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Do Deficits Matter? Do the Deficit Disco!

by Alexander G Rubio Wed Feb 8th, 2006 at 10:15:57 PM EST


Back in the early Christmas shopping season of 2002, when most Americans were starting their annual quest for cheap Chinese produced clothes and CD players to bag and stack under the tree, armed with rectangular plastic cards, then Treasury Secretary of The United States, Paul O'Neill knocked on the door to the office of his old friend Vice President Dick Cheney.

He had a problem with the budget, he said. Deficits were piling up at an alarming rate. If something wasn't done about it, he said, it might well leave the public purse saddled with more debt than it could service, while still performing its tasks and making good on its obligations, creating a risk of a financial crisis.

According to O'Neill's later statements, Cheney looked him in the eye and said, "You know, Paul, Reagan proved deficits don't matter." This level of spending was their due after their good showing in the recent congressional elections. And with that he dismissed him from his office. A month later he dismissed him from his post in the cabinet.

In many ways it would seem that the years that followed have borne out Cheney's, and those who see increased deficits and looser credit as the cure for comparatively slow European growth's, view of things. So do deficits no longer matter?




Back in the days of the Viennese Waltz

Before even considering taking out a loan, whether you're a private individual looking for a mortgage, or a government looking to finance a deficit, there's the small matter of there having to be someone willing to loan you the money, and why they are willing to do it.

In the past countries were to a far greater extent closed systems. US debt was largely held by US citizens and organisations. Go far enough back and most western countries were also on the gold standard. You could walk into a bank and turn in your paper money for a fixed amount of gold. Both these things hampered government's ability to take on massive amounts of debt.

Being on the gold standard meant that you couldn't print up more money than you could cover with your gold reserves without risking national default. And the predominantly domestic sources of credit meant that any large scale government loans would suck up a lot of that credit, crowding out private individuals and enterprises seeking investment capital, and so harming the economy.

Now, a couple of things have changed since then. First of all, the need for massive loans and the ability to boost spending through monetary inflation during the war years and the Depression lead to most western nations dropping the gold standard. And more recent decades have seen the birth of a vast global integrated capital market, where credit can be summoned from any corner of the globe at the touch of a button. Which brings us to today...



New Rules, Baby! Do the Cha-Cha-China!


Foreign holdings of US Treasury debt
(graph from The Economist)
Just as loose lending practises lead to consumers taking on too much debt, the same is true on a macro-scale in an environment where a government can finance deficits with all too much ease. A major lender in recent years has been the Chinese central bank, having been handed the relay stick by former credit champion of the world, Japan. Now, aside from the strategic and political qualms the US may or may not have about China holding such massive amounts of US debt instruments, they are bound in a curious love-hate relationship with the Chinese economy in general, and Chinese currency policy in particular.

In general China produces the cheap goods that produce everyday big profits for US companies such as Wal-Mart, and they export wage deflation to the US and other industrialised countries, helping keep wages of workers in those countries at or below the rate of price inflation, in a paradoxical reverse colonial trade pattern that shifts capital and raw materials out of the imperial centre and manufactured goods back in.

On the other hand China produces cheap goods that decimate domestic manufacturing in the US and other industrialised countries, and export wage deflation, which pisses off workers in those countries to no end.

When it comes to currency policy in particular, China intervenes in the market, keeping their currency, the Yuan, at an artificially low exchange rate, to boost their exports. This has a negative effect on US and other nations' domestic manufacturing and export sectors. But, this intervention, buying up US bonds, is also what keeps US interest rates down, and fuels the housing bubble of recent years, and refinancing of said housing at lower rates, leaving consumers with more money to consume, as well as allowing the federal government to run deficits with little obvious pain. The status of the US dollar as the world's reserve currency, the thing people the world over traditionally have squirrelled away in their mattresses in times of trouble, with numerous other currencies tied to it in more or less formal ways, and all countries being forced to have it on hand to buy their oil, has also been an enormous shock absorber for economic stresses.

Some economists have fretted that international lenders would do the job of the Federal Reserve Chairman, and take away the punch bowl, but as economist Brad Setser points out, thus far any inclination in that direction has failed to materialise. In fact, for the time being, they seem willing and able to finance even larger infusions of capital into the US to cover the various deficits that country is running.


Brad Setser
Is the world ready to finance a $1 trillion US current account deficit?

