6/30/10 Post

BUZZ: Stocks Drop on Growth Fears

News
Private Sector Adds Few Jobs
Private-sector jobs in the U.S. increased by 13,000 last month, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. Economists had expected ADP to report a jobs gain of 60,000 for June. The estimated change in employment for May was revised to a gain of 57,000 from an increase of 55,000 first reported.
Bank Fee Is Eliminated in Financial Bill
The Obama administration supported the change in the final bill, in part because of concern that the proposed fee on big banks in the financial regulatory measure would complicate Mr. Obama’s efforts to impose a separate, larger $90 billion bank tax over 10 years.
23 Doomsayers Who Say We're Heading Toward Depression In 2011
The truth is that we are facing the greatest sovereign debt crisis in modern history. There is no way out of this financial mess that does not include a significant amount of economic pain.
Top 5 Most Economically Optimistic Countries
Who's Weathering the Global Recession?
House votes to give homebuyers 3 extra months to qualify for tax credit
Under current law, homebuyers who signed purchase agreements by April 30 have until Wednesday to close on the sale to qualify for tax credits of up to $8,000. The bill would give buyers until Sept. 30 to complete their purchases. The bill passed 409-5. It now goes to the Senate.
High rates, more fees -- credit card traps here to stay
Beginning Aug. 22, your credit card company won't be able to charge you inactivity fees or excessive late fees, and it will only be allowed to charge you one penalty fee at a time. That's the good news. But banks will still be able to get around many of these rules.
U.S. debt to reach 62% of GDP by year-end: CBO
Lower tax revenues and higher federal spending to fight the recession will push the federal debt to 62% of gross domestic product by the end of this year.
Fiscal 2011 could be hardest yet for states
Fiscal 2011 begins on Thursday for most states, which have turned to another round of cuts and tax increases to try to wipe out the gap. All states with the exception of Vermont must balance their budgets.
Dodd-Frank bill amended to change funding method
The sweeping Dodd-Frank bank reform bill was amended Tuesday by a joint House-Senate conference committee to change the way the bill is funded, in order to address the objections of several key Republican senators.

Blog
Is it 1937 again?
There are many commentaries on David Leonhardt's article today on whether we should be raising taxes and cutting government spending, as was done in 1937. Yet I don't see anyone -- at least not today -- talking about monetary policy during 1936-7.
Secondary Sources: Absent Recovery Engines, Growth Risks, 401(k)s
A roundup of economic news from around the Web.
Oops, they may have made the data up
Fraud can happen to anyone. But confirmation bias always make fraud easier.
City Unemployment Rates: Vegas Struggles, Washington on Top
Fifteen of the 49 largest cities in the U.S. saw year-over-year declines in their unemployment rates in May, according to new Labor Department data, even as the unadjusted national rate — at 9.3% — was 0.2 percentage points above its year-ago level.
2nd Half: Slowdown or Double-Dip?
No one has a crystal ball, but it appears the U.S. economy will slow in the 2nd half of 2010.
Recovery Faces Tough Road, Double Dip or Not
...both the data and the gloom pervading financial markets suggest the current recovery will be a long, painful process.
No Easy Way to Fix Social Security
Keeping Social Security just as it is means not doing a lot of other things that progressives want, because the pockets of the rich are not a bottomless resource.
Treating R&D as Investment, Rather Than Expense, Boosts GDP
If research and development costs were treated as an investment, rather than as an expense, gross domestic product would have been 2.7% higher between 1998 and 2007, according to updated figures released Wednesday.
American Austerity
Austerity is an expensive form of insurance against a true fiscal crisis. And though it doesn't necessarily seem like it when you're not having one, fiscal crises are much, much worse than austerity budgets. Fiscal crisis means that rather than unpleasant cuts, you have sudden, unmanageable collapses in things like public pension plans. The resulting suffering is not unpleasant; it is disastrous.

Research, Reports & Studies
CBO: The Long-Term Budget Outlook
Federal Debt Held by the Public Under Two Budget Scenarios
Consumer Confidence Plunged in June
Consumer confidence plunged 9.8 points in June, as consumers lost faith in both the pace and sustainability of the recovery. Expectations fell with fewer consumers expecting economic conditions to improve.
The Political Economy of the Subprime Mortgage Credit Expansion
The evidence suggests that both subprime mortgage lenders and subprime mortgage borrowers influenced government policy toward housing finance during the subprime mortgage credit expansion.
A Comparison of OMB's and CBO's Technical Assumptions Used in Estimating Defense Spending
Letter to the Honorable Nancy Pelosi
Missing the Point: Lessons from The Big Short
The book Big Short raises questions about the validity of the ideas underpinning the financial regulation legislation Congress is now considering.
Markets: The Credit Ratings Agencies
Can financial institutions instead be trusted to
seek their own sources of information about the creditworthiness of bonds, so long as financial regulators oversee the safety of those bond portfolios?

