How Government Borrowing Affects Private Saving

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John Pielemeier 1 Poor Health, Poor Women: How Reproductive Health Affects Poverty By Margaret E. Greene Does poor reproductive health prevent poor women from escaping poverty? Despite the plethora of survey data showing that poor households tend to be larger and that poor women tend to have higher rates of fer- tility, experts have debated whether these conditions cause poverty or are symptoms of poverty. In research funded by the MacArthur Foundation and published by the World Bank, Thomas Merrick and I found that poor reproductive health outcomes—early childbear- ing, maternal mortality/morbidity, and unintended/ mistimed pregnancy—have negative effects on overall health, and, under certain circumstances, on educa- tion and household well-being. FOCUS on population, environment, and security Issue 16 June 2008 Lessons From the First Generation of Integrated Population, Health, and Environment Projects FOCUS on population, environment, and security 2 Shifting Priorities, Falling Funding At the September 1994 International Conference on Population and Development (ICPD) in Cairo, Egypt, the reproductive health field underwent a major shift. Instead of viewing family planning sole- ly as a way to “control” population growth, policy- makers and practitioners re-envisioned it as part of a comprehensive approach that sought to empower women, meet men and women’s stated health needs, and improve sexual health and quality of life. This shift spurred donor pledges, although contributions still fell short. Since the ICPD, many in the donor community have changed their approach to development financ- ing, diverting funds away from projects that focus primarily on reproductive health. Donor agencies and development banks have shifted support from specific health services (e.g., maternal health or family planning) to entire health sector programs, with some funding targeted for high-priority prob- lems such as HIV/AIDS and infectious diseases. These donors—and the parliaments that approve their budgets—grew impatient with “traditional” approaches to aid that produced limited results or benefited the rich more than the poor. They now favor results-oriented programs that seek to address the underlying structural problems of poverty or broad international development goals, rather than provide specific health services. Current health fund- ing is more likely to be tied to broader grants or the Millennium Development Goals (MDGs), which do not include family planning and reproductive rights. To respond to this shift in donor priorities, the reproductive health sector needs to demonstrate that poor reproductive health does, in fact, make it more difficult for a woman and her family to escape pov- erty. Common sense suggests that poor reproductive health outcomes—such as early pregnancies, unin- tended pregnancies, excess fertility (when actual births exceed desired fertility), and poorly managed obstetric complications—would increase the chanc- es of remaining poor. While many researchers have demonstrated the effects of poverty on reproductive health outcomes, fewer have focused on the reverse relationship. Robust, compelling evidence link- ing good reproductive health to poverty reduction would support efforts to include it in country-level poverty reduction strategies and in the allocation of international poverty reduction funding. Results: Reproductive Health Matters We grouped reproductive health outcomes under three broad headings: early childbearing; maternal mortality and morbidity; and unintended/mistimed pregnancy and large family size. Clearly, these group- ings overlap; early childbearing may How Government Borrowing Affects Private Saving How Government Borrowing Affects Private Saving By: OpenStaxCollege A change in government budgets may impact private saving Imagine that people watch government budgets and adjust their savings accordingly For example, whenever the government runs a budget deficit, people might reason: “Well, a higher budget deficit means that I’m just going to owe more taxes in the future to pay off all that government borrowing, so I’ll start saving now.” If the government runs budget surpluses, people might reason: “With these budget surpluses (or lower budget deficits), interest rates are falling, so that saving is less attractive Moreover, with a budget surplus the country will be able to afford a tax cut sometime in the future I won’t bother saving as much now.” The theory that rational private households might shift their saving to offset government saving or borrowing is known as Ricardian equivalence because the idea has intellectual roots in the writings of the early nineteenth-century economist David Ricardo (1772–1823) If