An economist explains how North Dakota is faring amid concerns of a recession. Plus, the debunking of the government-debt tipping point theory. Also, updates on positive risk sentiment and the rise of progressive economics in the US.
Sources:
https://www.kfyrtv.com/2024/08/10/economist-explains-how-nd-is-faring-amid-concerns-recession-now-past/
https://mindmatters.ai/2024/08/the-government-debt-tipping-point-is-nonsense/
https://www.fxstreet.com/analysis/positive-risk-sentiment-continues-jpy-weaker-economic-data-being-ignored-202408090829
https://kfgo.com/2024/08/09/explainer-harris-walz-pick-shows-rise-of-progressive-economics-in-us/
Outline:
(00:00:00) Introduction
(00:00:42) Economist explains how ND is faring amid concerns of recession now and in the past
(00:03:15) The Government-Debt Tipping Point Is Nonsense
(00:06:51) Positive risk sentiment continues, JPY weaker, economic data being ignored
(00:08:51) Explainer-Harris’ Walz pick shows rise of progressive economics in US
Simply Economics
Economist Analyzes ND’s Economic Resilience, Debunking the Debt Tipping Point
An economist explains how North Dakota is faring amid concerns of a recession. Plus, the debunking of the government-debt tipping point theory. Also, updates on positive risk sentiment and the rise of progressive economics in the US.Sources:https://www.kfyrtv.com/2024/08/10/economist-explains-how-nd-is-faring-amid-concerns-recession-now-past/https://mindmatters.ai/2024/08/the-government-debt-tipping-point-is-nonsense/https://www.fxstreet.com/analysis/positive-risk-sentiment-continues-jpy-weaker-economic-data-being-ignored-202408090829https://kfgo.com/2024/08/09/explainer-harris-walz-pick-shows-rise-of-progressive-economics-in-us/Outline:(00:00:00) Introduction(00:00:42) Economist explains how ND is faring amid concerns of recession now and in the past(00:03:15) The Government-Debt Tipping Point Is Nonsense(00:06:51) Positive risk sentiment continues, JPY weaker, economic data being ignored(00:08:51) Explainer-Harris’ Walz pick shows rise of progressive economics in US
- Duration:
- 12m
- Broadcast on:
- 10 Aug 2024
- Audio Format:
- mp3
Good morning, and welcome to Simply Economics. It's Saturday, August 10th. On today's show, an economist explains how North Dakota is fairing amid concerns of recession now and in the past. Plus, we debunk the notion of a government debt tipping point, and we discuss the rise of progressive economics in the U.S. with Kamala Harris' Waltz pick. This coverage and more, up next. I'm David, and you're listening to Simply Economics. We start off with concerns about a potential recession that have been making headlines. But how is North Dakota fairing amidst the economic uncertainty? Here to provide some insight is our Simply Economics correspondent, Abby. So what can you tell us about the current state of North Dakota's economy compared to the rest of the nation? Well, David, while there have been worries about a recession on a national level, North Dakota seems to be holding steady. Economists point out that recessions occur when a country's gross domestic product or GDP stops growing or contracts. However, North Dakota's key industries like agriculture and energy have helped the state weather economic storms better than other parts of the country. That's interesting. How does North Dakota's economic resilience compare to past recessions the U.S. has faced? Looking back, the 2008 recession was largely a housing crisis that spiraled into a nationwide banking crisis leading to a slow recovery. In contrast, the 2020 economic downturn was triggered by the pandemic, causing a spike in unemployment. However, recovery from the 2020 event was much quicker due to lower interest rates and stimulus payments. North Dakota in particular benefited from its status as a net exporter of goods, especially in the agriculture and energy sectors. So what factors contribute to North Dakota's ability to navigate these economic challenges? A key advantage for North Dakota is its thriving oil and agriculture industries. As a net exporter, the state is less dependent on imports and can sell its goods on international markets. Additionally, North Dakota has consistently maintained lower unemployment numbers compared to the national average. However, it's important to note that the stimulus measures and low interest rates that aided the quick recovery from the pandemic have also contributed to the current inflation we're seeing. How are economists and financial institutions responding to the current inflationary pressures? In an effort to cool inflation, the Federal Reserve has been raising interest rates. This is a common tactic used to stabilize prices and prevent the economy from overheating. While this may slow down economic growth in the short term, it's seen as a necessary step to maintain long-term economic stability. Despite these challenges, North Dakota's unique economic makeup has helped the state remain relatively resilient. Thank you, Abby, for breaking down the complexities of North Dakota's economic situation and providing some historical context. It's clear that while concerns about a recession persist, North Dakota has some unique advantages that have helped it weather past economic storms. Speaking of recessions, a 2010 economics paper by Harvard professor's Carmen Reinhart and Ken Rogoff argued that when a nation's debt-to-GDP ratio rises above 90%, it is likely to slide into recession. This claim had serious implications and was widely followed by policymakers, but it turns out there were major flaws in the analysis. Here with more details is our simply economics correspondent Michael. What exactly was wrong with this influential Reinhart Rogoff paper? The problems with the Reinhart Rogoff analysis were uncovered by Thomas Herndon, a graduate student at UMass Amherst, who tried to replicate their results. First, he found that Reinhart and Rogoff had made a spreadsheet error that completely omitted five countries, Australia, Austria, Belgium, Canada, and Denmark. Critically, three of these omitted countries had debt-to-GDP ratios above 90%, but still experienced positive economic growth, contradicting the paper's key claim. So some key data points that went against their theory were simply left out due to a spreadsheet mistake. That seems like a huge error. Were there other issues beyond that glaring omission? Yes, the problems went further than that. Reinhart and Rogoff also selectively excluded years of data for certain countries in a way that skewed the results. For example, they left out 1946 to 1950 data for Australia, Canada, and New Zealand. Humans that showed those countries had positive growth when their debt-to-GDP was high. New Zealand was a