my thoughts on that address.
( Some thoughtsCollapse )
I'm just sampling the address, and not going word-by-word. There were some reasonably good points in there - but, at least to me, they were overshadowed by an ignorance of some basic truths:
(1) Despite how Pres Obama sounds, we can work together without the government.
(2) Despite how Pres Obama sounds, productivity is more important for our well-being than hard work is.
(3) Despite how Pres Obama sounds, "the American purpose" has been the protection of rights, not ensuring a reward for effort.
(4) Pres Obama is right when he talks about us living in a world without boundaries, which means he is wrong when he emphasizes that we see ourselves as Americans as "one people" and "one nation" (as separate from others). This also means that his various redistributionist policies are problematic - as he's actually just taxing the rich to help the somewhat less rich, leaving the truly poor (who mostly live outside the US) to themselves.
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| Thoughts on Justice Scalia's "gay issue" comments... |
[Dec. 11th, 2012|12:49 pm]
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So, Justice Scalia has made some comments that have equated bans on sodomy with bans on murder or bestiality, and he was questioned about this at Princeton.
The disturbing thing to me is that no one seems to be upset about his comments for the right reason. Instead,I see reactions like these...
The Left: "He said really terrible things about gays! Boo!"
The Right: "He said really terrible things about gays! Yay!"
Both are completely missing the point - and the point is something that should be disturbing to anyone who believes that government should protect individual rights.
Here's the point he's really trying to make: "Scalia [added] that legislative bodies can ban what they believe to be immoral."
The reason he made the comparison between bans on sodomy, bestiality, and murder is that he thinks all of these bans have the same basis: the legislature believes (or believed) these acts to be immoral. And he expressly accepts that this is an appropriate criterion for lawmaking.
This should be disturbing to everyone because each of us has the possibility of ending up in the minority on some issue. And, by Scalia's standard, it is perfectly appropriate for the majority to legislate what the minority can or can't do, only restricted by the majority's beliefs about morality. (Note: he's not just saying that, practically, this is the way it works - as far as I can tell, he is arguing this is the way it should work.)
Interestingly, this means that, in context, Scalia is perfectly willing to say that gay marriage should be legal, as long as lawmakers believe banning it is immoral. Gosh, by his reasoning, if a legislature believed that having children was immoral, it could sterilize everyone. If the legislature feels elections are immoral, it can suspend them.
Why is this disturbing to me? If the last two examples don't make it obvious, it's because our system is one of checks-and-balances. That's how the system was designed, and it was designed that way to keep government's power limited within certain bounds - thereby allowing for the protection of individual rights. Scalia is blatantly denying this. He has declared the Constitution "dead", and replaced it with a tyranny of a legislature that can declare anything legal or illegal based purely on its feelings about what is moral or not.
That means that the right legislature could pass a "Kill the top 1% and redistribute their stuff" law, if they believed that was moral. it means that the right legislature could declare that the homeless are a scourge and should be slaughtered. And, according to Scalia, no one should stand in their way.
I think one of the big steps that many people need to make is the realizing that "I think that's immoral" doesn't necessarily imply "I think that should be illegal". I think we all recognize that there is a set of activities that are immoral but that should still be legal. Ask yourself: is there anything that you think is immoral that should still be legal? If so, then you shouldn't say "But, that's immoral - there should be a law banning it." There must be some other (or maybe additional) basis for law. I'd suggest that "protecting individual rights" is the basis, but defending that is something I'll have to leave for another time. |
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| A Brief Note on Epistemology and Economics |
[Nov. 20th, 2012|12:22 am]
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So, tonight I was a guest at a local book club. The book club was reading Hans-Hermann Hoppe's "Economic Science and the Austrian Method" - a short book about epistemology and economics. It was a fun discussion, and I'm glad that I was invited to join them. And, it also gave me something to blog about. So, I'm going to give a brief argument derived from Hoppe (and ultimately Mises), just laying out the epistemology of the Austrian method.
( EpistemologyCollapse )
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