There are some things that we can learn from economics, just as there are things we learn from astronomy. The vast majority of people in the United States believe that the earth goes around the sun because of what astronomers tell us. After all, we all see the opposite every day in the sky.

For this reason, when a major newspaper tells us that when it comes to economics it is all just so confusing (except for what they insist you believe), it is doing a serious disservice. While some aspects of economics are difficult, many of the fundamentals, such as why we have a prolonged economic slump and millions of people are unemployed, are not. (Lack of demand in the economy, if you have to ask.)

In this vein, the Post article, "It's an old numbers game. What if they're wrong?" seems almost like a deliberate effort to confuse readers into thinking there is nothing that can be done about the economy except to have the government reduce deficits.

The second paragraph tells people:

"How much debt can the nation manage? The United States was at about 102 percent in 2012, with the amount of debt held by the public closer to 75 percent. To some, that signals danger. Others say we could handle even more. In certain wonky circles, the debate over what ratio is sustainable is almost endless. And yet, serious people assess the president’s budget, indeed any budget, by how it decreases this ratio in years to come."

This is almost completely wrong. For example, many economists would not even look to the ratio of debt to GDP as being an important variable since debt can be quickly reduced by selling assets. If a high debt level is some horrible burden on the economy, then the United States could just sell several trillions of dollars of assets and immediately lower its burden. People who understand balance sheets know this.

Also, the price of debt fluctuates with interest rates. Debt issued at low interest rates can be repurchased at steep discounts when interest rates rise. This means that if debt-to-GDP ratios are what matters, we will have a great opportunity to quickly reduce this ratio when interest rates rise later in the decade as is widely predicted. This is a reason that serious people tend to focus on the interest burden, which is near a post-World War II low.

The IOM reported this week that over the last three months, some 27,000 people have left IDP camps, bringing the total amount remaining to around 320,000. The IOM credits the vast majority of this reduction, some 74 percent, on relocation programs – most often a one-year rental subsidy. The report’s “highlights” section says that “Evictions accounted for a 6% decrease in IDP household population.”  Yet the data in the report directly contradicts this. Of a reported reduction of 6,401 households, the IOM says 977 were forced to leave due to evictions, representing over 15 percent of the total reduction.

But even this is most likely an underestimate. Over previous months, there has been “a dramatic new wave of forced evictions,” according to the U.N.’s Office for the Coordination of Humanitarian Affairs (OCHA). One camp which has been under the threat of eviction, and from which some families have already been evicted, is Camp Gaston Margon. On March 22, Amnesty International released a statement, warning that:

Approximately 650 families living in Gaston Margon displacement camp in the Port-au-Prince municipality of Carrefour are currently under the threat of forced eviction. Already, on 15 February, 150 families were forcibly evicted from the camp by police officers and a group of men carrying machetes and knives who were accompanied by a local justice of the peace. The armed men began destroying the families’ shelters, while some people were still inside, and attacked individuals that attempted to stop them. The police also shot their firearms into the air to intimidate the families. One infant was reported to have suffered injuries when armed men and police damaged a shelter with the child still inside. The men reportedly threatened to burn down the entire camp and to kill the children of families who did not move.

During the previous IOM reporting period, Camp Margon had a population of 3,376. During the most recent reporting period, the population had decreased to 2,327. Given the reports of threats of eviction, and at least a partial eviction, it is clear that this reduction is not simply a case of “spontaneous return,” as the IOM report implicitly states.

The Carmen Reinhart and Ken Rogoff (R&R) paper purported to show that countries with debt-to-GDP ratios above 90 percent see sharply slower growth rates, and has been widely cited in policy discussions in the United States and Europe and used as a rationale for a near-term focus on deficit reduction. Politicians and policy analysts relied on the results of this paper to insist on spending cuts and tax increases even in economies that are operating at levels of output far below full employment. Based on R&R’s findings, they argued that it was important to keep debt levels from crossing the 90 percent threshold.

This debate is important because the threat to growth from high debt levels was one of the main arguments against the aggressive use of fiscal policy to boost growth. The work of HAP and UMass economist Arindrajit Dube has essentially undermined the basis for this argument. No one can still maintain that we have good evidence that debt levels of the size we could conceivably face in the near future would impair growth.

The new paper from HAP works off the original spreadsheet used by R&R and uncovers several important calculation errors.

• The most important of these errors was excluding four years of relevant data from New Zealand. Correcting this mistake raised New Zealand’s average growth rate in high debt years from the -7.9 percent R&R reported to a positive 2.6 percent.
• Because only 7 countries have crossed the 90 percent debt-to-GDP barrier highlighted by R&R, this change alone raises the growth rate among the high debt countries by 1.5 percentage points.

When this and other adjustments are made to R&R’s data, the sharp falloff in growth rates for countries with debt to GDP ratios above 90 percent disappears.

