ARNOLD KLING
February 20, 2012
Segregation
February 19, 2012
Grouchy Book Reviews
February 18, 2012
Is the NAIRU 8.5 percent?
February 17, 2012
The Political Report of the President
February 17, 2012
Adaptation and Economics
BRYAN CAPLAN
February 21, 2012
Refuted By Events
February 20, 2012
When to Be Meek
February 18, 2012
What Bernanke Needed
February 18, 2012
The Mystery of Bernanke Solved
February 16, 2012
Zwolinski, the Drowning Child, and the Good Samaritan
DAVID HENDERSON
February 20, 2012
Sharks--or Angels?
February 19, 2012
Richard Epstein on Charity and Health Care
February 18, 2012
My Interview at Rockford College
February 17, 2012
Brown M&Ms and Hotdogs
February 17, 2012
A Perverse Incentive for Graduate School
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re: "Also, because of FDIC insurance, the taxpayers ultimately are liable for the interest-rate risk on mortgages held by banks."
This is only true if the banks actually go under, right? It's not exactly true to say that we're liable for the interest rate risk. We're only liable if that interest rate risk causes a bank failure.
And, of course, taking on liability for that PARTICULAR risk reduces other risks we could be faced with, which is the whole reason we have an FDIC.
"But shocks tend to occur, and when they do, they raise the deficit."
This assumes that shocks are bad news, and never good news. But that might be correct. Plucking/PSST.
"raising the interest cost of *outstanding* government debt"
Am I profoundly misunderstanding something here? Excepting TIPS, outstanding government bonds are fixed-rate; they'll pay the rate set at issue through maturity. Don't you mean newly-issued/rolled-over debt?
But yes you're right: if interest rates are higher than GDP growth, long-term, (government) debt spirals.
If the reverse, the reverse. But that's "financial repression"! (Of creditors.)
The first is, just as validly, financial repression of debtors.
And as soon as you start talking about "repression," we've exited the economic realm and entered the moral/political.
Steve Roth,
Financial repression is defined as interest rates lower than inflation rate, not GDP growth rate (at least the real rate). I have no real moral objection to this until it involves capital controls and gains taxes of inflation gains on real assets- then it is real repression in every sense of the word. To take the other side of the debtors- they are not repressed until they aren't allowed to default in bankruptcy. So, I would argue that student debts on government guaranteed loans are repression in every sense of the word, but other debts in the US are not.
Nick,
I am not just thinking of shocks to GDP. I am thinking of shocks to interest rates, for example. Even when shocks are symmetric, the government loses from volatility, because it tends to be writing insurance that pays out for any shock in any direction.
CBO rules are gamed to underestimate borrowing. Gaming the other way, to overestimate borrowing, would cause politicians to be unnecessarily restricted in their spending. Since politicians control the CBO's rules, the rules necessarily underestimate.
Logic would say that as we get richer there is less need for programs for the poor to keep up with gdp. The same might go for schooling, defense and law enforcement, of course defense depends on the threats.
The fact that health care and/or interest are the spending categories that are growing does not tell us anything about what kind of problem we have with spending in general. That, in fact, is an easy question to answer, just look at the size of the deficit. It's huge. That means we have a generalized spending problem. The fact that health care spending is growing faster than e.g. defense spending doesn't mean that defense spending isn't a major problem (it is).