Ricardian equivalence holds completely true, then in the national saving and investment identity, any change in budget deficits or budget surpluses would be completely offset by a corresponding change in private saving As a result, changes in government borrowing would have no effect at all on either physical capital investment or trade balances In practice, the private sector only sometimes and partially adjusts its savings behavior to offset government budget deficits and surpluses [link] shows the patterns of U.S government budget deficits and surpluses and the rate of private saving—which includes saving by both households and firms—since 1980 The connection between the two is not at all obvious In the mid-1980s, for example, government budget deficits were quite large, but there is no corresponding surge of private saving However, when budget deficits turn to surpluses in the late 1990s, there is a simultaneous decline in private saving When budget deficits get very large in 2008 and 2009, on the other hand, there is some sign of a rise in saving A variety of statistical studies based on the U.S experience suggests that when government borrowing increases by $1, private saving rises by about 30 cents A World Bank study done in the late 1990s, looking at government budgets and private saving behavior in countries around the world, found a similar result 1/3 How Government Borrowing Affects Private Saving U.S Budget Deficits and Private Savings The theory of Ricardian equivalence suggests that any increase in government borrowing will be offset by additional private saving, while any decrease in government borrowing will be offset by reduced private saving Sometimes this theory holds true, and sometimes it does not hold true at all (Source: Bureau of Economic Analysis and Federal Reserve Economic Data) So private saving does increase to some extent when governments run large budget deficits, and private saving falls when governments reduce deficits or run large budget surpluses However, the offsetting effects of private saving compared to government borrowing are much less than one-to-one In addition, this effect can vary a great deal from country to country, from time to time, and over the short run and the long run If the funding for a larger budget deficit comes from international financial investors, then a budget deficit may be accompanied by a trade deficit In some countries, this pattern of a twin deficits has set the stage for international financial investors first to send their funds to a country and cause an appreciation of its exchange rate and then to pull their funds out and cause a depreciation of the exchange rate and a financial crisis as well It depends on whether funding comes from international financial investors Key Concepts and Summary The theory of Ricardian equivalence holds that changes in government borrowing or saving will be offset by changes in private saving Thus, higher budget deficits will be offset by greater private saving, while larger budget surpluses will be offset by greater private borrowing If the theory holds true, then changes in government borrowing or saving would have no effect on private investment in physical capital or on the trade balance However, empirical evidence suggests that the theory holds true only partially 2/3 How Government Borrowing Affects Private Saving Self-Check Questions Imagine an economy in which Ricardian equivalence holds This economy has a budget deficit of 50, a trade deficit of 20, private savings of 130, and investment of 100 If the budget deficit rises to 70, how are the other terms in the national saving and investment identity affected? Ricardian equivalence means that private saving changes to offset exactly any changes in the government budget So, if the deficit increases by 20, private saving increases by 20 as well, and the trade deficit and the budget deficit ...I Didn't Do It: How The Simpsons Affects Kids The Simpsons is one of Americas most popular television shows. It ranks as the number one television program for viewers under eighteen years of age. However, the ideals that The Simpsons conveys are not always wholesome, sometimes not even in good taste. It is inevitable that The Simpsons is affecting children. Matt Groening took up drawing to escape from his troubles in 1977. At the time, Groening was working for the L.A. Reader, a free weekly newspaper. He began working on Life in Hell, a humorous comic strip consisting of people with rabbit ears. The L.A. Reader picked up a copy of his comic strip and liked what they saw. Life in Hell gradually became a common comic strip in many free weeklies and college newspapers across the country. It even developed a cult status. (Varhola, 1) Life in Hell drew the attention of James L. Brooks, producer of works such as Taxi, The Mary