tag:blogger.com,1999:blog-2499715909956774229.post654039310539238325..comments2024-03-09T02:22:57.289-08:00Comments on Stephen Williamson: New Monetarist Economics: More on Prescott at the SEDStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-2499715909956774229.post-82617751711573366952012-04-27T02:54:24.288-07:002012-04-27T02:54:24.288-07:00I would recommend my friends to read this. I am qu...I would recommend my friends to read this. 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Lovely job done out. Thanks for sharing.buy cheap kamagrahttp://www.astermeds.com/noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-34161994057938674992010-07-13T08:26:55.656-07:002010-07-13T08:26:55.656-07:00One has to pay off one's debts if there is an ...One has to pay off one's debts if there is an end-point to those debts. All one has to do otherwise--assuming one is an "ongoing concern"--is to pay the market interest rate on those debentures.<br /><br />So the three reasons for actually paying off debt are: (1) the interest cost is going to become too high compared to revenues, (2) activities are winding down/cannot be refinanced [this may be a special case of {1}], or (3) one can [a]refinance at a lower rate and/or [b] produce a greater return from paying off debt than investing.<br /><br />The third is generally the reason corporate debt gets paid off, but (3b) is theoretically impossible for the government in an economic model such as you are presupposing (has and is willing to exercise the power to tax).<br /><br />We should be able to presume that (2) is also not going to happen in a developed economy (though looking at UK data from ca. 1890-1948 produces the special case of no longer being the World's Reserve Currency, with attendant arbitrage possibilities).<br /><br />That leaves (1) or (3a). The latter is happening as a matter of course and has been since at least the GWB Treasuries decision to shift a lot of funding to short-term.<br /><br />So unless we believe the market is understating future inflation expectations or overstating economic growth expectations (i.e., r<[{pi} + i^e]) at some point on the curve, the only reason to reduce debt currently is because there are excess revenues.<br /><br />Unless the market believes (as it may have from late 2001 until late 2003/early 2004) that the concentration in short-term debt is suboptimal at best and irrational at worst, the argument of uncertainty in long-term projects depends on "long"-term interest rates (5 to 10 year range) and/or the attendant corporate borrowing spreads being too high.<br /><br />We know part of the answer for small businesses--the market portion (corporate borrowing spread) is too high, especially in the face of d/e/p/r/e/s/s/e/d/ reduced AD.<br /><br />But small businesses don't drive overall economic growth until and unless they start to become large businesses. And a marginally-profitable small business is never going to become a large business.<br /><br />So the question comes back to growth in the mid- and large-cap businesses, which are rather more able to manage shifts in taxes--especially if they are also worrying about government default affecting their business.Ken Houghtonhttps://www.blogger.com/profile/01440837287933536370noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-67985396047841881582010-07-12T04:54:28.132-07:002010-07-12T04:54:28.132-07:00You can divide the economy into any number of arbi...You can divide the economy into any number of arbitrary sectors--call one, say, "govt sector" and the other "pvte sector". If the flow of spending from one is greater than the flow of spending in the other, we have a deficit. Seemingly rational people become strange when discussing deficits; however, keep calm because this is just the (change in the) amount of money we owe to ourselves, the consequence of the arbitrary divisions we've imposed on the economy.vmnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-59310220467660322572010-07-10T08:10:58.850-07:002010-07-10T08:10:58.850-07:00Adding to what malcolm said, where is the evidence...Adding to what malcolm said, where is the evidence for the assertion that worries about future tax hikes lower labor supply today?<br />Without evidence to back it up, the assertion is just like pulling a rabbit out of a hat: 'It is anticipated future labor income taxes'. If that requires ridiculously large elasticities, try 'It is anticipated future capital taxes'. If that also doesn't work out, try 'It is anticipated future (insert at will) taxes'. Can anyone who subscribes to this line of argument supply any real world evidence for their views?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-3964817795715169672010-07-09T20:30:10.512-07:002010-07-09T20:30:10.512-07:00Alan Blinder had a novel idea once: instead of the...Alan Blinder had a novel idea once: instead of theorizing about price stickiness why not ask<br />firms why they don't change their prices? Bob Hall can theorize that firms are frozen by fear of government actions. When you ask CFO's, as Duke University did, or small business owners as Paul Krugman wrote about today, you discover that weak consumer demand is what business fears most and is what is slowing investment. This is just the old accelerator model of investment rearing it's ugly head.malcolmnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-12593634344308287042010-07-09T16:38:15.334-07:002010-07-09T16:38:15.334-07:00First anonymous:
Yes, I agree. In principle, risk...First anonymous:<br /><br />Yes, I agree. In principle, risk associated with future taxation could matter for the recovery. As always, we have to sort out how quantitatively important this is.<br /><br />Second anonymous:<br /><br />Maybe I was too cryptic. All I wanted to say was that, if the government is not going to default, the government is always faced with having to ultimately pay off its debt, if only in the very distant future. How does it do that? (i) It needs to raise future taxes; (ii) It can default implicitly by engineering a surprise inflation and reducing the real value of the debt. Debt-holders don't like to be surprised, though - strategy (ii) implies a loss of credibility. As I think you're implying, it could be advantageous for a government (or a country) to borrow in the present, just as it is for an individual, but of course this is never a free lunch - one has to pay off one's debts.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-47400311047077076652010-07-09T13:50:14.399-07:002010-07-09T13:50:14.399-07:00"Debt is debt and has to be paid off"
I..."Debt is debt and has to be paid off"<br /><br />I know this seems like a real basic question but why does it have to be paid off? If the resources were truly idle (don't want to argue about trade-offs or crowding out) and the government borrowed money and it resulted in increased output how could that be bad? <br /><br />Taxes equal debt in terms of today's impact. Long-term it certainly would have distributional issues but I am utterly baffled when people say it has to be paid back.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-57965097358220247362010-07-09T11:41:43.641-07:002010-07-09T11:41:43.641-07:00One comment: the type of tax rate increase matters...One comment: the type of tax rate increase matters. Expectations of higher future dividend tax rates, for example, can generate large declines in investment, hours worked, and output.<br />(reference: http://www.minneapolisfed.org/research/wp/wp670.pdf)<br /><br />These may, in fact, be the tax rates that Ed has in mind.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-7710073331614661902010-07-09T11:25:09.856-07:002010-07-09T11:25:09.856-07:00Partial rebut to my own last comment...I was looki...Partial rebut to my own last comment...I was looking at the wrong investment series. Real private nonres investment actually increased very slightly the last 2 quarters, but it's been essentially flat for the last year and the YoY % change is still negative. Investment overall still appears to be recovering quite sluggishly.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-9923497917687677562010-07-09T11:12:23.651-07:002010-07-09T11:12:23.651-07:00You said: "Whether it's anticipated labor...You said: "Whether it's anticipated labor income taxes or capital income taxes, it seems very difficult to make the case that this could be driving this large recession."<br /><br />I agree, and I do not support the claim that expected future higher taxes caused the current recession, but I think it's plausible that expected future higher taxes are hindering the recovery on the investment side. If you look at the GDP components we've been talking about, real personal consumption expenditure (even in durables) have started to grow again, but real private nonresidential investment continues to decline. We know that companies are hoarding a lot of cash right now, and uncertainty about future taxes is likely contributing to this.<br /><br />Here's someone a lot smarter than me who makes this argument and adds other salient points as well:<br />http://www.economist.com/economics/by-invitation/guest-contributions/its_all_about_different_kinds_riskAnonymousnoreply@blogger.com