Judging from the capital inflow into the US in October, I guess the answer is yes. And I suspect the US may well give the world a chance to add $ 1 trillion to its dollar portfolio next year.
(...)
A trillion dollar US current account deficit in 2006, and a trillion dollar's in Chinese reserves in 2006.  There would be a certain symmetry.

Obviously, a big fall in oil prices - or a big fall in non-oil imports - would keep the US from approaching that kind of deficit. But so far this year, neither the markets nor the world's central banks have demanded that the US adjust.
(...)
Of course, the US can only spend more than it earns so long as the rest of the world is willing to finance the US.




Doing the One-legged Keynesian Two-step

It's not that hard to figure out the reasons why. And it's all too easy to see ways in which this will lead to future problems. Yes, it's a nice life if you come across a bank willing to lend you far more than is warranted by your expected future income. But sooner or later that debt has to be, if not repaid, then at least serviced. And this debt is handled through the market, where pricing, in this case bond yields, are set on the margin. If buyers show up for only 95% of the bonds on offer at auction, yields will have to rise, and interest rates for both private and public debt will go up.

Yes, as in the housing market, it's the monthly payments that matter, far more than price. But if you're leveraged to the hilt and banking on low interest rates to keep the monthly payments down, and interest rates suddenly rise, as they do tend to on occasion, you're all kinds of screwed on the monthly budget, whether you're a home "owner" or the federal government.

Now some might counter that this is good Keynesian policy, cranking the economic engine to life and getting the wheels turning. But responsible Keynesian policy is predicated on cutting back on the stimulus when the economy is moving under its own power, and building up reserves for the next cyclical downturn. And in an environment where some governments can not only draw on a global market of capital seeking parking spaces, but one in which currencies and interest rates are manipulated on a vast scale, the need to do so is greatly reduced; the wish to do so, among industries profiting from the stimulus and the politicians profiting from the economic activity at the ballot box, has of course always been minimal.


Stirling Newberry
The economy wonks at The Angry Bear, along with Hale Stewart and Stirling Newberry at BOPnews, have been doing yeoman's work, in both tracking the day to day workings of this economy, and its consequences for ordinary men and women.

Of course, living high on the hog with borrowed money sure does look like fun, especially when you've got reputable economists claiming the whole thing will pay for itself in the long run. And deficit spending is increasingly a worry in the Euro zone too, following the accord of the heavy European nations to ease the requirement of a maximum 3% budget deficit back in March, pushed most vigorously by the very nation that championed the rule to begin with, Germany.

And in the end, even though governments never, or at least seldom, die, and can keep kicking those ever greater loans down Future Street, there's still that bill in the mail every month for interests due, which is getting bigger. And if, one day, loans can't be raised to cover the servicing of the old loans, well, then somebody's liable to stumble on the dance floor, and domino go the party.



This article is also available at Bitsofnews.com.

Display:
¡Bravo!

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Feb 8th, 2006 at 11:00:08 PM EST
Why thank you, kind Sir!

Bitsofnews.com Giving you the latest bits.
by Alexander G Rubio (alexander.rubio@gmail.com) on Wed Feb 8th, 2006 at 11:13:08 PM EST
[ Parent ]
Bravissimo !
I did not know that a deficit diary could rock !
You are outdoing yourself on this one, Alexander.

When through hell, just keep going. W. Churchill
by Agnes a Paris on Thu Feb 9th, 2006 at 06:52:12 AM EST
[ Parent ]
Plants a kiss right on the tip of Agnes's nose :D

Bitsofnews.com Giving you the latest bits.
by Alexander G Rubio (alexander.rubio@gmail.com) on Thu Feb 9th, 2006 at 07:02:24 AM EST
[ Parent ]
The comparison of the US budget deficit with the 3% of GDP in the Convergence Criteria. The US figure quoted is the projected Federal Busget deficit. The EU figure includes all public expenditure so to get the comparable figure for the US you would have to add in deficits and borrowing in all state and county budgets.

Budgets in the EU are also structured or rather presented in different ways. As I understand it, the US budgets are not "balanced" in the same way. Here the presentation has to end in a 0 so your projected expenditure is always balanced by projected tax income plus borrowing. Budgets have an amount for "contingencies" built in so for example, the first year cost of the Iraq war was paid for from one rather than having to issue further "supplementals" as in the US Certainly in the UK all this happens before the start of the financial year rather than after it.

