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Krugman touts IMF Study and more Deficit Spending

March 10, 2013 in Economics

By Mark Thornton

Paul Krugman is touting a new IMF study which claims that “austerity” increases the National Debt/GDP ratio. The study’s finding is that budget cuts in high debt countries leads to more borrowing because of shortfalls in GDP and tax revenues. This result hinges on the impact of fiscal multipliers. A large multiplier leads to a higher debt/GDP ratio and a small multiplier does not. Its too bad that Krugman does not read the Circle Bastiat blog where Joseph Salerno reported on a different IMF study which showed the fiscal multiplier was small, near zero, and negative over the long haul.

From Salerno’s blogpost:

“Last and most important for the U.S. economy, the study sorts the sample into “country-episodes” where the total central government debt to GDP ratio has exceeded 60 percent for more than three consecutive years. This is the case for the U.S. from 2007 to the present. For the high-debt country-episodes the impact fiscal multiplier is close to zero and the long-run multiplier is -2.30. This means that $1.00 of additional government spending has no effect on impact but in the long run destroys $2.30 of total output in the economy.”

The (IMF) authors conclude, in part:

We have found that the effect of government consumption is very small on impact, with estimates clustered close to zero. This supports the notion that fiscal policy (particularly on the expenditure side) may be rather slow in impacting economic activity, which raises questions as to the usefulness of discretionary fiscal policy for short-run stabilization purposes. . . . Further, fiscal stimulus may be counterproductive in highly-indebted countries; in countries with debt levels as low as 60 percent of GDP, government consumption shocks may have strong negative effects on output. . . . Moreover, fiscal stimuli are likely to become even weaker; and potentially yield even negative multipliers, in the near future, because of the high debt ratios observed in countries, particularly in the industrialized world.

…read more
Source: MISES INSTITUTE

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The Anatomy of D.C.'s Snowstorm Forecast Bust: When Good Science and Good People Go Wrong

March 10, 2013 in Economics

By Patrick J. Michaels

Patrick J. Michaels

It’s a fact that TV meteorologists tend to be a bit more skeptical about the upcoming end of the world than some federal climatologists. One needs only to look at the bare ground in our Nation’s Capital to understand why.

Washington just witnessed the biggest busting of a major snow forecast in a long, long time; in fact, back to November 11, 1987, when double digits fell out of a sky that was supposed to drop maybe an inch. In the recent case, what would have been a record-or near-record snow was forecast by virtually everyone and for very good reasons.

It’s important to define a busted forecast. That’s not one where the forecaster changes his or her mind based upon new information prior to an event. To qualify as a disastrous forecast, a major event has to be predicted and held on to even as it fails to materialize.

Big busts are rare because our computer models are so darned good, lead by the flashy Euro, run twice a day out of the United Kingdom, which has developed a reputation for nailing disruptive Atlantic Coast cyclones days ahead of time. One of those was named Sandy, as it transitioned from a large but not particularly intense hurricane into a large and particularly vicious coastal storm.  The U.S. models, especially the newer SREF (Short Range Ensemble Forecast) aren’t too shabby either, especially compared to what was online during the 1987 bust.

Our “best science” can be wrong.”

The recent disaster also occurred on the watch of a collection of some of the world’s best forecasters, who, for a variety of reasons, are clustered in Washington.

Led by our modern computer output, all of their forecasts failed. The list includes Bob Ryan, a past-president of the 14,000-strong American Meteorological Society, who works for the local ABC outlet. Also included would be Jason Samenow who runs the very popular www.capitalweather.com at the Washington Post, and enjoys cult status in DC. When he walked into my classroom at UVA, I felt like Roy Hobbs’ (“The Natural”) high school coach must have.

The new head of the National Weather Service is the legendary Louis Uccellini. If young Samenow is The Natural, Louis is the Godfather, and his specialty is—wait for it—the Mid-Atlantic snowstorm. In fact, he and Paul Kocin literally wrote the book on them.

I’m pretty sure if Uccellini thought his troops were making a …read more
Source: OP-EDS