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April 9, 2010

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Paul Krugman: Learning from Greece

Posted: 09 Apr 2010 01:17 AM PDT

What can we learn from Greece:

Learning From Greece, by Paul Krugman, Commentary, NY Times: The debt crisis in Greece is approaching the point of no return. As prospects for a rescue plan seem to be fading, largely thanks to German obduracy, nervous investors have driven interest rates on Greek government bonds sky-high, sharply raising the country's borrowing costs. This will push Greece even deeper into debt, further undermining confidence. At this point it's hard to see how the nation can escape from this death spiral...
It's a terrible story, and clearly an object lesson... But an object lesson in what, exactly? ... The Greek tragedy also illustrates the extreme danger posed by a deflationary monetary policy. And that's a lesson one hopes American policy makers will take to heart. ...
 Greece's predicament is ... not just a matter of excessive debt. Greece's public debt,... 113 percent of G.D.P., is indeed high, but other countries have dealt with similar levels of debt without crisis. For example, in 1946, the United States, having just emerged from World War II, had federal debt equal to 122 percent of G.D.P. ... Over the next decade the ratio of U.S. debt to G.D.P. was cut nearly in half... And debt as a percentage of G.D.P. continued to fall in the decades that followed...
So how did the U.S. ... pay off its wartime debt? Actually, it didn't.... The ratio of debt to G.D.P. fell not because debt went down, but because G.D.P. went up, roughly doubling in ... a decade. The rise in G.D.P. in dollar terms was almost equally the result of economic growth and inflation...
Unfortunately, Greece can't expect a similar performance. Why? Because of the euro..., unlike postwar America, which inflated away part of its debt, Greece will see its debt burden worsened by deflation. ... Deflation ... invariably takes a toll on growth and employment. So Greece won't grow its way out of debt..., it will have to deal with its debt in the face of an economy that's stagnant at best.
So the only way Greece could tame its debt problem would be with savage spending cuts and tax increases, measures that would themselves worsen the unemployment rate. No wonder ... bond markets are losing confidence...
What can be done? The hope was that other European countries would strike a deal, guaranteeing Greek debt in return for a commitment to harsh fiscal austerity. That might have worked. But without German support, such a deal won't happen.
Greece could alleviate some of its problems by leaving the euro, and devaluing. But it's hard to see how Greece could do that... There are no good answers here...
But what are the lessons for America? Of course, we should be fiscally responsible. What that means, however, is taking on the big long-term issues, above all health costs — not grandstanding and penny-pinching over short-term spending to help a distressed economy.
Equally important, however, we need to steer clear of deflation, or even excessively low inflation. Unlike Greece, we're not stuck with someone else's currency. But as Japan has demonstrated, even countries with their own currencies can get stuck in a deflationary trap.
What worries me most about the U.S. situation right now is the rising clamor from inflation hawks, who want the Fed to raise rates (and the federal government to pull back from stimulus) even though employment has barely started to recover. If they get their way, they'll perpetuate mass unemployment. But that's not all. America's public debt will be manageable if we eventually return to vigorous growth and moderate inflation. But if the tight-money people prevail, that won't happen — and all bets will be off.

Is Our Universe in a Wormhole?

Posted: 09 Apr 2010 12:42 AM PDT

Here's the question:

Could our universe be located within the interior of a wormhole which itself is part of a black hole that lies within a much larger universe?

And an attempt at the answer:

Our universe at home within a larger universe?, EurekAlert: ...Such a scenario in which the universe is born from inside a wormhole (also called an Einstein-Rosen Bridge) is suggested in a paper from Indiana University theoretical physicist Nikodem Poplawski in Physics Letters B.
Poplawski takes advantage of the Euclidean-based coordinate system called isotropic coordinates to describe the gravitational field of a black hole and to model the radial geodesic motion of a massive particle into a black hole.
In studying the radial motion through the event horizon (a black hole's boundary) of two different types of black holes -- Schwarzschild and Einstein-Rosen, both of which are mathematically legitimate solutions of general relativity -- Poplawski ... notes that since observers can only see the outside of the black hole, the interior cannot be observed unless an observer enters or resides within.
"This condition would be satisfied if our universe were the interior of a black hole existing in a bigger universe," he said. "Because Einstein's general theory of relativity does not choose a time orientation, if a black hole can form from the gravitational collapse of matter through an event horizon in the future then the reverse process is also possible. Such a process would describe an exploding white hole: matter emerging from an event horizon in the past, like the expanding universe."
A white hole is connected to a black hole by an Einstein-Rosen bridge (wormhole) and is hypothetically the time reversal of a black hole. Poplawski's paper suggests that all astrophysical black holes, not just Schwarzschild and Einstein-Rosen black holes, may have Einstein-Rosen bridges, each with a new universe inside that formed simultaneously with the black hole.
"From that it follows that our universe could have itself formed from inside a black hole existing inside another universe," he said.

By continuing to study the gravitational collapse of a sphere of dust in isotropic coordinates, and by applying the current research to other types of black holes, views where the universe is born from the interior of an Einstein-Rosen black hole could avoid problems seen by scientists with the Big Bang theory and the black hole information loss problem which claims all information about matter is lost as it goes over the event horizon (in turn defying the laws of quantum physics).

This model in isotropic coordinates of the universe as a black hole could explain the origin of cosmic inflation, Poplawski theorizes.

[I'm traveling - though not through a wormhole - this should post automatically.]

links for 2010-04-08

Posted: 08 Apr 2010 11:04 PM PDT

Keynes and Hayek

Posted: 08 Apr 2010 04:41 PM PDT

Just got back from this session:

1930 and the Challenge of the Depression for Economic Thinking: Friedrich Hayek versus John Maynard Keynes
Moderator: Philip Mirowski, Carl Koch Professor of Economics and the History of Science at the University of Notre Dame
Robert Skidelsky, Emeritus Professor of Political Economy at the University of Warwick, England.
Speaker Papers
Bruce Caldwell, Editor of The Collected Works of F. A. Hayek, History of Economic Thought, Economic Methodology Professor, Duke University
Speaker Papers

It's late, the session ended after 11, and I haven't slept since who knows when, so let me just add two things.

First, after hearing the talk tonight on Hayek from Bruce Caldwell, I think someone should write "Hayek and the Hayekians" (Axel Leijonhufvud -- see the link-- is participating in the session I'm moderating tomorrow. I asked him how to pronounce his name tonight, and he was very gracious in coaching me, it means "lion's head" and it helps to break it up that way, but I'll probably blow it. I'll try listening to this.)

Second, walking back I wondered what macroeconomic theory would be like today if Keynes had never lived? How important was one person in the development of an alternative theoretical paradigm, one that found acceptance due top the Great Depression (though the competition between the ideas of Keynes and Hayek was more intense than I realized).If it's overly dependent on the existence of one person -- Keynes -- what does that say about the chances of a new theoretical paradigm emerging after this crisis (something many people at this conference believe is needed).

There was a tour today of Keyne's office and the archives with his original manuscripts, Hayek's manuscripts too, but I missed it because my plane was stuck on the ground in Denver with a maintenance issue for 1-2 hours, that'll cheer you up before a long flight to London, then the bus from London to Cambridge was way slower than promised...

Hadn't been here before -- interesting place.

Reblog: Wow! Cash for Clunkers Worked!!

Posted: 08 Apr 2010 03:42 PM PDT

Reblogging Brad DeLong:

That surprises me. But Christy Romer and Chris Carroll have a graph: Did 'Cash-for-Clunkers' work as intended?:

Edmunds-chart-final2[1]

via delong.typepad.com

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