Tyler Moore Show, and Terms of Endearment. Brooks originally wanted Groening to make an animated pilot of Life in Hell. Groening chose not to do so in fear of loosing royalties from papers that printed the strip. Groening presented Brooks with an overweight, balding father, a mother with a blue beehive hairdo, and three obnoxious spiky haired children. Groening intended for them to represent the typical American family "who love each other and drive each other crazy". Groening named the characters after his own family. His parents were named Homer and Margaret and he had two younger sisters named Lisa and Maggie. Bart was an anagram for "brat". Groening chose the last name "Simpson" to sound like the typical American family name. (Varhola, 2) Brooks decided to put the 30 or 60 second animations on between skits on The Tracy Ullman Show on the unsuccessful Fox network. Cast members Dan Castellaneta and Julie Kavner did the voices of Homer and Marge. Yeardley Smith (later to star in Herman's Head) did the voice of Lisa. Nancy Cartwright did the voice of Bart. Cartwright previously supplied the voices for many cartoons, including Galaxy High, Fantastic Max, Richie Rich, Snorks, Pound Puppies, My Little Pony, and Glo-Friends. Tracy Ullman later added Cartwright to her cast. (Dale and Trich, 11) Brooks, Groening, and Sam Simon, Tracy Ullman's producer, wanted to turn the Simpson family into their own show. The Fox network was looking for material to appeal to younger viewers. The only show they had that drew a young audience was Married With Children. To Fox's pleasure, The Simpsons saved the network from near failure. (Varhola, 3) On December 17, 1989, The Simpsons got their break. The Christmas special, "Simpsons Roasting on an Open Fire" aired. (Dale and Trich, 19) In the episode, Bart got a tattoo, much to Marge's dislike. She quickly spent all of the family's Christmas money to remove Bart's tattoo with a laser. At the same time, Homer, still on his morning coffee break at 4:00 in the afternoon, learns that he will not receive a Christmas bonus. When he learns that Marge is relying on the money for Christmas, he decides that he will do the Christmas shopping for the year. He quickly buys Marge panty hose, Bart paper, Lisa crayons, and Maggie a dog toy. When he realizes that he is not doing very well, he gets a second job as a mall Santa for the extra money. On the way home from work, he steals a Christmas tree. The next day at the mall, Bart sits on his Dad's lap and pulls down his beard. Homer responds by choking Bart and making him help make Christmas better. On Christmas Eve, Homer receives his check, $13.70 for over 40 hours work. Wunsch and colleagues analyzed the eff ect of window rooms on critically ill patients admitted to the ICU with subarachnoid hemorrhage, and concluded that the presence of a window in an ICU room did not improve their outcomes [1]. We commend the attempt to asso- ciate natural light with improved outcomes for hospital- ized patients, but we have some concern as regards the data analysis and interpretation.  e Hunt–Hess grade has been well accepted to correlate with subarachnoid hemorrhage mortality [2,3]. Although the authors performed subgroup analysis in patients with a Hunt–Hess score of I to III during the ICU stay, further stratifi ed analyses according to the Hunt–Hess score still are needed.  is analysis may exclude disease severity as a confounding factor, espe- cially when natural light does not aff ect the outcomes of critically ill patients as markedly as does disease severity. We would therefore like to ask whether there is a diff erence regard ing disease outcomes in subgroups of patients with diff erent Hunt–Hess scores. We have noted that patients with both aneurysmal and spontaneous nonaneurysmal subarachnoid hemorrhage were included. Since the Hunt–Hess score was initially designed for cerebral aneurisms [4], we are also interested to know whether the authors performed subgroup analyses based on aneurys mal and nonaneurysmal etiologies.  e potential importance of natural light for quality care of critically ill patients should be emphasized, especially in terms of minimizing circadian rhythm disruptions [5]. Moreover, as recommended by the Society of Critical Care Medicine, light in the ICU should be designed to be adjustable [5].  is factor seems to be crucial for studies aiming to explore the role of natural light in improving the outcomes of critically ill patients. Otherwise the actual eff ects of natural light might be signifi cantly weakened by the 24-hour glaring artifi cial light in an ICU. © 2010 BioMed Central Ltd How natural light a ects critically ill patients with subarachnoid hemorrhage Hongliang Zhang 1,2 * and Jiang Wu 1 See related research by Wunsch et al., http://ccforum.com/content/15/2/R81 LETTER Authors’ response Hannah Wunsch, Hayley Gershengorn, Stephan A Mayer and Jan Claassen We appreciate the thoughtful comments and queries of Zhang and Wu. We agree that there are many potential analyses that might result in identifi cation of benefi t (or harm) in specifi c subgroups of patients. However, we limited our analyses to the subgroups we had chosen a priori due to the size of the cohort [1]. In particular, we chose not to stratify patients into smaller subgroups, such as individual Hunt–Hess scores, because the resulting groups would then be inadequately powered to identify reasonable diff erences in outcomes. We appre- ciate the suggestion regarding stratifi cation by aneurys mal and nonaneurysmal etiology, and in post hoc analyses we did not fi nd any diff erence in our primary outcomes of the modifi ed Rankin Scale at hospital discharge, at 3months and at 1 year.  e question of the eff ect of light on critically ill patients is complex. We are clearly only at the beginning of exploratory analyses both to identify appropriate patient groups for study and to understand the mecha- nisms of action of light in the human body during critical illness. Current analyses are limited by available data and we hope that future studies may allow for prospective design, including randomized trials, to examine this important issue. Abbreviations ICU, intensive care unit. Competing interests The authors declare that they have no competing interests. *Correspondence: drzhl@hotmail.com 1 Department of Neurology, First Hospital of Jilin University, Jilin University, Xinmin Street 71#, 130021 Changchun, China Full list of author information is available at the end of the article Zhang and Wu Critical Care 2011, 15:423 http://ccforum.com/content/15/3/423 © 2011 [...]... who are not acutely hungry are more anxious about ourselves and our own economic security As I write this in late 2013, our economy still underperforms for most Americans As a result, this personal economic anxiety is understandable But We Are Better Than This shows that the path forward to a better economic environment for all of us lies through more government involvement, not less When we starve government. .. about what we are doing today, how well we are doing it, and how much it might cost to do it better I therefore situate the United States as one country among many, and I construct report cards for the current health and performance of our society and our government across a range of important functions When these report cards are examined objectively, we emerge as much less exceptional than we pretend... revenues are applied This book responds to these narcissistic false syllogisms Its purpose is to provide readers with a fair and comprehensive review of how we collectively are doing in promoting the happiness of our society, to explain fundamental economic and political precepts relevant to analyzing our options, and to propose programs by which government spending can enhance our welfare— meaning both our. .. programs In making the economic case for government investment and social insurance functions that work with, not against, the private sector, We Are Better Than This shows that we can afford to pay for government to take on a larger role, and that our semi-annual budget emergencies are largely false fiscal crises It calls for somewhat higher federal income tax rates than those in force in 2013 (except... inferences we should draw from that Finally, the book returns to the area of my own academic work, which is the design of our tax system Again, government does not exist to tax: it exists to spend, and tax design is just a question of how efficiently to raise the necessary revenues to support productive government spending But of course there are smart and dumb ways to impose taxes, and I therefore suggest how. .. every decision by government to spend money necessarily requires an offsetting commitment to raise the revenues to pay for that spending Friedman’s aphorism is as close to a Newtonian law as economics gets Of course, government has a few choices of how to relate taxing to spending, some of which are more disreputable than others Its honorable choices are to tax now to pay for current spending, or to... happiness, through the mediation of government As former congressman Barney Frank was fond of saying, government is just the things we decide to do together We give expression to the shared values we wish to promote in large measure by deciding to invest in them We all kick in money into a central pot through taxes, and we spend that money to promote the happiness of our society To breathe new life into... tolerant of homosexuality It is true that we spend an extraordinary amount on our military —about 42 percent of the entire world’s military budget—but the metaphor