Introducing... the Cassandra Scale!! [UPDATED]

Glenn Hubbard and Tim Kane have an op-ed in today's New York Times about the dangers of mounting levels of U.S. government debt and Why Something Must Be Done About It.  This appears to be a spin-off from their book, Balance:  The Economics of Great Powers from Ancient Rome to Modern America

Now your humble blogger has heard variants of this argument again and again and again and again and again and again and again over the past few years.  Let's call the category of authors who promote this argument "debtists."  In fact, I've heard it so many times that I have now developed the proprietary ten-point Cassandra Scale to measure the extent to which each individual author hits the erogenous zones of austerity advocates and chattering classes.  Let's see how Hubbard and Kane do!! 

1)  Reference a recent government debt crisis, no matter how invalid the comparison.  Is there a small foreign country that is currently facing exploding debt levels?  A local government that has just declared bankruptcy?  Debtists should warn that the United States is in danger of turning into the next Dubai/Iceland/Greece/Illinois.  Do these cases compare with the U.S. federal government?  Of course not!  But all you need to do is have the reader think that they are comparable cases. 

How do Hubbard and Kane do?  No small country references, but we do get this in the opening paragraph:  "Federal, state and city governments in the United States have lost their fiscal grip, and the saga of Detroit’s bankruptcy is just one example." Note:  state and city governments get dropped from the discussion immediately afterwards, for reasons that will go unmentioned.  One point!

2)  Soberly invoke warnings about national security/foreign indebtedness.  The key to this argument is to not just make it about economics, but national security as well.  It doesn't matter if this argument is total horses**t --  debtists should invoke the amount the United States owes China or some high-ranking member of the foreign policy community to show that this isn't just about dollars and cents, but the American way of life. 

How do Hubbard and Kane do?  They check this box off with the very first sentence:  "Two years ago, Adm. Mike Mullen, at the time the chairman of the Joint Chiefs of Staff, said that debt was the “single biggest threat to our national security” — not some rogue nation, or terrorist group, but debt." Another point!

3)  Invoking the precautionary principle on debt dynamics.  On of the tricky empirical issues with warning about exploding levels of U.S. debt is that all the bad stuff hasn't happened. Interest rates haven't spiked, inflation hasn't reared its ugly head, and even deficit-to-GDP ratios have shrunk rather rapidly over the past few years.  How should debtists combat this?  Warn that things could change at any moment unless we act now.  Guarding against the debtopocalypse is like guarding against an EMP.  Since both are apparently far more likely than a sharknado, clearly Something Must Be Done.  Also, it's an impossible argument to falsify.

How do Hubbard and Kane do?   Well, there is this sentence: "What makes the threat of exploding debt especially dangerous is that it’s not like a faucet that can be easily turned down."  To be honest, however, this isn't that out there of a statement.  No Cassandra point awarded.

4)  Reference the fall of past empires.  It's always good to compare the United States to ancient Rome, Imperial Spain, or Victorian-era Great Britain as examples of past empires that have collapsed due to debt issues. 

How do Hubbard and Kane do?  I'm astonished to say that even though this appears to be one of the central themes of their book, it's nowhere to be seen in this op-ed.  No point. 

5)  Relying on long-term debt projections as gospel.  Those of us who are old enough to remember long-term budget projections from the early 1990s and early 2000s tend to discount current projections into the future the longer out they go.  Debtists, however, should throw caution into the wind and assert that these long-term projections are fact, even if certain background assumptions are in danger of breaking down.

How do Hubbard and Kane do?  Pretty well!  "The C.B.O. still anticipates a 2015 deficit of $378 billion. And Uncle Sam is heading — and this is the best-case scenario — toward nearly a trillion dollars of red ink every year after 2023. In an effort to alert Congress to the danger, the C.B.O. also publishes a more realistic alternative fiscal scenario that anticipates how much will actually be spent by the Treasury in the coming decade. The realistic scenario predicts $1.76 trillion more in debt than the old baseline."  A full point!

6)  Fun with numbers.  Your average reader is not going to look at a gross debt number and think, "well, wait a minute, what does that mean on a per annum basis?" or "as a percentage of GDP, is that all that bad?" or "are these actual outlays or just theoretical commitments?"  Debtists should just use the gross numbers, and the higher the number, the better

How do Hubbard and Kane do?  Meh.  If you look at the quote above, they talk about the $1.76 trillion debt increase but don't bother saying that it's over ten years or what it means as a percentage of GDP.  I'm not awarding them a point.   

7)  Fail to mention private sector deleveraging.  If the government is assuming higher debt loads in order to allow households and private firms to deleverage, that's a good use of budget deficits.  But don't say that! 

How do Hubbard and Kane do?  No mention of U.S. private-sector deleveraging. A full point! 

8)  Compare the government to.... something that is not a government.  Sure, the U.S. government can print currency if necessary and has a much longer time horizon than households and is not like a private-sector firm in many, many ways.  But debtists should use this analogy because it's political gold.  Comparing the U.S. government to a bankrupt family or firm invokes all the moral opprobrium without any blowback!

How do Hubbard and Kane do?  Bingo.  "The federal government continues to analyze Social Security and Medicare through the lens of cash accounting: counting up the costs of new long-term obligations not in the year the obligation is made, but off in the distant future when they must be paid. Private firms must accumulate funds to meet their pension obligations, why not Uncle Sam?"  A full point!