• While the corrected growth rate is still lower for high debt countries, the difference is much smaller and nowhere close to being statistically significant.
• Furthermore, the sharpest falloff in growth rates occurs at very low debt levels (less than 30 percent of GDP).
• If the corrected results from R&R could be taken as a basis for policy, then the implication would be that countries should strive to have extremely low debt to GDP ratios, certainly well below the levels that the United States and other wealthy countries have generally sustained.

For those of you who haven’t heard, The Huffington Post has agreed to partner with CEPR to host a new website called Director Watch.  Director Watch will bring to light the names of people serving on corporate boards who get large paychecks even as the companies they oversee are going down the tubes. 

It will rely on crowdsourcing, meaning that people will submit information on directors who failed to effectively restrict CEO pay and ensure that the companies they oversaw were on sound footing, but nonetheless got rich in the process.  The staff of Director Watch will verify the information and will post it on the Internet in a user-friendly and easily searchable format.

Because the site will be crowdsourced, we decided to use crowdfunding to raise the money needed to get Director Watch up and running (we need to hire staff to research the initial entries and to design the website).  We have only 16 days left to raise over $13,000.  Can you help?

We need to make our $17,000 goal in order to receive all of the funds donated so far.  It’s a huge sum for us, but a drop in the bucket compared to the $96,000,000 salary that Oracle CEO Lawrence J. Ellison earned in 2012.  That figure was twice as much as he earned in 2011…yes, he received a hefty raise even though Oracle’s stock dropped 22% in fiscal 2012.  And $17,000 is about the same amount as Erskine Bowles pulled in for an hour or two of labor as a director at Morgan Stanley (which also lost value under his and the other board members watchful eyes.)

Dean Baker
The Exchange (Yahoo! Finance), April 17, 2013

Dean Baker
Truthout, April 17, 2013

5:05 PM EDT: International Representation at Maduro's Inauguration

Nicolás Maduro has just been sworn in as president of Venezuela. Despite the refusal of the United States and Venezuelan opposition leader to accept the legitimacy of the election results, an overwhelming amount of the region's leadership showed up or was represented at Maduro's inauguration today.

Reports say that a total of 61 diplomatic delegations, headed by presidents, prime ministers and vice presidents, among others were present at the ceremony. At least 17 presidents are reported to have attended.

All 12 of the UNASUR nations sent delegations to the inauguration, 8 of them headed by their presidents. All 33 of the CELAC nations (Community of Latin American and Caribbean States) were also represented.

Delegations from Iran, including President Ahmadinejad, Europe, Asia, Africa and the Middle East were present.

The following presidents attended:

Dilma Rousseff (Brazil)
Juan Manuel Santos (Colombia)
Raúl Castro (Cuba)
José Mujica (Uruguay)
Cristina Kirchner (Argentina)
Evo Morales (Bolivia)
Ollanta Humala (Peru)
Daniel Ortega (Nicaragua)
Porfirio Lobo (Honduras)
Prime Minister Ralph Gonsalves (San Vicente and the Grenadines)
Prime Minister Keith Mitchell (Grenada)

Prime Ministers from Saint Lucia, Antigua, Barbados, Saint Kitts and Nevis also attended.

2:55 PM EDT: William Hague Recognizes New President

This message was issued by the Secretary of State for the United Kingdom:

On the occasion of the inauguration of Nicolas Maduro as President of the Bolivarian Republic of Venezuela, the UK Government looks forward to working with the Government and people of Venezuela to strengthen our relationship and deepen cooperation in areas of mutual interest.

Carmen Reinhart and Ken Rogoff (R&R) responded to the paper I noted earlier by Thomas Herndon, Michael Ash, and Robert Pollin (HAP), which showed that their famous result associating high debt levels with slow growth was driven by spreadsheet errors. The gist of the response is that HAP also find that high debt is associated with slower growth, and that other studies (including one of theirs) found the same result anyhow.

The first point is highly misleading. It is true that in most of their specifications HAP found growth was slower in periods with debt levels above 90 percent of GDP than below, but the gap was relatively small and nowhere close to statistically significant. Furthermore, they found a much bigger gap in growth rates around debt-to-GDP ratios of 30 percent. If we think that R&Rs methodology is telling us something important about the world then the take-away should be that we want to keep debt-to-GDP ratios below 30 percent.

If R&R had produced the correct table in their initial paper no one would have taken seriously their claim that the 90 percent debt-to-GDP ratio presents some sort of cliff. The corrected table in no way supports that view.

Opposition protests turned deadly yesterday, with at least seven people having been reported killed and over 61 others injured as opposition groups reportedly burned the homes of PSUV leaders, community hospitals, and mercales (subsidized grocery stores), attacked Cuban doctors, attacked state and community media stations, and threatened CNE president Tibisay Lucena and other officials. Violence is likely to continue today, as both Capriles and Maduro have called for their supporters to demonstrate in the streets. Maduro and other senior government officials have condemned the acts and have warned that the opposition is attempting a coup d’etat. PSUV legislators have suggested they may pursue legal action against Capriles for promoting instability.