Graphic of the Day
Study Measures Impact Beyond the Jobless Rate as Pay Cuts and Furloughs Take Toll
See: 50 Dead-Simple Ways for the US to Cut Its Budget
See also: Total Nonfarm Payrolls
See also: The Facebook Economy

Economists’ Comments & Opinions
Financial Overhaul Is Politics in Worst Sense: Richard Posner
The most sensible legislative response to the financial collapse of September 2008 would have been to do nothing until the causes of the collapse were fully understood.
Obama's fiscal fantasyland
Responsible people, whether they are national leaders or average citizens, understand that both in their personal and public lives they cannot spend themselves into prosperity.
2010 mid-year review
Commentary: Where we've been and where we're going
Why Obamanomics Has Failed
Uncertainty about future taxes and regulations is enemy No. 1 of economic growth.
It's Time To Bring Back Jobs
The focus should be on better long-run policy, not more feeble short-term fixes.
A Big Bang for Greece
How did Greece get into the death spiral that it's in? Unfunded entitlements. In other words, promise somebody something, don't come up with the financing for it, and pretty soon you find yourself in a fiscal/debt crisis. What should Greece have done?
The Bailout Tax
CBO estimates that the bill's vaunted "Orderly Liquidation Authority," which is being sold as tough medicine for failing banks and their creditors, will cost taxpayers $20.3 billion between now and 2020.

Book Excerpts
"...entrepreneurship and competitiveness are two sides of the same coin: that entrepreneurial activity is always competitive and that competitive activity is always entrepreneurial..." -Israel Kirzner, Competition and Entrepreneurship (1973)

"Did You Know"
"Estimates of the size of the “informal sector” (i.e. the Black Market) in the US indicate that 9% of activity occurs in this sector.

The Western European average: 18%
Greece: 28.6%

6/29/10 Post

BUZZ: Finance Bill's Fate Uncertain in Senate

News
Consumer Confidence Tumbles
U.S. consumer confidence dropped sharply in June, as concerns over the sustainability of economic recovery and the outlook for jobs brought one closely watched indicator's three-month streak of consecutive gains to an end.
G20 deficits
The goal is the same, but the paths to deficit reduction are separated by a transatlantic rift.
Dow Slips on Deficit Vow
Investors again favored bonds over stocks, with major stock indexes slumping late in the day due to swirling fears about global growth.
For Sale: Government Tower, Ideal for Business Startup
Facing the prospects of a $1.4 trillion budget deficit for the second year in a row, President Obama has called for a major effort to cull the federal government’s property holdings in search of fresh revenue.
Consumers Stay Tightfisted
Gains in wages and salaries helped lift U.S. personal income 0.4% in May from April, the Commerce Department reported Monday, but consumer spending rose a more muted 0.2%.
Pentagon Looks for $100 Billion in Cost Savings
Defense Secretary Robert Gates said Monday he wants to trim some of the billions of dollars the Pentagon spends on weapons systems and contractor services, part of a Pentagon-wide effort to find $100 billion in savings in the next five years.
BIS Warns Countries About Risks of Debt
The Bank for International Settlements delivered a stern message to central banks and governments that keeping interest rates low for too long, or failing to act quickly to cut budget deficits, could sow the seeds for the next crisis.
Tax Amnesty Programs: Source of Quick Cash for States
To fill their coffers and avoid hiking taxes or enacting new ones, states are flocking to taxpayer amnesty programs, which encourage delinquent taxpayers to pay up in return for escaping penalties and interest, in some cases.
Interest rates keep falling as investor view of economy dims further
A darkening view of the economy sent bond market interest rates to their lowest level in 14 months and kept many investors out of the stock market.
States struggle to balance budgets after Congress refuses to offer more stimulus money
Now, with a new fiscal year just days away in most states, many governors are proposing to make up for the shortfall with tax increases, cuts in essential services and potential layoffs of thousands of public employees.
$5 billion for the uninsured
The Obama administration will dole out $5 billion to states to provide insurance for people who don't have coverage because of pre-existing medical conditions.
Pass the statins
Between 2000 and 2008 health spending per person increased by 4.2% a year on average, according to the latest data from the OECD, a rich countries' club. Average spending over the same period was 8.4% of GDP; last decade the average was 7.3%.
In Ireland, a Picture of the High Cost of Austerity
Wage cuts were easier to impose here because people remembered that leaders moved too slowly to overcome Ireland’s last recession. This time, Mr. Cowen struck accords swiftly with labor unions, which agreed that protests like those in Greece would only delay a recovery.