9)  Heterodoxy to signal that you're not insane.  The smart debtist needs to acknowledge that some of their allies might be making some crazy-ass arguments that undermine their overall argument.  Rhetorically distancing one's self from these people is a smart move. 

How do Hubbard and Kane do?  Very well, as they devote a considerable amount of their op-ed to discredit the "starve-the-beast" argument in favor of tax cuts. A full point!   

10)  Propose crazy-ass plan to solve the problem. Whether it's cutting the budget deficit by approximately "$250 billion a year over the next four to five years," or something even more radical, debtists can't just complain about the problem, they must propose a solution.  And the more radical the better!  The more "out there" the solution, the more like it seems like the debt problem must be really, really serious. 

How do Hubbard and Kane do?  They close their op-ed with a passionate argument in favor of, "a 28th Amendment to the Constitution requiring a balanced budget."  If I could award them two points, I would. 

So, tallying up the figures, Hubbard and Kane's op-ed gets a seven on the Cassandra Scale.  Very respectable.  Not Niall Ferguson-level hysteria.... but respectable.   

Readers are encouraged to apply the Cassandra scale to past and future debtist arguments to see how well they score.  It's easy and fun! 

UPDATE:  As many have pointed out, it would appear that Cassandra was the wrong name for this scale.  I was looking for a symbolic name of someone who calls out false warnings when there is no emergency, and it would appear picked a name symbolic of the exact opposite of what I intended.  I blame myself -- I should have taken Mythology instead of that Shakespeare course in college. 

Sooo.... readers are warmly encouraged to come up with a better name for this scale. 

Daniel W. Drezner

How Vladimir Putin explains Ayn Rand

The New York Times' Andrew Kramer has a front-pager today on Vladimir Putin's crazy idea to boost the Russian economy that just might work:

A business owner in Russia has a better chance of ending up in the penal colony system once known as the gulag than a common burglar does.

More than 110,000 people are serving time for what Russia calls “economic crimes,” out of a population of about three million self-employed people and owners of small and medium-size businesses. An additional 2,500 are in jails awaiting trial for this class of crimes that includes fraud, but can also include embezzlement, counterfeiting and tax evasion.

But with the Russian economy languishing, President Vladimir V. Putin has devised a plan for turning things around: offer amnesty to some of the imprisoned business people.

“This can be understood in the Russian context,” Boris Titov, Mr. Putin’s ombudsman for entrepreneurs’ rights, said of what is, even by the standards of the global recession, a highly unusual stimulus effort.

The amnesty is needed, he said, because the government had “overreacted” to the threat of organized crime and the inequities of privatization and over-prosecuted entrepreneurs during Mr. Putin’s first 12 years in power as president and prime minister.

Russia’s economy does need help. In the first quarter, growth fell to a rate of 1.6 percent because oil prices are level. And in that economic climate, few Russians seem willing to risk opening a new business that might create jobs and tax revenue for the government (emphasis added).

Gosh, you think?  Why oh why would jailed Russian entrepreneurs be at all risk-averse in  embracing Putin's New Economic Policy

The amazing thing is that, if Putin was able to successfully crack down on the police cracking down on entrepreneurs for profit, there likely would be a revival of entrepreneurial activity.  Here's one of the stories in Kramer's piece about an arrested entrepreneur:

Ruslan V. Tyelkov, whose short arc from businessman to inmate illustrates both the entrepreneurial spirit that still simmers in Russia and the risks. Mr. Tyelkov, a strapping 32-year-old from Moscow, invested nearly his last ruble to open a wholesale upholstery business that could hardly have gone wrong in Russia: selling leopard-print fabrics.

In 2010, Mr. Tyelkov spent the equivalent of $31,000 for 25,000 yards of Chinese-made leopard-print fabric suitable for chairs and sofas. “It’s very popular here, not only for furniture but cloths, wallpaper, sheets, shoes, bags, everything.”

With no warning, the police arrived at his warehouses and removed every roll on six flatbed trucks, handing it over to a competitor, ostensibly for storage, though it was later sold. Then they arrested Mr. Tyelkov, who spent a year in pretrial detention.

The crime? The police said they suspected copyright infringement of the leopard design. “It was funny at first,” recalled Mr. Tyelkov of his initial meeting with the police. “I asked, ‘Who owns the copyright, a leopard?’ ”

Mr. Titov’s later investigation confirmed the police had colluded with a competitor to seize the merchandise under the pretext of a criminal case, so it could be sold for a profit.

While his business was ruined, Mr. Tyelkov said he did manage to apply his skills to the small challenges of life in jail. He rose to become the informal leader of the cell he shared with a killer, a militant and several drug addicts.

One business owner, the founder of a chain of computer stores, ran his legal operation for nine years from prison, Mr. Titov said, much as some drug kingpins do.

I have no doubt that, if left alone by the policy, Mr. Tyelkov will survive and thrive. 

And it's stories like these that help to explain why Ayn Rand valorized entrepreneurs so much.  Putin's Russia strongly echoes the environment Rand grew up in.  And in this kind of rent-seeking society, there really is something pretty damn heroic about an entrepreneur trying to make a profit without seeking the succor of the state.