One interesting statistic is that the UK long-term government bonds are currently offering a real rate of return between 0% and 0.5%. In other words, it costs virtually nothing in real interest to borrow, although this is distorted at the moment by rules concerning the borrowing structure for pension funds.

by Londonbear on Wed Feb 8th, 2006 at 11:16:04 PM EST
sorry that last bit should be the "investment structure" for PRIVATR pension funds.

Ublike the US, government pensions (US social security) are paid for out of income, not a separate investment fund.

by Londonbear on Wed Feb 8th, 2006 at 11:19:20 PM EST
[ Parent ]
I'm going for it ---

  1.  One of my high school gym classes was disco dancing.

  2.  In the Reagan era I had a checkbook cover that read:  Deficit Spending -- It's Not Just For Governments (might as well laugh, right?)

  3.  So that's what Stirling looks like!

Oh, and by the way, excellent post!!

Maybe we can eventually make language a complete impediment to understanding. -Hobbes
by Izzy (izzy at eurotrib dot com) on Thu Feb 9th, 2006 at 01:37:15 AM EST
The Cheney's quote on decifits has been widely misunderstood. His reference is that when he was asked of political consequences of debt he said that decifits do not matter (in a political sense). After all, it is always easier to spend money in terms of tax cuts and favoured spending priorities. Reagan's era with its massive debt increase indeed is a proof of that (guns and butter). Economical consequences are far more different (and I have no idea if Cheney actually said anything on that context).

Bottom line is that any country can have a blast by loaning money from abroad. It is the hangover when debt comes due that is the bitch...

by Nikita on Thu Feb 9th, 2006 at 01:40:06 AM EST
Yes, his meaning was primarily political. But of course, if you say something like that, it pretty much implies that you couldn't give two hoots about the actual deficit either.

Bitsofnews.com Giving you the latest bits.
by Alexander G Rubio (alexander.rubio@gmail.com) on Thu Feb 9th, 2006 at 01:47:11 AM EST
[ Parent ]
when he was asked of political consequences of debt he said that decifits do not matter

Well, if that's the context, he's still wrong.  He should ask Poppy Bush about that one.  Also, and I'm old enough to remember, people weren't all that happy with Reagan till he got shot at.  He wasn't as beloved as they've made him out to be.

Maybe we can eventually make language a complete impediment to understanding. -Hobbes

by Izzy (izzy at eurotrib dot com) on Thu Feb 9th, 2006 at 01:47:51 AM EST
[ Parent ]
Hey Drew, how about an opinion?

Deficits should be viewed as a % of GDP, IMO, and Drew presented this data from US gov stats a few weeks ago.

Being on the gold standard meant that you couldn't print up more money than you could cover with your gold reserves without risking national default. And the predominantly domestic sources of credit meant that any large scale government loans would suck up a lot of that credit, crowding out private individuals and enterprises seeking investment capital, and so harming the economy.

Now, a couple of things have changed since then. First of all, the need for massive loans and the ability to boost spending through monetary inflation during the war years and the Depression lead to most western nations dropping the gold standard. And more recent decades have seen the birth of a vast global integrated capital market, where credit can be summoned from any corner of the globe at the touch of a button. Which brings us to today...

Personally, I'm not very worried about the US economy, particulary in comparison to Europe,  I think we will both lose on a currency basis versus gold and versus Asia non-Japan.  so I'm continuing to be very long on gold (and other metals like uranium btw), and abnormally long on Asia non-Japan, and long on the US, less on Europe--the theory being that US and EU deficits will be negative versus gold and Asia-non-Japan.  The gold/Asia strategy has been a huge winner, the US has been Ok the last year, and I've missed a little on Europe, though I'm in EU but a smaller %.  So Drew, is this a good strategy, in your opinion for the next year?
by wchurchill on Thu Feb 9th, 2006 at 04:32:45 AM EST
I'm a bit more worried about the US economy. Interest payments alone are starting to make a sizable impact on the already bad current account deficit. Imbalances abound, with no realistic sign of any of them correcting.

What can not go on, will, sooner or later, stop. But what is going to give, and what will the aftermath be?

By the way, I see larger gains in silver going forward than gold now. There's a deficit there too, in mining versus demand. And stockpiles laid up in the 70s are being drawn down.