Blogs
The Euro and Armageddon
Individual debts matter for individuals. Government debts matter for constituents. But what is the significance of aggregate non-government debt of specific geographic territories within a currency union?
Economists React: Sustained Upturn in Confidence Remains Elusive
Economists and others weigh in on the June drop in consumer confidence.
Paul Krugman, Ipse Dixit 2
...we face government created uncertainties in the healthcare markets, the coming bankruptcy of Medicare and Medicaid, difficulties with Social Security as the population ages, state and local governments which have refused to make sensible reforms in the provision of their “vital” services for decades, and so forth. ...And the root of our problems, says Krugman, is the lack of Aggregate Demand.
A Look at Case-Shiller, by Metro Area (June Update)
The S&P/Case-Shiller Composite 20 home price index, a broad gauge of U.S. home prices, posted a 0.8% gain in April from a month earlier and rose 3.8% from 2009, as the expiration of a federal tax credit boosted prices.
Reject All Energy Subsidies, Not Just the Ones for Fossil Fuels Make no mistake, subsidies for fossil fuels are no better than subsidies for wind and solar. You may get more bang for your buck in terms of energy produced, but only in the short term. Subsidies create complacency within the industry and reduce the incentive to innovate
The United States: Deficit Champion
Evidence that the current Administration is taking a different tack on economic policy was abundant at the recent Group of 20, budgets must be cut.

Research, Reports & Studies
Are Free Trade Agreements Contagious?
This paper presents a new model of the domino effect which is used to generate an empirical index of how “contagious” FTAs are with respect to third nations... contagion is present in our data and is robust to various econometric specifications and samples.
Knowing What the Federal Government Owns
With millions of acres and thousands of assets in government portfolios, officials should take steps to identify what they own, determine whether government or private ownership is most effective, and streamline the efficient transfer of all unneeded real property.
Financial Reform in Congress: A Disorderly Failure
The goal of the legislation is clear: to minimize the chances that another financial crisis will occur. Unfortunately, the massive bill on the whole would hurt consumers and the economy, and rather than decrease the chances of another crisis or bailout, it would make them more likely to occur.

Graphic of the Day
State and Local Tax Revenue increased slightly compared to Q1 2009
See: Recession Continues to Depress Revenues
See: Federal Spending Is Growing Faster Than Federal Revenue

Economists’ Comments & Opinions
The End of Community Banking
Creditworthy borrowers will be denied loans as small banks devote more and more energy to regulatory compliance.
The Unemployment Insurance Crisis
As of this summer, unemployment insurance trust funds in 30 states were insolvent.
Prime Numbers:Inflation May Be Ahead Despite Federal Reserve Outlook
If the economists are right, a pickup in inflation next year may well be a greater risk than consumers — and even policymakers — now expect.
Paul Krugman's Depression
Nobel Prize-winning economist Paul Krugman says the U.S. is in the "early stages of a third Great Depression." If he's right, it's only because American policymakers have been following his advice.

Book Excerpts
"It is your mind that matters economically, as much or more than your mouth or hands. In the long run, the most important economic effect of population size and growth is the contribution of additional people to our stock of useful knowledge. And this contribution is large enough in the long run to overcome all the costs of population growth." -Julian Simon, The Ultimate Resource (1981)

"Did You Know"
Consumers' view on the present economic situation fell to 25.5 in June from 29.8 in May. Respondents saying current business conditions are "good" fell to 8% in June from 9.7% in May, while those saying jobs are "hard to get" rose to 44.8% from 43.9%. Respondents saying they expect business conditions to be worse in six months rose to 14.9% in June from 11.9% in May, while the percentage of those expecting better business conditions fell to 17.2% from 22.8%. Those expecting fewer jobs rose to 20.8% from 17.8%, while those expecting more jobs fell to 16% from 20.2%.

6/28/10 Post

BUZZ: IMF Report Shows Deeper Cuts Would Boost Growth

Economic Outlook: Worsening picture in the US
Investors will this week be bracing themselves for signs that the US recovery is slowing, as a slew of economic data on the world’s largest economy is expected to paint a downbeat picture.
Finance Bill: How Changes Could Affect You
The sweeping finance legislation negotiators wrapped up early Friday morning would constitute the biggest overhaul of U.S. financial regulations since the 1930s.
On Finance Bill, Lobbying Shifts to Regulations
The surge in hiring has sent a joke bouncing around Washington: Congress finally passed a jobs bill — full employment for lawyers.
Growing Deficit Concerns Are Trumping Spending
In a poll by the Pew Research Center for the People & the Press earlier this month, 60 percent of those surveyed said the president’s stimulus plan had not helped the economy. Only 33 percent thought the stimulus had helped.
G-20 Agrees to Cut Debt
Rich Nations Back Halving Deficits by 2013, Signaling Intent to Ease Stimulus
Handicapping a Double Dip
According to a model developed by Credit Suisse, there's scant possibility of a relapse into a recession.
Wall Street Hiring Jumps Most Since 2008 as Guarantees Return
Firms are adding jobs for the first time in two years, rebuilding businesses cut during the financial crisis and offering guaranteed payouts to lure top bankers.
Economic damage caused by oil spill may not go beyond the Gulf region.
Analysts say the spill will reduce economic growth by only about one-half of 1 percentage point this quarter, and even less during the second half of the year.
Personal income edges higher
Personal spending ticked higher in May, while income rose for a 7th straight month.
Job blues for gray-haired workers
The nationwide unemployment rate for older workers -- while lower than that of younger workers -- has barely moved since hitting a record high of 7.2% in December. It's currently 7.1%.
Congress blasts Medicaid hole in states' budgets
Officials in Massachusetts and 29 other states that counted on the funds to balance their budgets are left with the task of slashing services and payrolls once again.
Obama urges Congress to pass Wall Street reforms
President Barack Obama on Saturday urged Congress to pass the financial reform bill aimed at strengthening consumer financial protection and enhancing transparency in derivatives trading.

