Since the NYT is doing Reinhart and Rogoff 24-7, I suppose BTP should follow suit. One point that some of us keep making that continually disappears into the ether (as opposed to eliciting a response from our Harvard duo or their accomplices) is that rather than being high, the interest burden of the debt is near post-war lows. It is currently less than 1.5 percent of GDP. In fact, it is less than 1.0 percent of GDP if we subtract the $80 billion that the Fed refunds to the Treasury from the assets it is holding. This means that rather than being an extraordinary burden right now, the debt is actually a very low burden.

Insofar as this point draws a response, it is generally that interest rates will rise in the future as the economy recovers. That may well be true, but we will have contracted large amounts of debt at very low interest rates. This means that even in a story where the Fed does raise interest rates as the economy recovers, the interest burden will just be rising back to levels we have seen before. In fact, in the Congressional Budget Office's projections we will not get back to the early 1990s interest burden of more than 3.0 percent of GDP until 2021. It is also worth remembering that this interest burden did not prevent the United States from having strong growth through the decade of the 1990s.

Again, the interest burden can be lowered by more than half of a percentage point of GDP if the Fed continues to hold assets, refunding the interest to the Treasury. This would require an alternative mechanism for restricting the money supply, specifically raising reserve requirements. While there are reasons for not wanting to go this route, given the large potential savings to the government (@ $80-$100 billion a year), it is an option for budget savings that Congress certainly should be considering.

Opposition candidate Henrique Capriles is currently “boycotting” a second audit of the voting results for the April 14 presidential election, which the National Electoral Council has agreed to undertake.  Capriles claims that the election was stolen through fraud.

In a CEPR press release we note that it is practically impossible to have obtained the results of the audit that took place after the polls closed on April 14, if the election were actually stolen through fraud. 

When the polls closed, a random sample of 53 percent[i] of all the machines (20,825 out of 39,303) was chosen, and a manual tally was made of the paper receipts.  This “hot audit” was done on site, in the presence of the observers from both campaigns, as well as witnesses from the community.  There were no reports from witnesses or election officials on site of discrepancies between the machine totals and the hand count.

The following is a calculation of the probability of auditing 20,825 machines and finding zero errors when there are actually 50 among all 39,303 (this means that there are 50 machines with errors among the ones that were not audited).  The assumption here is that there would have to be at least 50 bad machines -- i.e. where the machine count did not match the paper ballot – in order to reverse a margin of 272,000 votes.

This assumption is of course understating the number of bad machines that would be necessary to reverse the result. The average machine has only about 360 votes, and the maximum was about 564. And here we are assuming the election is stolen by moving about 2700 votes per machine from Capriles to Maduro,  on 50 machines.  If more machines were bad, then the probability below gets even (vastly) smaller.  So the calculation below is actually a very high estimate of the probability of obtaining the April 14 audit results, if the election were stolen.

Taking to the Huffington Post this week, former Assistant Attorney General Robert Raben attacks Argentina’s position regarding the ongoing litigation with vulture funds, a case readers of this space are familiar with. Raben states that, “The Argentine government's behavior toward U.S. courts and U.S. judges has gone beyond contempt, and its ongoing defiance of our legal system must come to an end.” Anticipating the possibility of the case going to the Supreme Court, Raben saves some criticism for the United States, which has sided with Argentina in the court case:

the U.S. executive branch made the disappointing and unfortunate decision to support Argentina at the lower-court level, on the unsubstantiated grounds that holding Argentina accountable would somehow undermine the vague U.S. foreign-policy goal of promoting the orderly restructuring of defaulted sovereign debt.

Raben concludes that, “It would be downright dangerous for the Department of Justice to maintain its support for Argentina after its disgraceful displays of disrespect for the U.S. judicial system.”Raben would have you believe that his conclusion and expertise in the matter is simply based on his previous experience:

As a former assistant attorney general, I am familiar with the struggles and the balancing involved in weighing various legal and policy questions and deciding whether to ask the Supreme Court to review a case.

But readers of the Huffington Post might be interested in something else not mentioned in Raben’s article: that his lobbying firm, The Raben Group, has been paid over $2.1 million by a group representing the same vulture funds that are suing Argentina, according to lobbying disclosure documents. In fact, the American Task Force Argentina (ATFA), of which Raben is the Executive Director, has spent nearly $4 million lobbying the White House, Treasury Department and U.S. Congress. Nowhere in the article does Raben disclose this relationship. His 382 word Huffington Post bio notes his past working for Barney Frank, his time as Assistant Attorney General and his current position “on the boards of the American Constitution Society and Alliance for Justice,” yet never mentions his management position at ATFA or even the existence of his lobbying firm.

April 26, 2013

April 26, 2013 (GDP Byte)

Carmen Reinhart and Ken Rogoff, used their second NYT column in a week, to complain about how they are being treated. Their complaint deserves tears from crocodiles everywhere. They try to present themselves as ivory tower economists who cannot possibly be blamed for the ways in which their work has been used to justify public policy, specifically as a rationale to cut government programs and raise taxes, measures that lead to unemployment in a downturn.