Bitsofnews.com Giving you the latest bits.

by Alexander G Rubio (alexander.rubio@gmail.com) on Thu Feb 9th, 2006 at 04:50:28 AM EST
[ Parent ]
Investment isn't my area of knowledge.  I started reading the FT and, on occasion, the WSJ, because I'm trying to gain a little background in it.  But here go's:

There's some evidence to suggest, as I understand it, that gold is in shortage right now -- that the rising price has had little, if anything, to do with expected future inflation, which is always the party line among gold bugs.  That seems reasonable when we look at long-term interest rates, too.

First of all, the need for massive loans and the ability to boost spending through monetary inflation during the war years and the Depression lead to most western nations dropping the gold standard.

My understanding is that the main reason for why Britain and the US, for example, dumped gold was that the BoE and the Fed were viciously attacked by speculators.  Britain couldn't defend the exchange, and dropped the standard in '31.  The Fed successfully defended it -- it was attacked shortly after the BoE's exchange fell and the sterling was allowed to float -- but at a cost of very high interest rates and increasing contraction.  America finally dumped it in '33, obviously.  Another slap in the face to Herbert Hoover (who, as I understand it, was a wonderful man, but a horrible, and sickeningly naive, president).

Gold can be a great investment, but it's incredibly dangerous to tie currencies to it, in my opinion.

In the long run, I'm bullish on the American economy, despite some factors that worry me today.  Americans are highly educated.  They're the world's binge-spenders.  (I promise you: China needs America a hell of a lot more than America needs China.)  And America is still strong on innovation.  One thing that truly worries the hell out of me is all the talk in America of, "Too many foreigners coming in and taking our jobs."  If America begins closing to foreigners, it will be in trouble.  What America and Europe should hope to do is attract highly-skilled foreigners and provide them green lights to work and, eventually, become citizens.

That will also help the two powers keep their welfare states up and running.  Immigration rates should be increasing, in my opinion.  I'm probably more liberal than my fellow citizens on this, mainly because I've grown up in an area that has a high immigrant population (both skilled and unskilled), and I've always found them to be good, hard-working people who usually find success.

I do think -- and I know it's unpopular to say -- that Europe needs to loosen its labor market, and I think it will, eventually.  Everyone seems to talk about it.  Nobody seems to propose anything that's worth the paper it's printed on.  I'm bullish on Europe, too, in the long run, as well, though I think it's going to take some time for Europe to catch up to America's growth rates.  It will, but I'd give it ten years.

I'm not bullish on China, in the long run.  China's growth is due to it's enormous labor supply and truly massive inflows on investment.  That's a recipe for spectacular growth in the short run, but diminishing returns will kick in, eventually.  The Communist Party may be investing in education and areas where it can help to produce innovations, but I don't think it's going to pan out.

There was a really great column in the FT a week or so ago that covered the problem of Asian culture as it relates to innovative ideas.  It was titled, "A Korean Lesson for Asia," or something along those lines.  (Jerome can probably tell you.)  It's worth thinking about.  I question whether societies that place too much value on order will allow for the freedom of thought, criticism, and experiment necessary to make an innovation-driven economy work.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu Feb 9th, 2006 at 11:24:04 AM EST
[ Parent ]
I do think -- and I know it's unpopular to say -- that Europe needs to loosen its labor market, and I think it will, eventually.  Everyone seems to talk about it.  Nobody seems to propose anything that's worth the paper it's printed on.

Maybe you can explain what that means?
by Colman (colman at eurotrib.com) on Thu Feb 9th, 2006 at 11:25:58 AM EST
[ Parent ]
In a diary for preference. Anytime I try to find out it always boils down to cheaper labour.
by Colman (colman at eurotrib.com) on Thu Feb 9th, 2006 at 11:27:03 AM EST
[ Parent ]
I'm not sure I could get enough length to put it in a diary.  But take, for example, the recent issue in France -- or was it Germany?  My memory is a bit off today -- of allowing companies to fire first-time jobholders as they see fit within (I think) the first two years.  Why is this such a bad thing?  If the worker performs well, the company will keep him.  If not, it will fire him.

I don't understand the reasoning behind making it difficult to fire people.  It's not right, in my opinion, to try to force companies to keep poorly-performing workers.  If I'm going to take a chance on a business -- take out a loan, and all of that good stuff -- then I should be able to hire and fire people as I see fit.  In that case, it's my credit rating and source of income that are on the line.