Blogs
Secondary Sources: Austerity, Financial Illiteracy, Free Trade
A roundup of economic news from around the Web.
The Future According to Dividends, Mid-2010 Edition
...the S&P 500's trailing year dividends per share have been projected to change into the future since 14 July 2009 for each quarter where we have dividend futures data available...
Chicago Fed: Economic Activity increased in May
This is a composite index based on a number of economic releases.
“In the Long Run We Are All Dead” What Does It Mean?
If we are all dead in the long run, then Keynes-Krugman must argue that we are all dead in the short run as well, too.
Personal Income up 0.4%, Spending Increases 0.2% in May
The increase in income was good news, but personal income less transfer payments are still only 1.4% above the low of last year.
The new financial regulation bill
The best equilibrium is to have discredited ratings agencies, not revamped and reregulated agencies.
Housing Supply Metrics
Various housing supply measures compiled from various sources.
Signal and Noise in Economics Writing
...non-economists should express opinions about macroeconomics only with great humility. ...economists, too, need to show humility.
Weekly Summary and a Look Ahead
The key economic report this week will be the June Employment Report to be released on Friday.
Will We Learn from Greece?
If Mr. Hoenig is right and Greece is a lesson, let’s hope that policy makers in the US learn it before the pension crisis hits.
The Constitution is Still Number One
Majority of people strongly agreed with the statement that judges should “Uphold the values of those who wrote the U.S. constitution long ago".
Protecting the Second Amendment
In what is probably the most important Second Amendment case in Supreme Court history, the Court today held that the “right of the people to keep and bear Arms” cannot be infringed by the states.
Economic Insights from Fed President Hoenig
“Artificially low interest rates tend to promote consumer spending over saving and, over time, systematically affect investment decisions and the relative cost and allocation of capital within the economy.”
BIS Warns Central Banks Against Keeping Rates Low for Too Long
...keeping rates low for too long, and other actions like buying government bonds, creates risks to financial stability and opens central banks up to political pressure.

Research, Reports & Studies
Hudson Institute Economic Report
This week saw disappointing data for GDP and housing, suggesting that the economy's rebound is not imminent.
Wells Fargo Economics Group: Weekly Economic & Financial Commentary
Despite disappointing data, the recovery is still on.
Adverse Selection, Reputation and Sudden Collapses in Secondary Loan Markets
...a variety of policies that have been proposed during the recent crisis to remedy market inefficiencies do not help resolve the adverse selection problem.
Obama Discovers One More Crisis for a Toxic Tax
Obama's team seems to believe that even though doubts over new regulations and higher taxes may undercut job creation, the sacrifice is worth it because Democrats get a legislative win.
Americans Relate to Founders, Not Progressives
A nation of property owners is less willing to plunder the property of others in search of some promised gain than a nation where most people don't and will never own significant property.

Graphic of the Day
PER SECOND Debt Increase during Obama Presidency Exceeds ANNUAL Household Income
See: Inflation-Adjusted Cost of a K-12 Public Education and Percent Change in Achievement of 17-Year-Olds, since 1970
See also: Average Federal Tax Rates by Quintile
PODCAST: Caplan on Hayek, Richter, and Socialism
VIDEO: Obama Calling "Bluff" Of Those Complaining About "Deficits And Debt"

Economists’ Comments & Opinions
Why Friedrich Hayek Is Making a Comeback
With the failure of Keynesian stimulus, the late Austrian economist's ideas on state power and crony capitalism are getting a new hearing.
A Pendulum Swing Toward Austerity
In many respects, the expansionary phase of big government is coming to an end, and quickly.
Hillary Clinton: Accidental Supply-Sider
She's right about Brazil's growth. She's wrong about its tax rates.
The Keynesian Dead End
Spending our way to prosperity is going out of style.

Don't talk abt "progress" in terms of longevity, safety, or comfort before looking at zoo animals compared to those in the wildrnss. -Nassim Taleb, Twitter

Book Excerpts
"Representative democracy cannot subsist if a great part of the voters are on the government pay roll. If the members of parliament no longer consider themselves mandatories of the taxpayers but deputies of those receiving salaries, wages, subsidies, doles, and other benefits from the treasury, democracy is done for." -Ludwig Von Mises, Bureaucracy (1945)

"Did You Know"
According to preliminary estimates by The Heritage Foundation’s Center for Data Analysis; Americans’ dependence on government grew by 13.6 percent in 2009. The Index’s dependence variables that grew the most over that past year are: Health and Welfare at 22 percent, Rural and Agricultural Services at 20 percent, and Housing at 15 percent. The Index has grown by 49 percent since 2001. Americans’ dependence on the government was 14 times greater in 2009 than it was in 1962.

