Leading Economist: Danger posed by deficit "is zero"

This Galbraith is the son of  John Kenneth Galbraith.  He teaches at the LBJ School of Public Affairs at The University of Texas.  The "CBO" is the Congressional Budget Office that prepares the projections that are generally used in these debates.  IMO, generally speaking, it is a bad idea to rely solely on accounting conventions when creating policy.  When times are good, there's a tendency to extrapolate to wild optimism; when times are bad, ditto to apocalyptic catastrophe...

 

Interview below is quoted in Daily Kos:

 

 

And of course every time Galbraith says this, wingnut heads explode. Ezra Klein interviews economist Jamie Galbraith:

EK: You think the danger posed by the long-term deficit is overstated by most economists and economic commentators.

 

JG: No, I think the danger is zero. It's not overstated. It's completely misstated.

 

EK: Why?

 

JG: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn't be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.

So there are two possibilities here. One is the theory is wrong. The other is that the market isn't rational. And if the market isn't rational, there's no point in designing policy to accommodate the markets because you can't accommodate an irrational entity.

 

EK: Then why are the bulk of your colleagues so worried about this?

 

JG: Let's push a bit deeper on the CBO forecasts. They publish a baseline set of projections. One of those projections holds the economy will return to a normal high-employment level with low inflation over the next 10 years. If true, that would be wonderful news. Go down a few lines and they also have the short-term interest rate going up to 5 percent. It's that short-term interest rate combined with that low inflation rate that allows them to generate, quite mechanically, these enormous future deficit forecasts. And those forecasts are driven partially by the assumption that health-care costs will rise forever at a faster rate than everything else and by interest payments on the debt will hit 20 or 25 percent of GDP.

At this point, the whole thing is completely incoherent. You cannot write checks to 20 percent to anybody without that money entering the economy and increasing employment and inflation. And if it does that, then debt-to-GDP has to be lower, because inflation figures into how much debt we have. These numbers need to come together in a coherent story, and the CBO's forecast does not give us a coherent story. So everything that is said that is based on the CBO's baseline is, strictly speaking, nonsense.

 

EK: But couldn't there be a space between the CBO being totally correct and the debt not being a problem? It seems certain, for instance, that health-care costs will continue to rise faster than other sectors of the economy.

 

JG: No, it's not reasonable. Share of health-care cost would rise as part of total GDP and the inflation would rise to be nearer to what the rate of health-care inflation is. And if health care does get that expensive, and we're paying 30 percent of GDP while everyone else is paying 12 percent, we could buy Paris and all the doctors and just move our elderly there.

 

EK: But putting inflation aside, the gap between spending and revenues won't have other ill effects?

 

JG: Is there any terrible consequence because we haven't prefunded the defense budget? No. There's only one budget and one borrowing authority and all that matters is what that authority pays. Say I'm the federal government and I wish to pay you, Ezra Klein, a billion dollars to build an aircraft carrier. I put money in your bank account for that. Did the Federal Reserve look into that? Did the IRS sign off on it? Government does not need money to spend just as a bowling alley does not run out of points.

What people worry about is that the federal government won't be able to buy bonds. But there can never be a problem for the federal government selling bonds. It goes the other way. The government's spending creates the bank's demand for bonds, because they want a higher return on the money that the government is putting into the economy. My father said this process is so simple that the mind recoils from it.

 

EK: What are the policy implications of this view?

 

JG: It says that we should be focusing on real problems and not fake ones. We have serious problems. Unemployment is at 10 percent. if we got busy and worked out things for the unemployed to do, we'd be much better off. And we can certainly afford it. We have an impending energy crisis and a climate crisis. We could spend a generation fixing those problems in a way that would rebuild our country, too. On the tax side, what you want to do is reverse the burden on working people. Since the beginning of the crisis, I've supported a payroll tax holiday so everyone gets an increase in their after-tax earnings so they can pay down their mortgages, which would be a good thing. You also want to encourage rich people to recycle their money, which is why I support the estate tax, which has accounted for an enormous number of our great universities and nonprofits and philanthropic organizations. That's one difference between us and Europe.

 

http://gg9-tto.blogspot.com/

Charter schools.