It's a similar argument to the one I made about smoking in bars.  If I take out a loan to start a pub in Newcastle, I should have the right to decide whether I allow people to smoke in my pub, and I'll probably decide whether or not to allow it based upon how much I can expect to earn in each case.

Now the argument could be made that, well, smoking is unhealthy and it puts strains on the NHS, and I havelittle doubt that this is true, but are we going to start telling restaurant owners that they can only serve a fixed portion of food, too?  Because overeating is certainly just as unhealthy as smoking.  There's a whole host of other problems that we could get into discussion on.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu Feb 9th, 2006 at 12:10:52 PM EST
[ Parent ]
.  Why is this such a bad thing?  If the worker performs well, the company will keep him.  If not, it will fire him.

Because in that case the company has all the bargaining power and the worker has none. It's a matter of fairness. You don't start a company in a vacuum: you build it in the context of the existing infrastructure and you have responsibilities as well as rights.

In any case, there isn't a real problem getting rid of incompetent workers.

by Colman (colman at eurotrib.com) on Thu Feb 9th, 2006 at 12:20:09 PM EST
[ Parent ]
So you have two potential solutions: (1) Workers at the company could unionize, and (2) if the worker performs well, making him an asset to the company, he will have bargaining power, because it will be in the company's interest to keep him.  If it were the case that the worker had no bargaining power, then people in non-unionized sectors wouldn't be able to demand raises from their bosses.  The bosses would simply say, "Go to hell.  I'll find someone else to do the job."

Sometimes that happens, of course.  A lot of times, actually.  But often it does not.

Of course you start companies within the context of the existing conditions.  I'm not denying that.  I'm saying that the conditions could be better.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu Feb 9th, 2006 at 12:29:36 PM EST
[ Parent ]
...to take issue with you on that the last time, but I hadn't the time, so this might be the moment...

Smoking is always damaging your health, and that of those nearby, but you can go without. You can damage yourself by eating, but you can't go without food, and you don't indirectly damage others (ignoring the bio-industry).

So that comparison didn't ring so well with me. Problem is: if you leave the choice up to the pub owner, every pub will allow smoking, since no one will want to block  some 30 percent of their clients voluntarily. But not everyone of that non-smoking 70 percent agrees with smoke - so should that, say, 10 percent set up their own non-smoking bar? I don't suspect it's profitable enough, if ordinary pubs are still around.

And Colman's previous argument stands. To let non-smokers work in a smokey environment which is damaging to their health shouldn't be allowed. It works like this for me: you're free to do what you want until the moment your actions discomfort or harm others; that's where the line is drawn. Smoking is the perfect example here. On the food, you've a point, but I'm not qualified enough to mingle in the actual debate. That's why I prefer to stand on the sideline and launch offtopic comments at people. Glad to be of service.

BTW, the majority of the Italians are exceptionally pleased by their non-smoking regulations. As true Italians, they now comment they can taste the food and wine in restaurants much, much better. For Italians, that says something...

by Nomad on Thu Feb 9th, 2006 at 05:59:00 PM EST
[ Parent ]
It's a far-from-perfect comparison.  You're right.  But the fact that food is a necessity and smoking is doesn't change the other fact -- that both smoking and overeating are unhealthy.  Everyone needs to eat.  They don't have to overeat, so I maintain my point about the regulation.

Now, that 70% of people don't smoke, and don't want to be around smoke, doesn't change anything.  They can still demand that the owner ban it in his pub, or they can accept the fact that people are going to smoke, or they can leave.  They're not forced to go to the pub.  If you siphon off that 10% from multiple bars, I have very little doubt that you could probably make a profitable business.

Most major cities in Britain, from what I've seen, are much larger than the city I live in, in terms of population.  (Greater Nottingham, alone, is roughly six times the size of Tallahassee, and I don't think Nottingham is very large by English standards.  I could be wrong.)  We have many smoking and non-smoking bars, some right next to each other, and all are profitable.  (It's a college town.  There are a lot of bars.)  I'm sure the market would be large enough.