6/25/10 Post

BUZZ: House, Senate leaders finalize details of sweeping financial overhaul

News
Mortgage Rates, Stocks Drop
Treasury Yields Fall Amid Hunt for Safety, Pushing Home-Loan Rates to Lowest in Nearly 40 Years.
A New Plan for Valuing Pensions
At the heart of the dispute is the way governments gauge the value of the pensions they owe future retirees in today’s dollars — a commonplace financial calculation known as discounting.
Jobless Bill Dies Amid Deficit Fears
Spooked by concern about deficits, the Senate shelved a spending bill that included an extension of unemployment benefits, suddenly cutting off a federal cash spigot opened by President Barack Obama when he took office 18 months ago.
Greece starts putting island land up for sale to save economy
Desperate attempt to repay debts also driven by inability to find funds to develop infrastructure on islands
Sanders Estate-Tax Proposal Would Hit Wealthy Harder
Under the proposal, as in 2009, the exemption would be $3.5 million for an individual, or as much as $7 million for a couple, with a tax rate of 45%. But estates with taxable assets between $10 million and $50 million would pay a 50% rate, and estates valued above $50 million would pay 55%. A further 10% surtax would apply to assets above $500 million.
Two Ships Passing in the Night: Asian Millionaires Pass European Counterparts
According to a report out by Merrill Lynch, the number of individuals with at least $1 million in investable assets in Asia surpassed the number of Europeans bearing the same distinction.
In Europe, U.S. Allies Target Defense Budgets
U.K. Is Latest to Seek 'Ruthless' Cuts, Auguring Trouble for Afghan Effort
Banks win battle for limits to Basel III
Plans by global regulators to compel banks to set aside billions of dollars in extra capital to cope with future crises are to be pared back after intense lobbying by the industry.
For Gold Investors Who Want It 'To Go'
The bull market in gold has sparked a new growth industry: providing a venue for investors to buy and store their personal stash.
Dollar Weakens Against Euro, Yen
The U.S. dollar declined against the euro and yen but gained against some other growth-linked currencies as the Federal Reserve's subdued statement on the economic outlook kept demand for risk in check.
Seeing Economic Rebound, Firms Step Up Spending
Companies are stepping up spending on equipment as the recovery that first took hold in manufacturing broadens to other areas of the economy.
U.S. economic growth revised lower to 2.7% for first quarter
First-quarter growth, originally estimated two months ago at a 3.2% annualized rate, was revised down to 3.0% growth in last month's estimate and now is down to 2.7%.
Highlights from the financial regulation bill
A 10-member Financial Services Oversight Council made up of the treasury secretary, Federal Reserve chairman, a presidential appointee with insurance expertise, heads of regulatory agencies and a new consumer protection bureau would monitor financial markets and watch for threats.
Congress reverses Medicare cuts
The House voted Thursday to reverse a 21% cut in government fees paid to doctors who treat Medicare patients.
Corporate Bond Sales in U.S. Slump 19%
U.S. corporate bond sales tumbled from $140.1 billion in March, the most since January 2009, to $32.9 billion last month amid concern among investors that the sovereign debt crisis in Europe would stifle global economic growth.

Blogs
Conference Agrees on Financial Regulation Details: "We'll See How It Works..."
My first reaction to news that the Congressional conference had finally agreed on language for the financial services regulatory overhaul: numbness.
Time to Take on the Welfare State
Trillions in welfare spending will drive America to bankruptcy unless Congress puts on the brakes and encourages able-bodied adults to seek work and act responsibly.
Misc: Quote of the Day, Greece Bond Spreads increase Sharply, and Market Update
"Given the depth of the nation’s recessionary impacts on homeowners, a considerable number of customers will transition from homeownership over the next two years."
What Do Mortgage Lenders Want?
...it is not in the interest of private sector lenders to deliberately make loans that have a high probability of default.
Not from the Onion: EPA Classifies Milk as Oil
New Environmental Protection Agency regulations treat spilled milk like oil, requiring farmers to build extra storage tanks and form emergency spill plans.
Secondary Sources: Krugman on Yuan, Home Buyer Credit, Fiscal Adjustment
...the net benefits from the home buyer tax credit were small compared to the cost.

Research, Reports & Studies
Immigration, Remmittances and Business Cycles
During recessions, established migrants are deterred from returning to their country of origin, which places an additional downward pressure on the wage of native unskilled workers. Thus, migration barriers reduce the ability of the stock of immigrant labor to adjust during the cycle, enhancing the volatility of unskilled wages and remittances.
News and Sovereign Default Risk in Small Open Economies
News shocks affect equilibrium outcomes because they contain information about the future ability of the government to repay its debt.
Confronting the Unsustainable Growth of Welfare Entitlements: Principles of Reform and the Next Steps
As government spending on means-tested welfare approaches $1 trillion per year, it is time to reboot the other poverty programs to control costs and promote greater self-reliance.
Should We Raise Taxes on the Middle Class? We Already Are
But by 2020, income tax receipts are projected to rise to 9.5 percent of GDP, even if all of President Bush’s tax cuts are made permanent. By 2030, income tax receipts will rise to 10 percent of GDP, 22 percent higher than the historical level.
Current Regulatory Developments in the United States
The danger is that politicians will not bother to learn the proper lessons of the causes of the financial crisis and will sow the seeds for the next crisis.

