Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, November 18, 2014

AI Summary. Japan's total debt burden has risen less than in most other developed economies, with the productive sector cutting its debt by about 40 percentage points of GDP since the 1980s even as nominal incomes stayed flat. Real household consumption fell 3.5% over a year following a sales tax increase from 5% to 8%.

Matthew Klein FT Alphaville
Date Posted:
Is Database:
Database

Japan’s debt issue is often misunderstood, as the country’s total debt burden has increased less than in most other developed nations.

Is Japan's debt burden smaller than commonly believed?

Core argument: Japan's productive sector cut its debt by about 40 percentage points of GDP since the 1980s despite flat nominal incomes, while Japan's total debt burden rose less than in most other developed nations.

Japan's debt issue is often misunderstood, as the country's total debt burden has increased less than in most other developed nations. While government indebtedness (net of assets) rose significantly during deleveraging, the productive sector reduced its debt by about 40 percentage points of GDP since the 1980s, despite flat nominal incomes. The government's strategy focuses on boosting domestic spending through a cycle of higher consumption, private investment, and wage growth, rather than regressive tax hikes. However, real household consumption fell 3.5% over the past year, partly due to a sales tax increase from 5% to 8%, which contributed to a GDP decline. This highlights the challenge of balancing fiscal credibility with economic growth, as further tax hikes could risk economic contraction.

Takeaways by Macro Roundup® AI

  1. Japan's productive sector cut its debt by about 40 percentage points of GDP since the 1980s despite flat nominal incomes, while Japan's total debt burden rose less than in most other developed nations.
  2. Real household consumption in Japan fell 3.5% over the past year, partly due to a sales tax increase from 5% to 8% that contributed to a decline in GDP.
  3. Japan's government strategy centers on raising domestic spending through a cycle of higher consumption, private investment, and wage growth rather than regressive tax hikes.

the last chart "Total Debt" is really interesting

http://ftalphaville.ft.com/2014/11/17/2045622/japans-debt-problem-in-perspective/

Japanese government officials have repeatedly said (including to us) that their goal is to reinvigorate domestic spending by encouraging a virtuous cycle of higher consumption => more private investment => faster wage growth => higher consumption, and so forth. That also happens to be a better way to reduce the country’s indebtedness than regressive tax hikes that take money out of the pockets of people who are already having a tough time dealing with falling real incomes.

But those who focus exclusively on government indebtedness miss the fact that Japan’stotaldebt burdenhas increasedlessthan in most other rich countries:

To be sure, government indebtedness(net of assets) rose a lot during this period of deleveraging:

The chart only shows total *private* credit, but the clear story is that the productive sector has managed to heroically reduce its debt burden by about 40 percentage points of GDP following the excesses of the 1980s. The achievement has been all the more remarkable considering that nominal incomes have been essentially flat over that period.

But suppose that the level of Japanese debt were a constraint on policymakers. Whichdebt actually matters? A chart from a recentspeechby Takehiro Sato of the Bank of Japan — one of thedissenterson the Halloween decision to increase the pace of asset purchases — helps put things in perspective:

Why this hasn’t already happened over the past two decades of rising government indebtedness, the result of economic stagnation and a shrinking workforce, is generally left unexplained. And besides, the country’s existing “credibility” has beenunhelpfulat achieving the goal of faster inflation, so we really don’t understand why the government would be willing to tank the economy for the sake of maintaining it.

Despite the signs that the government would be unwise to continue to raise taxes, several people, notably Adam Posen, have made the case that doing so is necessary to maintain the country’s fiscal “credibility” and prevent a crisis wheresoaring real interest ratescause the economy to collapse.

And while the level of real business investment is still about 3 per cent higher than it was a year ago, government ministers would be right to be worried that capital expenditures have continued to fall:

What the government didn’t expect, and what is encouraging Prime Minister Abe todelay(if not renege on) the plan to raise the tax rate to 10 per cent, was the economy’s failure to snap back. For example, the latest data show that real household consumption, excluding imputed rent, plunged by3.5 per centover the past 12 months to its lowest level since the Tohoku earthquake hit in 2011:

The best way to get less of something is to tax it, so nobody should have been surprised when Japanese GDP cratered after the sales tax was raised from 5 per cent to 8 per cent in April.

Tuesday, December 2, 2014

AI Summary. Analyses find no clear relationship between inequality and economic performance, and the evidence that inequality reduces growth is less robust than conventional wisdom assumes. The authors argue policymakers should look beyond simple correlations to more nuanced factors shaping both growth and equity.

Paul Krugman Krugman Blog
Date Posted:
Is Database:
Database

Inequality-growth relationship challenges orthodoxy: @PaulKrugman analysis finds no clear correlation btw economic performance and income gaps. Key finding contradicts traditional inequality-growth trade-off theory.

Does inequality reduce economic growth?

Core argument: The evidence that inequality harms economic growth is weaker than conventional wisdom assumes, with analyses finding no clear relationship between inequality and economic performance.

The relationship between inequality and economic performance is complex and not as straightforward as conventional wisdom suggests. While some argue that inequality negatively impacts growth, the evidence supporting this claim is not as robust as often assumed. Recent analyses indicate that the absence of a clear relationship between inequality and economic performance marks a significant shift from traditional views. It is crucial to move beyond simple correlations and explore more nuanced factors that might influence this dynamic. Understanding these complexities can help policymakers design more effective economic strategies that consider both growth and equity.

Takeaways by Macro Roundup® AI

  1. The evidence that inequality harms economic growth is weaker than conventional wisdom assumes, with analyses finding no clear relationship between inequality and economic performance.
  2. The absence of a clear relationship between inequality and economic performance marks a significant shift from traditional views.
  3. Moving beyond simple correlations to more nuanced factors would help policymakers design economic strategies that consider both growth and equity.

"...I’m actually a skeptic on the inequality-is-bad-for-performance proposition..."Inequality and Economic Performance

Krugman, Paul. "Inequality and Economic Performance," Krugman Blog, December 2, 2014. Available at:http://krugman.blogs.nytimes.com/2014/12/02/inequality-and-economic-performance/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body

I’m actually a skeptic on the inequality-is-bad-for-performance proposition — not hard line against it, but worried that the evidence for some popular stories is weaker than I’d like. It’s important to realize that even the absence of a relationship is a big change from conventional wisdom; but how much do we really know for the opposite case?

I’m at a Columbia conference on that topic, giving a talk tonight; my slides arehere(pdf). My basic point is that we need to get beyond reduced-form correlations between inequality and growth, and a few samples of things we might do.