Rogoff & Reinhart Redux

They’re baaack.

Nicely done, I have to say.  Full disclosure: Ken Rogoff was a childhood neighbor of mine in Rochester, New York.

But, see here.  What R&R are really advocating is a kind of soft austerity.  They actually bring up the subject of “debt write-downs”, which maybe, I guess, would take the form of some across the board percentage. But if it doesn’t, then how exactly do R&R hope to accomplish debt write downs? The central bank will strong-arm certain players to do that? What if they won’t? What about the others, the ones the central bank doesn’t strong-arm? Who gets the strong arm and who doesn’t?

A lot more to that, methinks.  Again, the law is involved, and it’s kind of amazing to see these very smart people at Harvard walk right up to that door and then leave it closed as if they’re terrified of what’s inside the next room.

If you’re not going to be “dismissive” of debt then to the extent you’re not writing debt down you’re advocating some version of austerity. This is what it means to be economically austere.  Then again, aren’t R&R being dismissive of debt when they advocate that it should be increased?

A higher borrowing trajectory is warranted, given weak demand and low  interest rates, where governments can identify high-return infrastructure  projects. Borrowing to finance productive infrastructure raises long-run  potential growth, ultimately pulling debt ratios lower. We have argued this  consistently since the outset of the crisis.

And then there is this concern, and it has to do with interest rates:

No one fully understands why rates have fallen so far so fast, and therefore no one can be sure for how long their current low level will be sustained…Economists simply have little idea how long it will be until rates begin to  rise. If one accepts that maybe, just maybe, a significant rise in interest  rates in the next decade might be a possibility, then plans for an unlimited  open-ended surge in debt should give one pause.

Why should it give us pause, R&R?  Why shouldn’t people just be snapping up all the “free money”?  This is a revealing quote. The concern, the “pause” is the risk to lenders from a rising interest rate environment. Their portfolio of low interest receivables gets decimated.

Why did rates fall “so far so fast”? It’s quite simple, really. The parasite has killed the host. The potential borrowers are all tapped out, they can’t borrow anymore, so there’s no demand for loans and rates descend in an effort to lure borrowers who no longer exist. The parasitical financial “industry” makes its money by making loans and they’ve made all the money they’re going to make. At least that way. At least from the same pool of borrowers anyway.

How long can it all go on? It’s been going on in Japan for nearly a quarter century. No reason to think we can’t meet or exceed that mark.

H/T my friend from across the pond, Frances Coppola.



Filed under financial crisis

8 responses to “Rogoff & Reinhart Redux

  1. Min

    R&R: “Borrowing to finance productive infrastructure raises long-run potential growth, ultimately pulling debt ratios lower. We have argued this consistently since the outset of the crisis.”

    Well, apparently that message did not get across to the 40 US Senators they met with. It is not in any account of the meeting that I know of. If R&R want to redeem themselves, let them tell those Senators and all the other Senators and Congressmen (like Ryan) who have cited their paper as backing up austerity measures that now is the time to raise the debt ceiling, repeal the sequester, and finance infrastructure.


    • I think R&R are right, and I differ with a lot of people who are otherwise like-minded – such as gold-bugs – that wise government spending on infrastructure, even through debt, is often good for growth.

      Though I question the feasibility of this approach from the high debt levels we have now. Like everything else we might try, it puts us in uncharted water.


  2. Everything you say is true except you’re looking for one-size-fits-all, simple solutions, from the same central planners and central bankers that created this mess. They’ll never solve any of it because they’re not motivated to change what’s worked for them so long and so well. Governments are incredibly complex systems in which nobody is really responsible because they’re separated and shielded within their respective bureaus. Corporations are equally complex bureaucracies, equally shielded by layers of separation from responsibility.

    Incorporated entities, both public and private, share that single trait of being responsible, and having inordinate power, without holding any of its constituents personally responsible. Governments claim responsibility to The People and corporations claim responsibility to “the stockholders” but since legal entities feel no pain, they can’t be punished. In either case there is no *personal* executive responsibility and such institutions only serve the interests that sponsor them.

    Given that corporations now sponsor the government too, major policy decisions of the sort you’re advocating will only happen if the top bureaucrats at the most centralized institutions, both public and private, decide such action is in the best interest of their common sponsors.

    Who, then, serves the un-incorporated citizen, entrepreneur, and small business community that the central planners are planning on? Who serves the other half of the economy; the part that makes all the smaller but much better/smarter business decisions on a daily basis? Who serves the “invisible hand” wisdom of a true, free, non-monopolized market?

    It’s not so much the politicians’ or executives’ lack of wisdom that’s corrupting the system; it’s the system’s lack of political and executive responsibility that’s corrupting the society . Our constitution was intended to prevent the sort of centralization that led to Britain’s empire of private trading companies acting as colonial governments (East India Co.) . The Republic was meant to decentralize power among the states. The federal government was separated into three branches to avoid centralization. States were divided into counties, etc; all to avoid the evil stupidity of over-centralized bureaucracy . Church was separated from state. Corporations were not mentioned because they assumed we’d know better than to permit their proliferation. But we didn’t, did we. Now we can see what evil centralized banking can bring but are helpless to stop them without amending the constitution to re-define the terms of incorporation. ALL incorporation.