Graphic of the Day
Oh, To Be a Government Worker
See: Real GDP Q1 2010 revised to 2.7%
See also: New Home Sales Plunge

Economists’ Comments & Opinions
What the U.S. can learn from Canada at the G20
...President Obama would be smart take a long moment during his Toronto visit to learn some lessons from the Canadian way of growing an economy. It starts by relying on the private sector for job growth instead of government help, as Obama has so far futilely offered.
Why banks aren't afraid of reform
JPMorgan Chase and other big banks are betting that when the rules are written, they will permit the activities that banks deem crucial.
Financial Reform Bill Won't Stop Next Crisis
Until Washington takes a long, deep look at its own role in causing the financial crisis, we will have little hope for avoiding another one
A Budget Deal That Did Reduce the Deficit
Budget experts now agree that the Budget Enforcement Act of 1990, which was strengthened in 1993 by another budget deal that was opposed by all Republicans, deserves much of the credit for the subsequent improvement in the deficit, which shrank from 4.7 percent of GDP in 1992 to virtual balance in 1997 and gave us budget surpluses from 1998 to 2001.

It takes extraordinary wisdom & self control to accept that many things have a logic we do not understand that is smarter than our own. -Nassim Taleb, Twitter

Book Excerpts
"I genuinely do not know whether we will or will not ultimately survive the desperate damage our government has done to our economy. The potential power of the economy is immense, and its regenerative power in freedom is incalculably great. I am prepared to say, however, that a financial collapse is not only possible but probable unless we reverse almost half a century of irrational and unrealistic policies." -William E. Simon, A Time for Truth (1978)

"Did You Know"
Government now spends 13 times more on welfare, adjusting for inflation, than when LBJ declared the nation’s War on Poverty some 45 years ago. Welfare is the fastest-growing portion of government spending, nearly quadrupling from fiscal 1979 to fiscal 2008.

6/24/10 Post

BUZZ: Confidence waning in Obama, US Outlook

New
US 30-yr mortgage rate drops to 39-year low
Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.69 percent for the week ended June 24, the lowest since Freddie Mac started the survey in April 1971.
DJIA, Euro, Treasurys Rise
The Dow Jones Industrial Average eked out a slight gain, as investors across financial markets digested the Federal Reserve's cautious remarks on the state of the global economy. Other stock indexes fell, the dollar dropped and Treasury prices ended higher. The 10-year note's yield fell to 3.119%, the lowest level since mid-May.
World leaders, their standing and their issues heading into summit meetings in Canada
Leaders of the world's major industrial countries, representing 85 percent of the global economy, will meet in Canada starting Friday for economic summits. Take a look at selected countries and their leaders’ stances.
Weekly jobless claims fall but remain elevated
The number of people filing first-time claims for jobless benefits fell last week by 19,000, the largest drop in two months. New claims declined to a seasonally adjusted 457,000.
Drilling ban: The jobs at stake
There are as many as 10,000 people that work on deepwater oil rigs in the Gulf of Mexico. Another 25,000 jobs could be affected by the six-month ban imposed by President Obama.
Durables fall in May after five straight gains
The steady upward trend in the manufacturing sector hit a bump in May as a big drop in orders for new airplanes pushed total durable-goods orders down 1.1%.
House panel drops demand for $150 billion bank fund
House members of a conference committee agreed to drop their demands for a $150 billion fund to be used to dismantle a failing mega-bank so its collapse wouldn't damage the markets.
Car Dealers Close to Winning Exemption From Consumer Law
The nation's car dealers appeared on the verge Wednesday of securing a measure that would largely protect them from Congress's wide-ranging financial-regulation overhaul, after an aggressive, months-long lobbying campaign.
Five States Get U.S. Funds to Aid Homeowners
State housing agencies in Arizona, California, Florida, Michigan and Nevada will receive a total of $1.5 billion from the Obama administration's "Hardest Hit Fund."
Democrats Would Cut Budget Below Obama's Plans
The cut amounts to less than 1 percent of the more than $1.1 trillion proposed for agency budgets funded by lawmakers each year through the spending bills.
States Face New Pinch as Stimulus Ebbs
Tax Receipts Aren't Rebounding Quickly Enough to Offset Declining Federal Aid; Push for Additional Medicaid Help Stalls

Blogs
Telling Congress to Reduce the Deficit by Cutting Spending
June 26, America Speaks will host a national town hall meeting in which any and all Americans will be able to voice their opinions on what Washington’s growing deficits will have on the U.S. economy.
European Weakness Is Fuelling U.S. Profligacy
The European debt crisis has demonstrated the painful costs of fiscal profligacy and short-sighted Keynesian stimulus.
A Closer Look at the Recent Trend in Layoffs
The data indicates that the Cash for Clunkers program did not significantly alter the established trend in layoffs during this period, which was declining in any case.
Home Sales: Distressing Gap
...expect that eventually this ratio will return to the historical range of new home sales being around 15% to 20% of existing home sales.