particularly egregious case, since four of the five years excluded were when its ratio was above 90%. Including all five years, New Zealand's average growth in those high debt years was 2.6%, but with a selective exclusion, its growth rate was a disastrous, major 7.6%. Wow, it sounds like they cherry-picked data points to fit their narrative. You mentioned the omissions, but was there also an issue with how they did their calculations and averaging? Absolutely, the unusual averaging exacerbated the problems. As an example, consider the UK and New Zealand. The UK had 19 years with a debt-to-GDP ratio over 90%, with an average growth rate of 2.4%. After excluding four of five years, New Zealand had just one year above 90% with -7.6% growth. If you average all 20 data points, the growth rate is 1.9%. But Reinhart Rogoff instead averaged the two countries' averages, so 2.4% and 7.6% to report average growth of matter 2.5%. That's highly misleading. So to sum up, how different were the results after uncovering and correcting all these errors and unusual methodological choices by Reinhart and Rogoff? The difference is stark. Reinhart and Rogoff originally reported that countries with debt-to-GDP ratios above 90% had an average growth rate of -0.1%, suggesting that high debt leads to recession. But after fixing the spreadsheet error, including the omitted countries in years and doing a proper average, the real growth rate for countries above 90% debt-to-GDP is a positive 2.2%. So the central claim that high debt causes negative growth doesn't hold up to scrutiny. That's a shocking indictment of such an influential economics paper. It underscores the importance of making data and calculations open and transparent so others can properly examine and reproduce the analysis. Thanks for walking us through that revealing breakdown of the Reinhart Rogoff affair, Michael. Now let's turn to some other important economic news to cover today, including the latest on interest rates, recession fears, and market trends. For more, let's bring in our correspondent. So what's the latest from the Fed on interest rates? Kansas City Fed President Esther George indicated the central bank may not be ready to cut rates anytime soon, despite some cooling of inflation. She noted that inflation remains above the Fed's target, and the labor market has not shown significant weakness. Meanwhile, former President Trump, who is running again in 2024, reiterated his view that the president should have influence over Fed rate policy. Recession fears have been looming for a while now. What's the current outlook there, and how are markets reacting? Many economists are now forecasting a recession in the US, which could bring some market volatility. However, risk sentiment has turned more positive this week, with equities and cryptocurrencies moving higher. The Australian dollar has also been gaining ground after initial losses on Monday. All prices continue to rise on growing demand and fading pessimism about the economy. What about other key market trends? Where are precious metals and currencies headed? Gold looks poised for a potential breakout above yesterday's highs, while silver is holding steady above its 50-day moving average. In the currency markets, the US dollar is mixed, but several key crosses like the Euro against the Aussie, Canadian dollar, and New Zealand dollar are pointing to some weakness at the moment. The Japanese yen has also been on the back foot. Thanks for the economic update. Now, shifting gears to the political arena, Vice President Kamala Harris has chosen Minnesota Governor Tim Walz as her running mate in the upcoming presidential election, putting progressive economics at the forefront of the race. Walz is known for his support of policies like free school meals, greenhouse gas reduction goals, expanded paid leave, and protection of collective bargaining and overtime. To help us understand what this means for the election and the economy, we're joined now by our correspondent. So what exactly is progressive economics and how does it differ from the economic policies typically favored by Republicans? Progressive economics is based on the idea that while free markets are powerful and valuable, they require government intervention and oversight to function properly and prevent exploitation of workers and the environment. This contrasts with the trickle-down theory often supported by Republicans, which holds that tax breaks and policies favoring corporations and the wealthy will boost spending and job creation, ultimately benefiting everyone. Progressives argue that some groups need direct government protection and assistance. Projects, however, claim that such policies can undermine the work ethic, stifle innovation, and slow economic growth. It seems like progressive economic ideas have been gaining more traction in recent years, particularly within the Democratic Party. What's behind this shift? The 2008 financial crisis renewed interest in progressive policies, which had largely been sidelined since the 1980s. The election of the squad of progressive Congress members in 2018 and the presidential campaigns of Elizabeth Warren and Bernie Sanders in 2020 further boosted the movement. Even President Biden, long seen as a centrist who backed pro-corporate policies as a senator from Delaware, surprised many by surrounding himself with progressive economic advisers. However, obstacles remain, as evidenced by recent Supreme Court challenges to reforms enacted by the Federal Trade Commission. Governor Wals has tried to reframe the debate by equating progressive policies with neighborliness rather than socialism. How are these ideas likely to play out with voters in the upcoming election? It's a delicate balance. While progressive economic policies have gained popularity, especially among younger voters, there are still concerns about their potential impact on inflation, the national debt, and overall economic growth. Some moderate Democrats have blocked efforts to expand programs like the Child Tax Credit. Ultimately, the Harris Wals ticket will need to convince voters that their vision of an economy with stronger government intervention and support for workers is the best path forward, while also addressing fears about unintended economic consequences. It's shaping up to be a central debate in the race for the White House. It certainly seems like economic policy will be a key battleground in this election. Thanks for helping break down the basics of progressive economics and what Governor Wals' nomination means for the race. And with that, we wrap up our stories for today. Thanks for listening to Simply Economics. We'll see you back here tomorrow. [MUSIC] [BLANK_AUDIO]