Non-smokers shouldn't have to work in smoke-filled offices, and they don't.  They don't have to take the job.  Again, I stand by my point that, if someone takes out a loan to start his or her own business, he or she should be able to set these sorts of rules, because it's that person's money and credit on the line.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 10th, 2006 at 12:57:46 PM EST
[ Parent ]
Non-smokers shouldn't have to work in smoke-filled offices, and they don't.  They don't have to take the job.
You just threw out health and safety regulations in the workplace, Drew. Something is wrong with your premises if you keep reaching these conclusions.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Feb 10th, 2006 at 01:00:26 PM EST
[ Parent ]
I did?  How so?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 10th, 2006 at 01:13:57 PM EST
[ Parent ]
According to you, there's no need to institute health and safety regulations because (paraphrase) "workers don't have to work in unhealthy or unsafe conditions: they don't have to take the job" and, moreover, health and safety regulations interfere with the operation of the market.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Feb 10th, 2006 at 01:39:52 PM EST
[ Parent ]
I don't think they interfere too much with the market in the case of (say) legislating against companies who produce diseased chickens.  However, workers, at least in America, lobbied their bosses for health and safety regulations privately in the past (in addition to lobbying for legislation) back in the 19th Century.  In many cases, companies improved standards to avoid Congress and the president taking action.  (They took action anyway.)  Workers also have the ability to sue companies for these sorts of things.

Nonetheless, your point is well taken.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 10th, 2006 at 02:12:44 PM EST
[ Parent ]
thanks for the great comments Drew.  Have you seen the recent Jeremy Siegel articles comparing and contrasting India and China, and their respective economic futures.  He shares some of your thinking.  India vs. China:who has the edge  
by wchurchill on Thu Feb 9th, 2006 at 06:16:39 PM EST
[ Parent ]
Just read it.  Thanks for the link.  I can't help but agree with him.  This is similar to the column from the FT.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 10th, 2006 at 12:33:57 PM EST
[ Parent ]
If America begins closing to foreigners, it will be in trouble.
Sorry to break the bad news to you, Drew, but if my experience over at the University of California is any guide, this has already happened.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Feb 9th, 2006 at 06:23:46 PM EST
[ Parent ]
It's in the beginning stages.  9/11 and rising xenophobia are the culprits, I'm guessing.  That's sad, since UC is, from what I've read, a great system.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 10th, 2006 at 12:35:46 PM EST
[ Parent ]
Well, yes, it hasn't "happened" yet. But our very own Democratic Senator Feinstein was one of the first to blame 9/11 on the student visa program and called fora 6-month moratorium. The UC must have given her a phone call, or something, but foreign students now routinely miss university deadlines (which are graciouly extended) because of overzealous immigration officials, get stuck abroad after vacations because their visas fail to be renewed (on time or at all) and have a heck of a hard time actually functioning in the US because research assistants (who are paid from grants as opposed to teaching assistants who are on payroll) can no longer obtain a Social Security Number.

Not to speak of the chilling effect that the awareness of rising xenophobia has on applicants, as well as the growing antipathy for all things American courtesy of the shrub.

Really sad...

And, on top of that, up-and-coming graduates like you and MfM give serious thought to emigrating for advanced study because of economic and political reasons...

I wonder how long it will be before the brain drain officially reverses. The massive outsourcing of white-collar jobs out of the US isn't making matters any better.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Feb 10th, 2006 at 12:43:52 PM EST
[ Parent ]
My reasons for emigrating are certainly not economic, since British academics are paid far less than American ones.  A professor of business economics in America earns somewhere around $180,000/yr. on average.  A British one would be lucky to see half of that.  (I can certainly live with that.  God knows most people live on far less.)  I'm emigrating for political reasons, partly -- though it's not like Tony Blair is a huge departure from George Bush these days -- but also because I've always wanted to live and study in the UK and spend time in Europe.  I would've preferred London, because I love large cities, but it's so incredibly expensive to live there these days.