The campaign of violent protest, in conjunction with opposition candidate Henrique Capriles’ refusal to recognize the election results, represents the first major extra-legal destabilization attempt by Venezuela’s opposition since the failed coup in 2002 and oil strike in 2003. It is also significant in that the U.S. is backing Capriles’ position, thereby helping to provoke conflict in Venezuela – even though most Latin American nations and many other governments around the world have congratulated Maduro on his victory and called for the results to be respected.

The opposition strategy is predictably divisive, however. Factions within Venezuela’s opposition have long opposed extra-legal and especially violent methods of attempting to force change. Some in the opposition have also hinted that Capriles’ cries of “fraud” are not credible. Opposition-aligned CNE rector Vicente Diaz has said that while he supports a full audit of the votes, he has no doubt in that the results given by the CNE are correct. Diaz made comments to this effect on opposition station Globovision yesterday; the TV hosts then quickly concluded the interview.

That's the question millions will be asking when they see the new paper by my friends at the University of Massachusetts, Thomas Herndon, Michael Ash, and Robert Pollin. Herndon, Ash, and Pollin (HAP) corrected the spreadsheets of Carmen Reinhart and Ken Rogoff. They show the correct numbers tell a very different story about the relationship between debt and GDP growth than the one that Reinhart and Rogoff have been hawking.

Just to remind folks, Reinhart and Rogoff (R&R) are the authors of the widely acclaimed book on the history of financial crises, This Time is Different. They have also done several papers derived from this research, the main conclusion of which is that high ratios of debt to GDP lead to a long periods of slow growth. Their story line is that 90 percent is a cutoff line, with countries with debt-to-GDP ratios above this level seeing markedly slower growth than countries that have debt-to-GDP ratios below this level. The moral is to make sure the debt-to-GDP ratio does not get above 90 percent.

There are all sorts of good reasons for questioning this logic. First, there is good reason for believing causation goes the other way. Countries are likely to have high debt-to-GDP ratios because they are having serious economic problems.

Second, as Josh Bivens and John Irons have pointed out, the story of the bad growth in high debt years in the United States is driven by the demobilization after World War II. In other words, these were not bad economic times, the years of high debt in the United States had slow growth because millions of women opted to leave the paid labor force.

Third, the whole notion of public debt turns out to be ill-defined. Countries can sell off assets to pay down debts, would this avoid the R&R high debt twilight zone of slow growth? In fact, even the value of debt itself is not constant.Long-term debt issued in times of low interest rates will fall in value when interest rates rise. If there is a high debt twilight zone effect as R&R claim, then we can just buy back bonds at steep discounts and send our debt-to-GDP ratio plummeting. 

But HAP tells us that we need not concern ourselves with any arguments this complicated. The basic R&R story was simply the result of them getting their own numbers wrong.

On June 15, 2012 a violent eviction of campesinos from occupied land in the Curuguaty region of Paraguay left 17 people dead, including 6 police officers. A week later, President Fernando Lugo was impeached without due process by an opposition controlled legislature, in what most of the rest of the region would regard as a coup. The reason given was Lugo’s poor handling of the situation in Curuguaty.

Next Sunday Paraguay will hold presidential elections, the first since the removal of Lugo. The election pits the Colorado party, which ruled Paraguay for 61 years until the 2008 election of Lugo, versus the Liberal party of current President (and Lugo’s Vice President) Federico Franco. Yet, 6 months after the clash in Curuguaty, and on the eve of presidential elections the Paraguayan government has done little to investigate what happened on June 15. As Natalia Viana of Publica, a nonprofit investigative journalism center in Brazil writes in this week’s edition of The Nation, “As Paraguay prepares to elect a new president on April 21, a growing number of citizens believe that answering the question of what happened in Curuguaty is the key to the truth behind Lugo's impeachment.” What’s more, Viana notes, is that “it is increasingly clear that his ouster was facilitated by entities in Paraguay who not only wanted him gone from the moment he was elected, but who enjoyed financial support from the United States.”

For some time about 70 landless people had been occupying 2,000 hectares of land. Viana notes that the “supposed owner of the land, Blas Riquelme, was a known land grabber and former president of Paraguay's conservative opposition party, the Partido Colorado (Colorado Party). But it was Riquelme who was occupying the land unlawfully; its rightful owner was the Instituto Nacional de Desarollo Rural y Tierra—the Paraguayan Land Institute—which tried to fight the eviction, only to be ignored by the local courts.” Paraguay has long been dominated by large landholders and is the fourth largest exporter of soy in the world; according to Viana two percent of the population controls over 75 percent of the land. Eventually, 14 of the landless Paraguayans were arrested. Then in December, Vidal Vega, who was a key witness in the investigation into the violent eviction, was assassinated. 

Dean Baker
Al Jazeera English, April 15, 2013

Mark WeisbrotThe Guardian Unlimited, April 15, 2013