●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.
On April 9, 2013, a group called “Chicago Booth” asked professors from MIT, Harvard, Yale, Berkeley, Chicago and Princeton to rate the following statement::
Countries that let their debt loads get high, risk losing control of their own fiscal sustainability, through an adverse feedback loop in which doubts by lenders lead to higher government bond rates, which in turn make debt problems more severe.
The question is so poorly written it cannot be answered. Sadly, these professors, each from a distinguished school, didn’t object. They all answered.
Some of the problems are:
1. It is a three-phrase question, and each phrase changes the possible answer.
2. No definition is given for “their debt loads” (The whole nation’s or just the central government’s?)
3. No definition is given for “high,” nor for “higher bond rates.” (Higher than what?)
4. “fiscal sustainability” is not clear (Ability to pay bills? Ability to prevent inflation? Ability to grow economically? Ability to prevent recession, depression, stagflation, poverty?)
5. “doubts by lenders” (Doubts of what? Repayment? Inflation?)
6. “debt problems” (Specifically, what are the debt “problems” that becomes “more severe”?)
7. In total, the question assumed the answer (“Agree”) and the professors dutifully went along, without thought or concern, like little automatons.
The question might have been written by a high school freshman. But, as nonsensical as the question was, the answers were even worse.
Every one of these professors agreed with the statement! Yikes!
The closest anyone came to even approaching reality, was David Autor and possibly David Cutler, both of whom might understand the difference between Monetary Sovereignty and monetary non-sovereignty. But even they agreed with the statement.
The others’ answers were completely clueless. Aaron Edlin was so sure of his wrong answer, he added the supercilious comment, “Does gravity make bricks fall when dropped?” One is left to wonder when he last learned anything new.
And these people, from “top” schools, are teaching our children. What a disgrace for the U.S. educational system, when even our “best” schools turn out such wrongheadedness.
To my knowledge, there is one school (thankfully) in America, that teaches real economics: The University of Missouri, Kansas City.
The rest seem to teach a flat-earth philosophy, and if the following group is typical, our economics students, and indeed our nation, will suffer for many years.
Here are the professors and their responses. The number indicates 1-10 the strength of their agreement. In a few cases, they added a comment:
Daron Acemoglu MIT Strongly Agree 7
Alberto Alesina Harvard Strongly Agree 10
Joseph Altonji Yale Agree 7
Alan Auerbach Berkeley Agree 7
David Autor MIT Agree 6
This is generically true, but we don’t the threshold where it matters. And not clearly true for countries that borrow in their own currency.
Katherine Baicker Harvard Agree 3
Marianne Bertrand Chicago Strongly Agree 3
Raj Chetty Harvard Agree 4
Judith Chevalier Yale Strongly Agree 8
“Risk” is the operative word here; it is hard to forecast ex ante at what point the negative feedback loop will become problematic.
Janet Currie Princeton Agree 4
David Cutler Harvard Agree 3
Lots of particulars matter, including who it is owed to and whether the country has its own currency.
Angus Deaton Princeton Strongly Agree 7
Darrell Duffie Stanford Strongly Agree 10
In perfect transparent markets, the market clears at an appropriate yield in one step. In actuality, price discovery involves feedback.
Aaron Edlin Berkeley Strongly Agree 10
Does gravity make bricks fall when dropped?
Barry Eichengreen Berkeley Uncertain 7
Much depends on other factors like growth of the denominator of the debt/GDP ratio, which will vary with policies & circumstances.
Ray Fair Yale Strongly Agree 5
Pinelopi Goldberg Yale Agree 6
Michael Greenstone MIT Agree 7
Tough question is definition of “high”. See Rogoff/Reinhardt for best evidence. Does “high” differ for country w global currency, like US?
Robert Hall Stanford Strongly Agree 8
Simple math…interesting that it has not happened to Japan, however.
Bengt Holmström MIT Agree 8
Caroline Hoxby Stanford Agree 9
Kenneth Judd Stanford Agree 4
The debt load may be a factor in reputation but the US has experienced great increases in debt in the past without suffering these problems.
Anil Kashyap Chicago Strongly Agree 9
The only question is when the tipping point kicks in. Japan will face trouble after Europe is sorted out, as might the UK and maybe then US
Pete Klenow Stanford Strongly Agree 7
Jonathan Levin Stanford Agree 6
Yes, but clearly conditions vary – right now US can borrow easily with high debt, but some euro countries cannot.
Eric Maskin Harvard Agree 8
William Nordhaus Yale Agree 7
Maurice Obstfeld Berkeley Strongly Agree 10
Government vulnerability will depend on the maturity of its debt (more short term debt means more exposure) and the size of its deficit.
Emmanuel Saez Berkeley Uncertain 5
José Scheinkman Princeton Did Not Answer
Richard Schmalensee MIT Agree 3
Hyun Song Shin Princeton Agree 7
Nancy Stokey Chicago Strongly Agree 10
With debt/GDP around unity, a substantial risk premium can be the difference between the debt load being “sustainable” and “unsustainable.”
Richard Thaler Chicago Agree 3
Yes I suppose so, but what of it?
Christopher Udry Yale Agree 3
Luigi Zingales Chicago Strongly Agree 6
Throughout America, there are continuing efforts to test our students to determine what they are learning. Clearly there needs to be similar testing of teachers, to determine what they are teaching.
If this were our best and our brightest, America would be doomed.
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports