Is This Interview Self-Refuting?

by Dave Schuler on December 11, 2012

This interview with Jan Hatzius, chief economist for Goldman-Sachs, is getting some attention. Here’s the headline takeaway from the interview:

Hatzius is bullish on the U.S. economy starting in the second half of 2013, because finally he expects private releveraging to occur at a nice clip, and to not be counteracted by a fiscal drag. Says Hatzius:

“If the business sector is basically trying to reduce its financial surplus at a more rapid pace than the government is trying to reduce its deficit then you’re getting a net positive impulse to spending which then translates into stronger, higher, more income, and ultimately feeds back into spending.”

He has a specific explanation and numbers in mind, to explain the private sector’s inclination to reduce its savings, and spend more.

“Since mid-2009, that surplus has gradually come down as businesses and households have gotten closer to where they need to be from a long-term balance sheet perspective. They’ve paid down debt, they’ve eliminated the excess supply of housing, and that’s basically allowed them to reduce the financial surpluses that they run. They’re still running large surpluses – still 5.5 to 7 percent of GDP, but they’re no longer as large. We expect those figures to come down as the balance sheet adjustment process makes further strides and that’s an underlying source of boost to the economy that’s happening on the one side.”

To my eye the balance of the interview is devoted to an explanation of why a marked expansion is unlikely to take place. GDP growth must, by definition, consist of increases in consumer spending, business investment, government spending, or exports or a decrease in imports. Most of the interview is devoted to explanations of why we’re unlikely to see increases in consumer spending, business investment, or government spending. Marked increases in exports would undoubtedly be met by counter-measures from our trading partners as would a sharp decrease in imports.

Perhaps someone can explain it to me but his viewpoint largely seems to consist of “We’re due”. This is a sentiment that any Cub fan can understand but it’s not particularly satisfying.

{ 10 comments… read them below or add one }

Drew December 11, 2012 at 8:37 am

I read a lot of economic reports and data and am unaware that consumer balance sheets have deleveraged.

And in line with yesterday’s comment, I think the notion that excess housing inventory has cleared the market is an errant statistic.

I makes one wonder what the author’s goal is.

Dave Schuler December 11, 2012 at 8:44 am

See here.

There was a brief moment when consumers were deleveraging but very shortly thereafter they went merrily on their way. If Dr. Hatzius is arguing that consumers have deleveraged relative to what otherwise might have been, an argument analogous to the “aggregate demand” one, it would certainly be unconventional.

TastyBits December 11, 2012 at 8:57 am

Part of the increase in consumer debt is student loans, but many students are not finding a job. With loans they cannot repay and no job, they will not be able to borrow for a house, line of credit, or credit card.

Drew December 11, 2012 at 2:15 pm

Dave

I suppose that a debt to asset or income ratio would be better, but I think the conclusion the same.

I do believe that I would be correct to note that a certain J Personna has attributed all economic things bad to consumer deleveraging, and nothing to Obama. So much for that.

I guess we still have George W Bush as a whipping boy. But a stalwart “independant” (snicker) wouldn’t do that.

I’m an economic bear. The consumer got drunk again, but the booze bottle is about empty. Business is hunkered down. Government is broke and something like 70% of all job growth the past couple years has been government.

I say tax Hollywood. 90% of what they produce is pure, worthless crap anyway.

Your populist servant, Drew.

jan December 11, 2012 at 2:53 pm

I say tax Hollywood. 90% of what they produce is pure, worthless crap anyway.

There have been some provocative opinion pieces written lately saying the same thing about the liberal Hollywood elite (tax them more) — most of whom support more taxes on the 2%, while they scramble to hide their own personal wealth from the same taxation.

Did any of you see the article regarding google — Google revenues sheltered in no tax Bermuda soar to 10 billion?

Google Inc. (GOOG) avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company, almost double the total from three years before, filings show.

By legally funneling profits from overseas subsidiaries into Bermuda, which doesn’t have a corporate income tax, Google cut its overall tax rate almost in half. The amount moved to Bermuda is equivalent to about 80 percent of Google’s total pretax profit in 2011.

Ironically, their chairman, Eric Schmidt, was a big Obama supporter:

Mr Schmidt played in a key role in the re-election of President Barack Obama last month, helping to oversee Google’s $700,000 donation to his campaign.

Here’s a guy who bundles a big donation from google, for a candidate who wants to raise the rich’s fair share of income taxes. In the meantime the company he is chairman of is playing fast and furious with hiding their revenues from taxation in Bermuda. This is what the dems vocally criticized Romney about, who, by the way, had his money in taxable accounts.

The word hypocrite comes to mind, a lot, when I think of dems and their words — “Do what I say, but not what I do” kind of garbage.

TastyBits December 11, 2012 at 3:20 pm

@jan

Here’s a guy who bundles a big donation from google, for a candidate who wants to raise the rich’s fair share of income taxes. …

This is what I keep droning on about. When you shield your income, you pay 35% of $0.00, and raising the rate to 39.5% will increase “your fair share” by exactly $0.00. At the same time, you can bemoan not being taxed enough, and as an added bonus, you can beat the Republicans as being cruel and heartless.

The talks of deduction caps has been met with a litany of potential problems. Most of these are not problems, or they are easily solved. The rich Democrats count on the Republicans defending the deductions, and the Republicans never fail to accommodate them.

The House, Senate, and White House are all filled with rich Democrats. Guess who ain’t gonna pay “their fair share”.

Drew December 11, 2012 at 3:22 pm

Jan

As you know, I’ve ceased posting except for the drive by at OTB. (Iv’e also foresworn debating the dog)

James Joyner yesterday posted the obligatory “majority favor taxes on the other guy” post.”

I resisted the temptation to comment with a bastardization of the old quote……. “I disagree with what they believe, but I will defend to the last dollar of Michael Reynolds money their right to believe it.”

Roy Lofquist December 11, 2012 at 8:32 pm

GDP is a piss poor measure of economic health – see Ghost Cities of China:

http://www.bbc.co.uk/news/magazine-19049254

100 million metric tonnes of concrete sure gooses GDP but produces nada of real wealth. Until economists liberate their heads from their posteriors we will continue the unicorn hunt.

Andy December 11, 2012 at 9:04 pm

I read a lot of economic reports and data and am unaware that consumer balance sheets have deleveraged.

I’ve seen that too, though housing may be an exception. Of course if people “deleveraged” housing debt through a short sale or foreclosure, they can’t get much in the way of credit anyway.

Just anecdotally, deleveraging is really hard for most of the people I know, mainly middle and upper-middle class families, assuming they have stable jobs, which many don’t.

jan December 12, 2012 at 12:09 am

The House, Senate, and White House are all filled with rich Democrats. Guess who ain’t gonna pay “their fair share”.

TastyBits

Boy, no truer words have been said! Somehow republicans always take the rap as the fat-cat, rich guys, when in reality the dems are the ones who have the larger share of wealth, especially seen in the Congress. The dems are also the ones who have gotten big oil, rich celebrities, high tech corporate and wall street donations, as well as having the lion’s share of wealthy foundations funneling money to their liberal causes. But, with the media’s assistance, this is all ignored so that the green eyes of envy, followed by derision can be exclusively focused on the republicans.

Basically, this obsession the dems have with turning the classes against each other is just plain destructive, IMO. More likely than not, though, the uber rich will find slick ways to avoid fair-share type of taxation, through their lawyers, shelters, very much like google did, or for that matter, Jeffery Immelt, the guy who ludicrously is Obama’s Jobs Czar, in charge of the president’s Jobs Council, and CEO of GE who doesn’t pay taxes. Gee, what a surprise! Consequently, the people who will be massively hit by this tax will be the not-so-super-rich, who lack the sophistication and resources to circumvent all the new government taxation gimmicks and strategies.

As you know, I’ve ceased posting except for the drive by at OTB.

Drew,. I occasionally will stop by and read the commentary, peruse the comments and then leave. Other than that, it’s a lost cause over there, futile and kind of boring too, as there are fewer diverse opinions posted anymore, in which the regulars swarm and snarkily pick apart,.

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