The entire visa process is a mess out in California, and I can't stand Diane Feinstein.  I wish Cindy Sheehan had decided to run against her.  everytime I see Feinstein on "Meet the Press" or "Face the Nation," she spends an hour debating without actually saying anything important.  Feinstein is like Hillary Clinton, but even more of a Republican-lite piece of garbage.  I don't know why we can't get any strong, liberal Democrats to run in ultra-liberal California.  The state is a lock for Democrats.  If you win LA and San Francisco, you've practically won the state already -- and the Democrats always crush the GOP in those two cities.  And yet we keep getting these weak-kneed Know-Nothings in the House and Senate.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 10th, 2006 at 01:12:29 PM EST
[ Parent ]
The economic reasons I was referring to are the fact that even overseas fees in the UK are less than you expect to pay for graduate school... If I understood some of what you've posted before correctly.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Feb 10th, 2006 at 01:30:29 PM EST
[ Parent ]
Ah, that's true.  Housing is also cheaper in the area.  Fees are fairly high for economics grad schools in America, especially, I'm guessing, for out-of-state students.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 10th, 2006 at 02:17:25 PM EST
[ Parent ]
We actually know someone who rents rooms to students in a couple of houses they own in Nottingham. Let me know if you have trouble finding accommodation.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Feb 10th, 2006 at 05:34:02 PM EST
[ Parent ]
That'd be great.  Thanks.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 10th, 2006 at 07:27:39 PM EST
[ Parent ]
... and maybe not you, specifically, but moving to Europe makes complete economic sense for anyone with a health problem.  Even at the pay rates you mention, if you had a chronic condition or had a wife or child with a chronic condition, it would make financial sense to move.

Maybe we can eventually make language a complete impediment to understanding. -Hobbes
by Izzy (izzy at eurotrib dot com) on Fri Feb 10th, 2006 at 01:38:25 PM EST
[ Parent ]
That's certainly true.  Canada as well.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 10th, 2006 at 02:18:16 PM EST
[ Parent ]
The raw-dollar value of deficits is irrelevant.  If the deficit is held at $400b, it obviously shrinks as the economy grows.  Eventually, you would end up with a $20t US economy and a $400b deficit, which would, of course, be perfectly manageable.

What matters is the ability of the government in question to pay.  The US enjoys the benefit of having never defaulted, so its credit rating remains strong.  Currently, our interest payments make up somewhere between seven and 10% of the federal budget.  The problem is that this percentge is rising fairly quickly.  As long as we can continue paying the interest, we'll be able to borrow.

It is a problem, though, in the sense that governments should try to maintain low debt levels, so that they can spend if they need to.  Why put down your weapon if the enemy won't put down his?

We've run deficits in all but four years over the last half-century -- '69, '98, '99, and '00 being the surplus years.  (Check me on 1969, though.  It was somewhere around that time.)  But, up until Reagan, the deficits were falling as a percentage of GDP.  That's not wholly Reagan's fault.  The Democrats -- remember, this is the latter portion of the era of Democratic dominance in Congress -- in Congress at the time were not exactly fiscal saints, themselves.  And both had to deal with the Fed purging inflation and sending the economy into the worst recession since the '30s (based on unemployment).

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu Feb 9th, 2006 at 11:55:44 AM EST
[ Parent ]
Yes, all of which is true. But US national debt (a better metric than the official deficit numbers) as a percentage of GDP, which fell pretty steadily after the huge spike of the war, has been on an upward trajectory since the Reagan years, with a brief plateau at the end of the Clinton presidency, and is now picking up a good head of steam going north.

So growth alone won't paint the picture rosy.

Bitsofnews.com Giving you the latest bits.

by Alexander G Rubio (alexander.rubio@gmail.com) on Thu Feb 9th, 2006 at 01:22:52 PM EST
[ Parent ]
Sure.  But these -- debt and deficits as a percentage of GDP -- all tell the same story.  When deficits and debt are rising as a percentage of GDP, so, too, will the interest payments, cet. par.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Feb 9th, 2006 at 02:54:33 PM EST
[ Parent ]
On budget Federal Deficit as % of GDP
by btower on Thu Feb 9th, 2006 at 06:28:09 PM EST
[ Parent ]
I do not want to belabour anybody with the following
course of arguments; they are disputable.

A little conspiracy ideas on budget dificits:

The poor, the middle class, and the upper middle class
(businessmen,entrepreneurs,etc.) contribute essentially to te GDP and if there is deficit it is
extracted from their "labour efforts."
Going into debt means that even in the cycle of progress of the economy (as described bt Keynes and earlier by Kondratiev) the surplus will not be used only for further investments and to foster this very same economic boom but also for payment of the debt and the interests of the debt.
So in the next cycle of deficit the amount saved for
the occasion will be even less and another debt will
occur.
Obviously the people with immense capital reserves
cover the debt and demand interests annualy for this kind favour...
And the cicle is already vicious...
Some called it enslavement, some agree with old maxima:
Money goes to money...

I'm not ugly,but my beauty is a total creation.Hegel

by Chris on Thu Feb 9th, 2006 at 08:07:34 AM EST


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