(In all fairness, it should be  noted that some charter schools are actually part of public school districts--but even those, IMO, are stalking horses for the right wing project to vitiate and ultimately destroy public education.  I'm not referring to the well-intentioned parents who participate, of course, but to the political forces behind the charter school movement.  That some charter schools are public doesn't detract from the main thrust of the writer's critique.  In fact, my own views are quite a bit more shrill...)

 

From a diary on the Daily Kos website:

 

Expansion of Charter Schools Puts Public Education in Danger

by hwoodfield

Share this on Twitter - Expansion of Charter Schools Puts Public Education in Danger

Wed May 12, 2010 at 12:21:04 PM PDT

While charter schools are good on some levels, they also cause a lot of damage to our public education system.  If we do not focus our education reform efforts on our current public schools, we will only increase the inequities in the system.

• hwoodfield's diary :: ::

While charter schools are good on some levels, they also cause a lot of damage to our public education system.  

 

It is difficult to determine if the academic performance level at a charter school is due to the teaching, curriculum, and/or administration because the student body of charter schools is selective. Charter schools recruit students whose parents are committed to and involved in their child's education simply by having an application process. Moreover, students who have behavior issues are sent back to the public school. Requiring charter schools to take Special Education students, low-income students, etc., does not change the fact that charter schools enroll the students among those groups who are most likely to succeed academically. Children who end up in charter schools are those whose parents make a concerted effort to apply and an interested parent is a huge indicator of academic achievement regardless of socioeconomic status.

 

In comparing public schools to charter schools or private schools, it is important to acknowledge that Special Education is a huge and mandated part of the budget for public schools. Taking Special Education out of the equation vastly changes the cost per pupil and test results. Evaluating a school without isolating Special Education is simply bad analysis.

 

Charter schools can hire teachers who are not only non-union, but are also not certified teachers. While it is true that some people are innately gifted teachers, knowledge of a subject area does not make someone an educator. Teaching is a science unto itself and its own discipline of study for a reason. Charter schools are often run by business people rather than educators. A school isn't a business. A school should be run by experts who have post-graduate degrees in the field of education administration.

 

Charter schools are experiments in education reform and provide a lab to test new ideas in educational management, but charter schools are not a panacea for our public school system. We need to improve our current public schools, not just cull out the students who have the capacity to work hard in the context of the charter school as well as the support of their parents. Every neighborhood and community should have a good public school without an admission process. We should incentivize seasoned teachers to teach in our most difficult schools through higher pay and extra benefits. Segregating the kids with the skills and the family support needed to perform is not the answer.

 

A million dollars that might be put into a charter school could be put to better use. Public and private funds should be allocated to commission task forces of trained and experienced educational leaders to create short and long-term plans to reform and improve our current public schools. Such a task forces would use the findings of valid current research in educational reform and conduct additional studies tailored to regions and communities.

 

Charter schools are not the panacea to improve public schools. In fact, they may push more students, those who do not gain entrance to the school, towards failure. Charter schools should not be the focus of educational reform. They should be one very small piece of the puzzle. The current intense push to create more charter schools is yet another example of lack of foresight and unwillingness to really tackle difficult policy issues. If we do not focus our education reform efforts on our current public schools, we will only increase the inequities in the system. All students deserve great schools. Increasing the volume of charter schools simply creates a new class of privilege in education.

 

 

http://gg9-tto.blogspot.com/

Worst Case Scenario for 2012

Obama, for whatever reason, is struggling in the polls.  The Republicans come to their senses just enough to nominate somebody who is not a political analog to one of  the characters in the bar scene in Star Wars.  That somebody turns out to be...Mitt Romney. 

 

One of my favorite bloggers & pundits, Josh Marshall, regards Romney as an absolute joke in terms of the purity of his mendaciousness and complete lack of principle.  I think that's a danger.  Given the low expectations the American people have of politicians, it may be all to easy for the electorate to laugh off Romney's hollowness as indeed being merely a kind of joke--but if he were elected, he might be the perfect tool for the Palinite wing of the Republican Party. 

 

R.

 

 

http://gg9-tto.blogspot.com/