Interest Rate Spreads (Again)

See how the U.S. Germany, and United Kingdom have all seen borrowing costs decline, roughly in the same proportion, despite vastly different public finance regimes, budget deficits, and stocks of debt, because they all have their own currencies (the euro being effectively Germany's currency.)

Here's the borrowing costs of Spain and Italy divering from the original three. No real point to this, but its sometimes helpful to have a picture to illustrate a phenomenon. 

The Agony and the Ecstasy, And the Government Debt

Whoow boy. A big hubub in the blogosphere about whether government debt imposes a burden on "future generations." Lots of input from high places. Check it:
http://krugman.blogs.nytimes.com/2012/10/12/on-the-non-burden-of-debt/
http://delong.typepad.com/sdj/2012/10/the-intergenerational-burden-of-the-debt-nick-rowe-tempts-fate-weblogging.html
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/10/the-burden-of-the-bad-monetary-policy-on-future-generations.html 
http://noahpinionblog.blogspot.com/

And now for some input from a low place, featuring my hat in the ring.
I've basically made this argument before, in my post about the stance of fiscal policy. Noah Smith spells it out well by framing the situation in terms of the effect on the capital stock, or the K term in the Cobb Douglas Production function.

Y = A(t) Ka Nb

The budget deficit affects the economy by absorbing funds that would otherwise have been invested in private capital. To the extent that the budget deficit "crowds out" this private investment, it does it by raising the real interest rate faced by borrowers. It makes sense that a larger budget deficit would raise the interest rate more than a small one, so that as the deficit grows, it increases the "burden" of future generations. Here's an ad hoc rule of thumb I just invented. It's basically an interest rate elasticitiy of the budget deficit:

(% change interest rate / % change in budget deficit)  < 1 no net "burden" on future generations

(% change interest rate / % change in budget deficit) > 1 net "burden" on future generations

Maybe I'll develop this further later. Perhaps something about future taxes.

More Russian Dutch Disease...

Featuring the world's ugliest regression. As Russia has increased its economic "openness" (Imports+Exports)/(GDP) in recent years,  it has not correlated with rising income.

Russia needs a development plan to harness foreign direct investment in new capital and technology, and end the reliance on oil and gas exports and capital flight. Here's an article about the Duma trying to ban officials from moving funds overseas. 

Dutch Disease in Russia

As an aside, I've been investigating some trends with regard to Russia's balance of payments, and noticed two startling strong correlations. Both the value of Russia's exports and its growth in real GDP seem to be determined by the price of crude oil, to an extent greater than I had expected. Enjoy. 

* Dutch Disease is a term originating in the 70s or 80s or something when the Netherlands starting exporting lots of natural gas. These exports drove up their real exchange rate, stunting exports of and investments in other manufacturing industries.

New Obama Ad: Sesame Street vs. Wall Street

Here's a former PBS corresondent commenting on Romney's proposed de-funding of PBS:

http://www.huffingtonpost.com/lee-banville/mitt-romney-big-bird_b_1948460.html

"And so the reaction to this stylistic turn has been a frothy one from many sectors and it is obvious why. When discussing the elimination of the federal support for public broadcasting, Gov. Romney did not mention the liberal-leaning Bill Moyers or the sparsely viewed classical music performances, he went after the biggest star the network has and one that holds special power over generations -- Big Bird.

PBS itself put out a tersely worded statement on the whole thing, pointing out:

In fact, our service is watched by 81 percent of all children between the ages of 2-8. Each day, the American public receives an enduring and daily return on investment that is heard, seen, read and experienced in public media broadcasts, apps, podcasts and online -- all for the cost of about $1.35 per person per year.

If you wanted to take on PBS there are lots of ways to do it. If you want to pick a fight you will probably lose in the court of public opinion, pick on a muppet -- or whatever Big Bird is."

Joseph Stiglitz, Nobel Luddite

Evil, thy name is automation. 

Joseph Stiglitz, a Nobel Laureate, is undoubtedly one of the most brilliant economists alive today. From his work on asymetric information and its effects on microeconomic and macroeconomic decisions to his work at the World Bank and the Clinton White House he has proved himself to be a giant in the field. So I was mightly suprised to read this boneheaded quote, with regard to why the Fed's low interest rate "policy" is bad. 

http://www.washingtonpost.com/opinions/how-policy-has-contributed-to-the-great-economic-divide/2012/06/22/gJQAXTX2vV_story.html

"Today, persistent low interest rates encourage firms that do invest to use capital-intensive technologies, such as replacing low-skilled checkout clerks with machines. In this way, the Fed may still be contributing to a jobless recovery, when we finally do recover."

So additions to physical capital by firms displace workers and kills jobs. If we want to create jobs and end the jobless recovery, we should, I supose, ban purchases of capital equipment by firms and force them to use more labor to produce the same output. Dear God. Actually, I've got a Milton Friedman anecdote right here that's better than my unqualified snark.

"He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels."

P.S. By the way, I think I know the premise Stiglitz was working with here. Its a micro equilibrium condition that determines how much capital and how much labor a firm will use to hold output constant and minimize costs (hence maximizing profits). It goes like this: 

MPl/w = MPk/r 

Where MPl and MPk are the marginal products of labor and capital and w and r are wages and interest, or the cost of labor and cost of capital. Arithmetically, if you lower r relative to w and hold the marginal products and total output constant, you find it behooves the firm to use less labor and more capital to produce the output. I think Stiglitz extrapolated this single-firm condition into a fallacy of composition to the entire economy, ignoring that increases in investment leads not to displaced labor but to an increase in the marginal product of labor, increased, not decreased, labor demand, and RISING, not constant, output. 

The First Obama-Romney Debate: Watch It Here Live (as far as you know)