The people at The Incidental Economist tackle the issues A few thoughts on the latest Oregon Medicaid results, the latest results aren’t actually counter intuitive and increased ER use isn’t necessarily bad.
Brad DeLong asks questions about the financial panic of 2007-2009 and our current macroeconomic predicament
by Robert Waldmann
Answering Brad DeLong’s questions
There are a large number of serious and, so far, unanswered questions about the financial panic of 2007-2009 and our current macroeconomic predicament. Among them are:
1)Why is housing investment still so far depressed below any definition of normal?
2)Why has labor-force participation collapsed so severely?
3) Why the very large spread between yields on safe nominal assets like Treasuries and yields on riskier assets like equities?
4) Why didn’t the housing bubble of the mid-2000s produce a high-pressure economy and rising inflation?
Update from John Aziz below…
I see a Brad DeLong post where he includes a post from John Aziz, which John wrote back in April 2013. The DeLong post is about a savings glut, and the Aziz post points to the rise in savings as a percentage of GDP. But John Aziz wrote…
“The actual cause of the desire to save rather than consume or invest is uncertain… demographic trend… psychological trend… shortage of “safe” assets… anticipation of deflation…. But whatever it is, we know that there is an extraordinary savings glut.”
It is easy to ascertain the cause of savings rising as a share of GDP. Here is a graph which makes it clear. (Data source is NIPA tables, by quarters)
National savings as a % of real GDP (brown line) has risen for decades, but so has consumption (yellow line) and imports (green line) as a % of real GDP. Therefore something must be falling in relation to real GDP. That would be the blue line, tax revenue as a % of real GDP.
The government has simply been lowering tax rates for decades.
The basic mechanism is that real GDP has leakages from consumption. The standard leakages are savings, taxes and imports. If you just lower the rate of tax revenue you will essentially make more money available for savings, consumption and imports. So the options that John Aziz gives in the quote above are creative meanderings. The actual cause is quite simple… the government is taxing less.
Actually, savings strongly reacts to a change in the rate of tax revenue, much more than consumption or imports. You can see the blue and brown lines just about mirror each other.
Update: John Aziz clarifies by twitter… “No; the SAVINGS index I use is a stock (idle money in bank accounts) the measure in that chart is a flow.” “Idle savings in the economy is not a component of GDP, even if I am measuring it against GDP.”
I agree with John about the increase in idle savings. It opens up the Financial Repression debate in the US. As in China, does low interest rates lead to higher savings? Is the same thing happening here? I will post on financial repression over the weekend.
The cold and snow are getting to me…I found this funny post to share. Whether a student actually wrote this or not, it makes my answers on tests for Physics for Non-majors many years ago pretty lame:
When Hell freezes over….
Mike the Mad Biologist leads me to a host of articles on the crazy things going on at Heritage Foundation, especially since former Senator Jim DeMint of South Carolina took over as president of the organization. Mike quotes Alex Pareene at length on how the rise of MBAs running both the Foundation (DeMint) and Heritage Action (Michael Needham) has turned Heritage from a respected think tank into a mainly political organization of the hard right. Pareene, in turn, leads to a good analysis by Julia Ioffe in The New Republic.
As regular readers know, Heritage is an organization that I’ve already lost most respect for, it being famous both for proposing Obamacare’s main components and denying that it is responsible for the individual mandate. This has been well-debunked in both Forbes and The Wall Street Journal, by Avik Roy and James Taranto respectively.
My modest contribution was to note that the January 1989 research report Taranto found in the Heritage archives was actually noted on its cover, “Revised Edition.” This pushes the original research back into 1988 at least and clearly refutes Stuart Butler’s claim that the individual mandate was a response to Hillarycare. In fact, it was a response to the considerable political groundswell for single payer in the 1980s.
The question is how far the deterioration of the Heritage research mandate will go. I think one clear indicator would be if Heritage decides to take the 1984 “Ministry of Truth” route and delete the research from its website. So far, it has yet to stoop that low. But when “A National Health System for America, Revised Edition,” can no longer be downloaded, we will know another big step in the hyper-politicization of Heritage has taken place. Should it happen, and you need a copy, email me and I will send you a copy of the pdf document on a “fair use” basis.
You will know it has happened when you can no longer download the report from