h/t to Warren Mosler
Countries that let their debt loads get high risk losing control of their own fiscal sustainability, through an adverse feedback loop in which doubts by lenders lead to higher government bond rates, which in turn make debt problems more severe.
Responses weighted by each expert’s confidence
Participant | University | Vote | Confidence | Comment | Bio/Vote History | |
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Daron Acemoglu | MIT | Strongly Agree | 7 | Bio/Vote History | ||
Alberto Alesina | Harvard | Strongly Agree | 10 | Bio/Vote History | ||
Joseph Altonji | Yale | Agree | 7 | Bio/Vote History | ||
Alan Auerbach | Berkeley | Agree | 7 | Bio/Vote History | ||
David Autor | MIT | Agree | 6 |
This is generically true, but we don’t the threshold where it matters. And not clearly true for countries that borrow in their own currency.
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Bio/Vote History | |
Katherine Baicker | Harvard | Agree | 3 | Bio/Vote History | ||
Marianne Bertrand | Chicago | Strongly Agree | 3 | Bio/Vote History | ||
Raj Chetty | Harvard | Agree | 4 | Bio/Vote History | ||
Judith Chevalier | Yale | Strongly Agree | 8 |
“Risk” is the operative word here; it is hard to forecast ex ante at what point the negative feedback loop will become problematic.
-see background information here |
Bio/Vote History | |
Janet Currie | Princeton | Agree | 4 | Bio/Vote History | ||
David Cutler | Harvard | Agree | 3 |
Lots of particulars matter, including who it is owed to and whether the country has its own currency.
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Angus Deaton | Princeton | Strongly Agree | 7 | Bio/Vote History | ||
Darrell Duffie | Stanford | Strongly Agree | 10 |
In perfect transparent markets, the market clears at an appropriate yield in one step. In actuality, price discovery involves feedback.
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Aaron Edlin | Berkeley | Strongly Agree | 10 |
Does gravity make bricks fall when dropped?
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Barry Eichengreen | Berkeley | Uncertain | 7 |
Much depends on other factors like growth of the denominator of the debt/GDP ratio, which will vary with policies & circumstances.
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Ray Fair | Yale | Strongly Agree | 5 | Bio/Vote History | ||
Pinelopi Goldberg | Yale | Agree | 6 | Bio/Vote History | ||
Claudia Goldin | Harvard | No Opinion | Bio/Vote History | |||
Austan Goolsbee | Chicago | Did Not Answer | Bio/Vote History | |||
Michael Greenstone | MIT | Agree | 7 |
Tough question is definition of “high”. See Rogoff/Reinhardt for best evidence. Does “high” differ for country w global currency, like US?
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Robert Hall | Stanford | Strongly Agree | 8 |
Simple math…interesting that it has not happened to Japan, however.
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Bengt Holmström | MIT | Agree | 8 | Bio/Vote History | ||
Caroline Hoxby | Stanford | Agree | 9 | Bio/Vote History | ||
Kenneth Judd | Stanford | Agree | 4 |
The debt load may be a factor in reputation but the US has experienced great increases in debt in the past without suffering these problems.
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Anil Kashyap | Chicago | Strongly Agree | 9 |
The only question is when the tipping point kicks in. Japan will face trouble after Europe is sorted out, as might the UK and maybe then US
-see background information here |
Bio/Vote History | |
Pete Klenow | Stanford | Strongly Agree | 7 | Bio/Vote History | ||
Jonathan Levin | Stanford | Agree | 6 |
Yes, but clearly conditions vary – right now US can borrow easily with high debt, but some euro countries cannot.
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Eric Maskin | Harvard | Agree | 8 | Bio/Vote History | ||
William Nordhaus | Yale | Agree | 7 | Bio/Vote History | ||
Maurice Obstfeld | Berkeley | Strongly Agree | 10 |
Government vulnerability will depend on the maturity of its debt (more short term debt means more exposure) and the size of its deficit.
-see background information here |
Bio/Vote History | |
Emmanuel Saez | Berkeley | Uncertain | 5 | Bio/Vote History | ||
José Scheinkman | Princeton | Did Not Answer | Bio/Vote History | |||
Richard Schmalensee | MIT | Agree | 3 | Bio/Vote History | ||
Hyun Song Shin | Princeton | Agree | 7 | Bio/Vote History | ||
Nancy Stokey | Chicago | Strongly Agree | 10 |
With debt/GDP around unity, a substantial risk premium can be the difference between the debt load being “sustainable” and “unsustainable.”
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Richard Thaler | Chicago | Agree | 3 |
Yes I suppose so, but what of it?
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Christopher Udry | Yale | Agree | 3 | Bio/Vote History | ||
Luigi Zingales | Chicago | Strongly Agree | 6 | Bio/Vote History |