    28th Amendment (The Constitutional Emergency Amendment)
    Corporations are not persons and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to:
    1, prohibitions against any corporation;
    a, owning another corporation,
    b, becoming economically indispensable or monopolistic, or
    c, otherwise distorting the general economy;
    2, prohibitions against any form of intervention in the affairs of government by means of;
    a, congressional lobbying
    b, electoral sponsorship or advocacy
    c, educational sponsorship or publication
    d, media news reporting
    3, provisions for;
    a, the auditing of standardized, current, and transparent account books
    b, closing the FRB and the establishment of state-owned banks
    c, civil and criminal penalties to be suffered by corporate executives et al for violation of the terms of a corporate charter.

    Optional: (or possible 29th amendment)
    The 16th Amendment to the United States Constitution is hereby repealed and Congress shall re-write the U.S. Code to reflect the changes embodied herein.


  3. D.R. Carle

    William Falberg, (if that is your real name) I have followed the progress regarding the 28th for some time and would like to submit the following observation for consideration.

    I understand that removing the lynch pins that support the status quo would be a game changer and return power to the States and We the People. I believe the Federal Govt. has a limited role to play at a national level as did the Founders. However, while it is implied the several States would have a role in adhering to a minimum (is it a minimum?) Federal standard, they should also be able to add to it. There is currently no enumerated guaranty for the States to that end. This should be similar to the way State Insurance Commissions function today. Insurance companies do not sell in all States as they don’t qualify in a given State, or care to, it should be the same with another business.

    Because the Amendment does not limit the Federal Govt. power with regard to a Corp. Charter, it could be construed to mean the States have no input or control. I perceive this as an impediment to acceptance by the electorate and or the States. I also believe that without clearly stated and delegated powers, we will see “mission creep” by the Fed. Just sayin’, after all, was it not because of a railroad attorney and an amicus brief way back when, that we today find “CORPORATIONS ARE PEOPLE TOO MY FRIEND!”.


    • D R Carle
      If you’re referring to the amendment-writing fiasco at; yes, I’m the same Falberg and I still haven’t gotten a worthy rebuttal from that or any of the numerous other blogs I’ve posted it on. I do get a growing number of thumbs-up, however, as interweb society awakens to the need for drastic solutions to a seemingly insoluble problem. But you raise a valid question and it warrants a serious debate.

      I agree that the States are entitled to some jurisdiction in the matter but I doubt the current composition of States’ legislatures, being predominantly lackeys for the corporate-sponsored two-party political establishment, will truly represent the will of the People in this action. It is, after all, the state legislatures that originally granted corporate charters (which I believe exceeded their Constitutional authority in the first place) without the necessary restrictions this 28th amendment seeks to enact. It is hard to imagine any scenario in which all 50 states would simultaneously amend their state constitutions to adopt these same draconian measures, so our only real hope is an amendment to the US Constitution .

      Since the issue of national sovereignty is at stake, I think the granting, administration, and jurisdiction over incorporated entities should be turned over to the federal government. Does that mean that States would have no voice in corporate law or policy? Absolutely not ! The US Congress is composed of representatives from all 50 states, therefore removing corporate influence from ALL levels of government must be done as a coordinated action by all 50 States to prevent the possibility of any one State providing sanctuary to existing corrupt institutions (“Wall Street”). There really are two kinds of enemy that a nation might face: foreign and domestic. Sovereign corporations represent the latter and are no less a threat.

      If you can see the concentration of money in “Wall Street” as the underlying cause of the “creeping” centralization of government, doesn’t it follow that restricting the power of corporate money to corrupt government would tend to restrain the power of Congress to corrupt the States (and, subsequently, the Constitution)? Put another way: Wouldn’t the de-centralization of money-power result in the de-centralization of political power?


  4. I honestly don’t know why you guys are so focused on corporations. Corporations can be privately (closely) held, or they can be publicly traded. Ownership or membership is voluntary. They are overwhelmingly the subject of state law, not federal, and federalizing corporation law through an amendment would be one of the most extreme acts of centralization in the nation’s history. Not to mention that I have no idea what “only those rights and privileges deemed necessary for the well being of the People” means and I don’t think you do, either. I don’t think anyone does.

    I appreciate you’re sincerely trying to remedy some perceived wrong, but you’re off on some tangent about corporations grounded in nothing more than vague popular antipathy to them. It makes no sense.

    I’ve formed dozens of corporations. None of them is a threat to anyone’s life or freedom, they’re just a convenient and logical way to do business.


