Debt May Not Be The Problem

As evident from the articles the professor posted it is clear that even the best and brightest economists have difficulty predicting how economic relations will change in the future. The “Containing Japan” article by James Fallows offered several notable insights on the future of the Japanese economy and relations with neighboring countries, but ultimately his thesis on needing to impose limits on the Japanese Economy proved an inadequate reaction to economic conditions at the time. The article Japanic offers serious concerns about Japan’s future, however, as we should take into consideration even the best Economic models do not account for all real variables that influence economies. Maybe hyperbole is used to draw attention to the fact that a particularly bad economic situation is a possibility. But as should be noted from the article by James Fallows our knowledge on the best Governmental policies to take in response to financial hazards is often found in hindsight.

An article by Sudeep Reddy offers an analysis for high debt economies. The risk for countries with debt at or above 100% of GDP is not as threatening as it may seem and if countries implement long term strategies most economic dangers can be contained. The main concern to this line of thinking is that long term strategies are often difficult to implement because they are viewed unfavorably by the public. Many countries including the United States only focus on short term solutions to economic woes but to be fair economic models work better in the short run than the long run.

[The Prof:

  1. neat!
  2. I edited the graphic to make it larger – if you view the html, you’ll see width and height settings. I boosted each by 1/3rd.
  3. The post does not reference it, but underlying the debate is a deservedly famous book (well, famous among cognoscenti) by Reinhart and Rogoff, This Time is Different (2009).
  4. See my comment for a bit on Fallows (I’ve been on a panel with him, among other interactions).

One thought on “Debt May Not Be The Problem

  1. the prof

    Nice graph! We’ll do more on this topic later on in the term.

    Note that neither Fallows nor Simon nor Boone are economists. Fallows did do an MA at Oxford (if I recall correctly), but as the phrase goes, he knows just enough to be dangerous. He’s a bright and observant guy, but he doesn’t pull together the pieces in “Containing…”. Nor do Simon/Boone, they just take the “word on the street” and apply it to Japan, without apparently delving into the details. It’s hard to know how to approach journalists who dive into topics that have technical foundations, we do want reporting on big issues, but I think the tendency is to publish quickly when more homework would help.

    That said, there are some excellent journalists out there (at the Economist and the Financial Times and at BusinessWeek / Bloomberg).

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