of our fiscal soul reminds us that we define ourselves as more than a standing army, and that thoughtful government spending and taxing actually advance the values we hold dearest, and thereby the happiness of our society THE INSTRUMENTS OF FISCAL... unhappy ways, like our insistence on spending much more on healthcare (nearly $1 trillion ever year in excess spending) thHow Corporate Governance Affects Firm Value: Evidence on Channels from Korea BERNARD S. BLACK Northwestern University Law School and Kellogg School of Management WOOCHAN KIM KDI School of Public Policy and Management HASUNG JANG Korea University Business School KYUNG-SUH PARK Korea University Business School Draft January 2012 European Corporate Governance Institute Finance Working Paper No. 103/2005 KDI School Working Paper Series Working Paper No. 08-19 Northwestern University School of Law Law and Econ Research Paper Number 09-23 University of Texas School of Law Law and Economics Working Paper No. 51 University of Texas, McCombs School of Business Working Paper No, FIN-01-05 This paper can be downloaded without charge from the Social Science Research Network electronic library at: http://ssrn.com/abstract=844744 ii How Corporate Governance Affects Firm Value: Evidence on Channels from Korea + BERNARD S. BLACK * Northwestern University Law School and Kellogg School of Management WOOCHAN KIM ** KDI School of Public Policy and Management HASUNG JANG *** Korea University Business School KYUNG SUH PARK **** Korea University Business School + We thank Vladimir Atanasov, Ronen Avraham, Vidhi Chhaochharia, Conrad Ciccotello, Julian Franks, Mariassunta Gianetti, Jeff Gordon, Dan Hamermesh, Jay Hartzell, Yrjo Koskinen, Kate Litvak, Paul Tetlock, Hannes Wagner, and [to come], and workshop and conference participants at American Law and Economics Association Annual Meeting (2009), 4th Asian Corporate Governance Conference; Canadian Law and Economics Association 2005 Annual Meeting; Centre for Economic Policy Research, European Summer Symposium in Financial Markets (2009), Darden-World Bank International Finance Conference (2009); Second International Conference on Corporate Governance in Emerging Markets (Sao Paulo, Brazil, 2009); European Finance Association (2009); Duke Law School, Hebrew University Conference on Corporate Governance, Family Firms, and Economic Concentration (2011), Hong Kong Baptist University, Indian School of Business, Third Annual Conference on Emerging Markets Finance (2009); KDI School of Public Policy and Management; Korea University School of Business; University of Michigan, Ross School of Business; University of Texas, McCombs School of Business, University of Texas Law School, Department of Finance; and [to come] for comments on earlier drafts. We also thank KDI School of Public Policy and Management for financial support and Seo-Yeon Hong and Jeong-Eum Kim for research assistance. * Nicholas J. Chabraja Professor, Northwestern University, Law School and Kellogg School of Management. Tel: (+1) 312-503-2784, e-mail: bblack@northwestern.edu ** Professor of Finance, KDI School of Public Policy and Management, Chongyangri-Dong Dongdaemun-Ku, Seoul, Korea 130-868. Tel: (+82-2) 3299-1030, fax: (+82-2) 968-5072, e-mail: wc_kim@kdischool.ac.kr *** Professor of Finance, Korea University Business School, Anam-Dong, Sungbuk-Ku, Seoul, Korea 136-701. Tel: (+82-2) 3290-1929, fax: (+82-2) 929-3405, e-mail: jangya@chollian.net **** Professor of Finance, Korea University Business School, Anam-Dong, Sungbuk-Ku, Seoul, Korea 136-701, Tel: (+82-2) 3290-1950, e-mail: kspark@korea.ac.kr iii ABSTRACT Prior work in emerging markets provides evidence that better corporate governance predicts higher firm market value, but little evidence on the channels through which governance affects market value. We first show that higher scores on a Korean Corporate Governance Index (KCGI) predict higher Tobin's q, principally through a board structure subindex, with strong evidence of causation due to 1999 board structure reforms. The board structure reforms then induce improved disclosure. We then provide evidence that governance predicts reduced cash-flow tunneling by controllers and improved capital allocation decisions. For the .. .How Government Borrowing Affects Private Saving U.S Budget Deficits and Private Savings The theory of Ricardian equivalence suggests that any increase in government borrowing will... Data) So private saving does increase to some extent when governments run large budget deficits, and private saving falls when governments reduce deficits or run large budget surpluses However,... equivalence holds that changes in government borrowing or saving will be offset by changes in private saving Thus, higher budget deficits will be offset by greater private saving, while larger budget