This portrayal is disingenuous in the extreme. Reinhart and Rogoff surely are aware of how their work has been used. They have also encouraged this use in public writings and talks. While it is unfortunate that they have "received hate-filled, even threatening, e-mail messages," as one who works in the lower-paid corners of policy debates, let me say, welcome to the club.

This column is careful to halfway walk back the main claim of their famous paper, telling us:

"Our view has always been that causality [between high debt levels and slow growth] runs in both directions, and that there is no rule that applies across all times and places."

It is good to hear the reference to causation from slow growth to high debt and that "no rule applies across all times and places." However it is worth noting that Reinhart and Rogoff never felt the need to use their access to the NYT's opinion pages to correct all the politicians who used their paper to argue the exact opposite: that their paper implied that countries with high debt levels could anticipate long periods of slow growth.

A federal district court has ruled that the Obama administration must declassify records with the names of individuals trained at the Western Hemisphere Institute for Security Cooperation (WHINSEC), formerly known as the U.S. Army School of the Americas or SOA. 

Famously known as the “School of Assassins,” the school trained members of foreign armed forces who later went on to participate in some of the bloodiest and most repressive regimes in contemporary Latin America.   During El Salvador’s civil war, the most heinous violations of human rights were committed by SOA graduates, who organized death squads and planned the assassination of Archbishop Oscar Romero (1980) and participated in the El Mozote Massacre (1980), where more than 800 civilians were murdered.  SOA graduates made up the majority of the Chilean officers who overthrew Allende in favor of Pinochet in Chile.  And in Argentina, General Roberto Viola was among the many SOA graduates that participated in the dirty war—he was convicted of murder, kidnapping and torture in 1985.

Though SOA changed its name and instituted reforms in 2001, its graduates have continued to be involved in anti-democratic activity and egregious human rights abuses.  Case in point: Honduras.  Four of the six generals linked to the coup against democratically elected President Manuel Zelaya were trained at the WHINSEC in recent years, including top General Romeo Vásquez.  SOA graduates have been  the subject of CEPR’s ongoing coverage of violence and impunity in Honduras; we wrote about soldiers that shot and killed a 15-year-old boy in Tegucigalpa, Honduras, which included among their number at least one soldier trained at the WHINSEC. 

Thanks in large parts to the grassroots campaign against the school organized by SOA Watch, a number of Latin American countries have stopped sending troops to WHINSEC.  The first country to pull out was Venezuela in 2004, followed by Argentina and Uruguay in 2006.  Other countries that stopped sending troops include Bolivia, Ecuador and most recently Nicaragua.  However, Honduras and other Central American countries – including Costa Rica – continue to send police and military personnel to the school.  The Bayonet reports that for the “Cadet Leadership Development Course” that began October of 2012, there were 64 Honduran Army cadets in attendance, representing the largest share from a single country.  One cadet was quoted saying that the course was “useful in the future during joint operations.” As readers of the Americas Blog are aware, a joint U.S./Honduras counternarcotics operation last May resulted in the killing of four indigenous villagers with no apparent ties to drug trafficking. 

I have a policy of not discussing items that directly refer to me in this blog, but I will make an exception today because the issues raised by Robert Samuelson are important. In his column Samuelson makes two key arguments. First, that the Reinhart-Rogoff conclusions about high debt leading to slow growth still stand even after the errors in the original paper were corrected, and second, that this work was never really the basis for austerity anyhow.

Taking these in order, Samuelson constructs a chart showing the originally reported and corrected relationships between debt levels and GDP growth.

He then tells readers:

"After recalculating the Reinhart/Rogoff data, the UMass economists confirm that high debt implies lower economic growth."

No, that is not right. The recalculated numbers show that high debt levels in the countries examined by Reinhart and Rogoff were associated with lower growth. However as the paper by Thomas Herndon, Michael Ash and Robert Pollin that exposed the error clearly explained, the growth falloff for countries with debt-to-GDP ratios above 90 percent was not statistically significant. In fact, they found a much stronger negative relationship between debt and GDP growth at very low ratios of debt-to-GDP. This means that if someone was basing policy on the corrected Reinhart-Rogoff numbers they would be arguing for debt-to-GDP levels in the range of 15-20 percent. That is not what Reinhart and Rogoff or anyone what else in this debate is saying. 

There are often shades of grey in interpreting people's views, but the NYT seems to be giving us assessments of Federal Reserve Board Vice Chairman Janet Yellen's views that are 180 degrees apart. An article today on Dr. Yellen's prospects of being chosen to replace Ben Bernanke as chair tells readers:

"In July 1996, the Federal Reserve broke the metronomic routine of its closed-door policy-making meetings to hold an unusual debate. The Fed’s powerful chairman, Alan Greenspan, saw a chance for the first time in decades to drive annual inflation all the way down to zero, achieving the price stability he had long regarded as the central bank’s primary mission.