Research, Reports & Studies
Wells Farge Economics Group: New Home Sales Drop to its Lowest Level on Record
New home sales plummeted 32.7 percent in May likely reflecting the expiration of the homebuyers’ tax credit. April was significantly downwardly revised to 446,000 units. Seasonal adjustments may also be at play.
Appropriations and Fund Transfers in the Patient Protection and Affordable Care Act
...creates a mandate for most U.S. residents to obtain health insurance and provides for the establishment of insurance exchanges through which certain individuals and families will be able to receive federal subsidies to reduce the cost of purchasing that coverage. In addition, the new law expands eligibility for Medicaid; reduces the growth in Medicare spending that had been projected under preexisting law; imposes an excise tax on insurance plans determined to have high premiums; and makes other changes to the federal tax code, Medicare, Medicaid, and numerous other programs.
Do Developed and Developing Countries Compete Head to Head in High-tech?
While measures of across product specialization suggest China and other Asian economies have been moving into high-tech exports, the within-product unit value measures indicate they are doing so in the least sophisticated market segments and the gap in unit values between their exports and those of developed countries has not narrowed over time.

"Did You Know"
In France, firing a printing plant employee is hugely expensive. The gent is paid €50,000 per year, works 32 hours per week and 164 days per year. Firing him costs about €466,000 – that’s a French government estimate...

Graphic of the day
Durable Goods Orders dropped by 1.1% in the month of May
See: Initial Claims for the Week Ended Jun 19
See also: Federal Payments to Individuals (% GDP) 1940-2010

Economists’ Comments & Opinions
The best stimulus? Spend less, borrow less
The best stimulus is a solid, credible plan to radically reduce government spending, starting right now.
The Family Business Revenue Act
A tax on the wealthy becomes a tax on mom and pop.
Whither the Euro: Safe Harbor or Fractured Fate?
Even though some countries have taken steps to curb future meltdowns, comprehensive regulation has been stymied by a lack of agreement on the fundamental question of how much regulation is necessary...
Volcker and Derivatives
Financial reform in the hands of a Democratic Congress is looking eerily similar to health-care reform: Public skepticism is proving to be no brake on the liberal ambitions, and substance is increasingly divorced from the problems Washington claims to be solving.

Financial crisis: Worse bank balance sheets + Worse private balance sheets + worse government balance sheets. -Garrett Jones, Twitter

Book Excerpts
"It is often argued that Governments are in a position to inflate by carrying out ambitious schemes of public works. Undoubtedly during the earlier stages of the crisis such measures might have produced the desired effect. At present, however, they could hardly be adopted on any large scale. Practically every Government has a huge budgetary deficit, which makes it difficult, if not impossible, to raise loans for meeting the extraordinary expenditure of such public works. Any attempt to borrow for such purposes would inevitably lead to a further accentuation of distrust, which must be avoided at all costs." -Paul Einzig, The World Economic Crisis 1929-1932, (1932)

6/23/10 Post

BUZZ: Europe spurns Obama's plea for more spending

News
Caution's the word as Fed wraps up meeting
As they wrap up a two-day meeting to review the U.S. economy, interest rates and monetary policy, Federal Reserve officials are expected to issue a cautious statement keeping rates on hold at record-low levels.
Derivatives: No special deals for Wall Street
As Congress debates the final language for reforming Wall Street, a behind-the-scenes battle is raging over the arcane details of derivatives regulation.
After a year off, millionaires back in bloom
After plummeting by a record amount in 2008, the number of millionaires in the world recovered last year despite ongoing weakness in the global economy.
Housing Market Threatens U.S. Recovery as Slide Resumes
The end of the tax credit in April is putting a strain on a market still hurting from the worst collapse since the Great Depression. Foreclosures may reach 1.9 million this year after a record 2 million in 2009.
Consumer Financial Protection Bureau closer to reality
House and Senate negotiators near agreement on creation of the controversial new agency.
Cities Grow as Housing Bust Slows Movement to Suburbs
Several of the nation's biggest cities saw populations grow faster last year than any year in the 2000s as the recession and housing bust kept people from moving out of state or to the suburbs, the Census Bureau said.
Hidden Costs of Moving to a New Home
Don’t forget to factor transportation, utility, and insurance costs into your moving decision
Daunted by deficits
Across the world - from the US to Greece - plans are under way to cut spending and raise taxes.
Medicaid’s Ticking Bomb Could Wipe Out State Budgets
A new study claims the costs of Medicaid’s long-term care services could cripple states’ already-fragile budgets.
What Would You Do With an Extra Hour?
Americans Are Spending More Time Watching TV and Sleeping as Unemployment Rises, Survey Finds