    • Don’t be so quick to dismiss this as some whacko rant. It’s profoundly revolutionary; true. But major structural changes like this are why our Founders included the alternate remedies of Article Five in the Constitution.
      There are indeed all kinds of corporations for all kinds of reasons and all kinds of people. No doubt, if it wasn’t for the tax advantages, half of the corporations in existence wouldn’t be. If it weren’t for the limited liability aspects of incorporation, another large percentage wouldn’t be. The only corporations that would be affected by this amendment are the large, global, monopolistic, and predatory institutions which: 1, lobby Congress; 2, sponsor mass news and educational media; 3, recruit and elect political candidates; 4, monopolize entire sectors of the markets; and 5, threaten national security with foreign entanglements. They are all subject to local, state, and federal law but the only law that restrains the big global corporations is the law of supply and demand. They buy state and federal legislation through various means such as direct lobbying, bribery, and political advocacy of their self-serving goals. All attempts so far to regulate their behavior has been thwarted by corporations’ overwhelming legal advantage in court by: 1, having more, and better, attorneys; 2,taking full advantage of their insane personhood status; 3, having virtually unlimited funds to endlessly consume prosecutors’ time (at taxpayers’ expense); and 4, not having a responsible human to actually punish – even if the government wins a case.
      As far as “extreme acts of centralization” is concerned; remember that POTUS and SCOTUS are centralized concentrations of authority, but the US Congress, to which this amendment gives authority, derives its authority with “the consent of the governed” and is an expression of de-centralized confederation between the various states.
      If incorporation isn’t the foundation of centralization, what is? Corporations centralize money and concentrate the power thereof into the hands of a few executives. When big corporations share a common interest they’re going to naturally form a confederation, association, or community of like-minded special interests with a common goal. The federal government is a confederation of sovereign states, and what we loosely refer to as “Wall Street” is a (deliberately?) less formal confederation of sovereign corporations; many of which, BTW, are not even American. No government is sovereign when it is in debt to banks it cannot control. No citizen is sovereign when he cannot control his government. When banks become Too Big To Fail they become sovereign and no longer need to serve the stockholders; the stockholders serve the TBTF bank. That sounds like tyranny to me. That’s not how a decentralized constitutional republic is supposed to work. Therefore, large corporations (especially banks) must be chartered to serve as public utilities or not at all. The Constitution charged Treasury with the supply and regulation of money; only corporate chicanery brought the Fed into existence and at this point only an amendment can reverse that situation. This amendment therefore is a giant step toward de-centralization.
      Surely you’ve heard the terms: “regulatory capture”, “revolving door politics”, “corporate veil”, “conflict of interest”, “plausible deniability”, “shell corp”, and “degrees of separation”. Corporate personhood grants a level of personal immunity to corporate executives that’s truly above the laws everyone else is subject to. There’s no accountability for fraud because there’s no criminal liability attached to “fictitious persons”. The best they can get is “mismanagement” or “mistakes were made” by apologetic executives. When these executives get rich from fraudulent corporate behavior they’re regarded as heroes by their adoring “stockholders”. So, as a culture, we learn that anything is moral as long as it serves the stockholders. Corporations always have these warm, fuzzy images that can’t do any wrong; because that’s all they are: imaginary images. Reality gets lost in a cloud of ambiguous euphemisms. You rarely see the money-grubbing shysters who run the big corporations and by the time you see TBTF bankers sitting in front of a Congressional hearing, they’re already Too Big To Jail. If their charter forbade the mixing of client funds they’d easily be found guilty of violating a corporate charter and held directly responsible for that alone. Lacking any innate morality, well-written and binding charters are essential to providing corporations with a respect for “The Law”.
      When you claim ignorance over the meaning of “rights and privileges deemed necessary………..” you’re denying knowledge of our Founders intent by the phrase “common good”. Does the privatization of prisons serve the “common good”? How does that serve your profession? It doesn’t serve my sense of “good”. Is that not one of those “self-evident” things that comes with being human? Is your mind so calloused by legal mumbo-jumbo that I have to explain it? I could, but it would be extremely tedious if I had to pretend I was addressing a Martian. Work with me on that; please?
      Again, this amendment would have zero effect on you or your business other than, if adopted, the repeal of the 16th amendment would negate any need to incorporate for most folks. What could be more convenient? No corporate tax forms.
      Oh! And what “antipathy? Most folks accept corporations as a fact of life (like yourself, apparently) and make no distinctions between the big, bad ones I’m addressing and their beloved Joe’s Garage, Inc. Consider: roughly half the GDP is composed of corporate activity. They can’t help but spread their “culture” into the whole of society; corrupting it with their ideal of the “American Dream” : being up to your ass in debt and consumerism.


      • William I’d like to help you. So few care and you sincerely care. I wish that caring was enough. But the fact is that your focus on corporations is too misguided and ill-formed. I don’t even know where to begin. I don’t know how to honestly reply without seeming patronizing or maybe even insulting and you don’t deserve that.

        That said, there’s no shame in deferring to people who have the expertise and education suitable to the task at hand. We all have our contributions to make and we should try to make them. I’m sure there are things you could contribute that I wouldn’t have any ability or even a clue about.

        But ideas for constitutional amendments aren’t among them.


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