"But Janet L. Yellen, then a relatively new and little-known Fed governor, talked Mr. Greenspan to a standstill that day, arguing that a little inflation was a good thing."

Okay, this is pretty clear, Yellen is on the side of promoting growth at the risk of somewhat higher inflation.

This seems hard to reconcile with a piece the NYT wrote three years ago:

The worldwide debate over fiscal policy and austerity was turned upside down last week by a paper co-authored by a University of Massachusetts grad student Thomas Herndon and two professors, Michael Ash and Robert Pollin (HAP). The paper uncovered serious calculation in errors in an important paper by Harvard professors Carmen Reinhart and Ken Rogoff (R&R).

The Reinhart and Rogoff paper, “Growth in a Time of Debt,” has been widely cited in policy debates in the United States and around the world as providing the basis for cutting deficits even at a time when the economy is suffering from large amounts of unemployment and interest rates are extraordinarily low. Ordinarily economists would argue that these are exactly the circumstances in which governments should undertake aggressive stimulus measures. Government spending can both boost growth and increase employment in the short-run, and also lead to long-run benefits insofar as the stimulus takes the form of investment in infrastructure, research and development, and education.

The Reinhart and Rogoff paper was used to argue against increased spending because it purports to show that high ratios of debt-to-GDP lead to large falloffs in growth. The implication of the paper is that the United States and other wealthy countries are at debt levels near a tipping point where further increments of debt can lead to decades of slow growth.

The moral of the Reinhart and Rogoff analysis is that we have no choice but to live with the pain of high unemployment and slow growth now, since the eventual cost in terms of a prolonged period of slow growth and high unemployment would be so awful. This is the sort of reasoning behind the austerity plans that are leading to double-digit unemployment across Europe and slow growth and high unemployment in the United States.

The paper by HAP was a body blow to the intellectual foundations for these policies. When corrected, the R&R analysis provides no basis for the concerns about a high debt cliff that they had been pushing for the last three and half years.

Dean Baker
Caixin Online, April 23, 2013

In February, the United Nations confirmed that a Canadian serving with the United Nations Police contingent of MINUSTAH had been accused of sexually and physically assaulting a Haitian woman. Yesterday, Marie Rosy Kesner Auguste Ducena, a lawyer with the Haitian National Human Rights Defense Network, told CBC news that, though the victim reported the assault to police, “nothing will happen... Women who will go to complain, you will see that maybe somebody will take the complaint and will say to her you will be called after. But in fact, the case will just be closed.” CBC notes that the “day after the incident, the man boarded a flight back to Canada, where he remains.”

This is but the latest in a series of sexual abuse allegations leveled against MINUSTAH personnel in Haiti. According to U.N. data, since 2007 there have been 70 allegations of sexual abuse and exploitation against MINUSTAH members, but as CBC news points out, “not one has ended up in a Haitian court.”

The lack of accountability of U.N. military and police personnel in Haiti has “undermined” the organizations reputation and its ability to carry out its mandate, according to Mark Schneider of the International Crisis Group (ICG). "The UN should ensure that in the agreement with the troop-contributing countries, that there is an understanding of what will happen if an abuse occurs — that there will be a full investigation, and that there will be appropriate action taken," Schneider added.

According to the CBC, the current case is complicated by the fact that the Canadian was serving as a UN Police agent. The CBC reports:

Soldiers can be tried in a military court, but under UN rules, civilian staff — including police officers — are immune from criminal prosecution in the country where the alleged offence occurred. Once back in Canada, they cannot be charged for a crime committed abroad.

The Bureau of Economic Analysis (BEA) will adopt a new methodology for measuring GDP this summer. The methodology will treat research and development and the creation of artistic works as forms of capital that depreciate through time rather than one-time expenditures. This will lead to an increase in measured GDP of close to 3.0 percent according to BEA's analysis.

There are three points worth making on this change. First, for you conspiracy buffs, this one has been in the works for close to two decades. The government didn't just come up with it to make President Obama look better. Go back to digging up the Real Story about the plunge in gold prices.

The second point is that the methodology for this will inevitably be very troubling. If Pfizer has a patent for a great new cancer drug we will now pick this up as an increase in the investment component of GDP. Suppose Merck develops a drug that does the exact same thing, except that it gets around Pfizer's patent. According to the new methodology this would further increase GDP.

Of course, this is a battle over rents, not actually an increase in total output. That is a problem. Expenditures for rent-seeking don't make us richer in aggregate. In fact, this is already a problem now, it's just likely to be more of a problem in the future. Consider the situation where a software developer makes their great new software available for free. Our friends over at BEA won't show any gain to GDP even though our living standards will certainly be improved by much more than if they had patented the software and charged for it.