Blogs
Speak Out on Out-of-Control Spending
Can Washington really be trusted to use new revenues to close the deficit gap, or would they just spend the money on new programs?
Morning Bell: Obama’s Leadership Vacuum
There are several crises confronting America and President Obama isn’t quite sure what to do about it.
The Real “Anti-Stimulus” – The Nation’s Growing Debts
There is no magic in debt-financed infrastructure and economic-development, only a deferred tax bill to pay for the government’s gambles.
How high will Existing Home Months-of-Supply increase this summer?
...expect house prices to fall in the 2nd half of 2010 and into 2011 - probably another 5% to 10% for the major house price indexes (Case-Shiller and CoreLogic).
The Glories of Competition
Early Monday, Barnes & Noble Inc. cut the price of its Nook e-reader to $199 and introduced a Wi-Fi-only model for $149. Hours later, Amazon.com Inc. lowered the price of its Kindle e-reader to $189.
Estimate of June Decennial Census impact on payroll employment: minus 243,000
The Census Bureau released the weekly payroll data for the week ending June 12th this morning...
Another view of the structural versus cyclical unemployment question
...the relatively disappointing May private-sector payroll jobs numbers released last Friday and the improving but low level of job openings reported in the JOLTS data for April are reminders that weak labor demand is still the dominant factor inhibiting the overall employment recovery.

Research, Reports & Studies
Lots of Regulatory Expansion but Little Reform
The U.S. Senate’s financial “reform” bill, consisting of over 1,500 pages of regulatory expansion, is unlikely to achieve its own goal of preventing another crisis. But it is certain to produce an efflorescence of bureaucratic interventions, red tape, and costs.
In Russia, a Climate of Fear Is Stifling Innovation
Paralyzed with fear and uncertainty, Russian entrepreneurs are investing very little in their country beyond their immediate production needs.
The Crisis in Public Sector Pension Plans
A Blueprint for Reform in New Jersey.

"Did You Know"

According to a recent poll, 71% of people expect cancer will be cured by 2050, 66% expect artificial limbs to be working better than real ones and 53% say ordinary people will travel in space. 72% of people are expecting a major energy crisis, 58% saying there is likely to be another world war and 53% anticipating a terrorist attack on the U.S. involving nuclear weapons.

Graphic of the Day
New home sales plummeted to their lowest level in the history of the data set as only 300,000 contracts were signed.
See: Government Debt Issuers Most Likely to Default
See also: Government Spending on Defense, Social Security, and Medicare (%GDP)

Economists’ Comments & Opinions
Threat of Another Economic Stumble Is Real
The danger of deflation is still there. The risk of another stumble in our economy is real, including the continuing fragility of community banks over commercial real estate loans.
Schumpeter 2.0
A great thinker’s contribution not only appears in his or her finished works and arguments, but also within the rich intuitions or core ideas that underlie the arguments.

Book Excerpts
"...Suppose that it will cost six francs to repair the damage [of a window broken by a child]. If you mean that the accident gives six francs' worth of encouragement to the aforesaid industry [for glass], I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.

But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.

It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them. -Frédéric Bastiat, The Broken Window, What Is Seen and What Is Not Seen, (1848)

6/22/10 Post

BUZZ: Rust Belt Cities See Decline in Population

News
Existing-home sales dip 2.2% in May
Resales of U.S. homes and condos fell 2.2% to a seasonally adjusted annual rate of 5.66 million.
Price hikes hammer individual health coverage
When health insurance costs rise for individual buyers, they soar: The average premium rose 20% in its most recent increase.
White House budget director is leaving
Peter Orszag has told President Barack Obama that he plans to leave his position as White House budget director in July.
Swipe-fee compromise won't help consumers
In the U.S., debit-card transaction fees alone add up to about $20 billion annually. However, it's unlikely any savings will be passed on to consumers, mainly because the banks will find other ways to drum up the lost revenue.
As Law Takes Effect, Obama Gives Insurers a Warning
Obama plans to sternly warn industry executives against imposing hefty rate increases in anticipation of tightening regulation under the new health care overhaul.
Taking on two economic summits
Much of the president’s focus in Canada this weekend will be on keeping global leaders on the path they set last year.
House defies President Obama on financial regulation reform
House negotiators on a Wall Street reform bill will push to shield auto dealers from new consumer protection lending rules — a move that bucks President Barack Obama, who has called on lawmakers to reject any carve-outs for special interests.
Geithner Says Access to Credit Improving, May Fuel U.S. Economy
“Credit conditions overall, which dragged our economy into a deep recession in 2007, no longer pose an obstacle to growth,”.
Can We Balance The U.S. Budget? Yes, But Only If We Cut Spending
With our nation headed toward a financial cliff, there is an urgent need and a will among the American people to change course and put our fiscal house in order.
FCC Holds Talks on Internet Rules
Regulators Meet With Phone, Cable Firms Over 'Net Neutrality' Compromise
Tighter Scrutiny For Bank Salaries
The Federal Reserve adopted sweeping new rules Monday that will give banking regulators more power over how the nation's thousands of banks compensate employees ranging from senior executives to traders.
Dems won't pass budget in 2010
The House has never failed to pass an annual budget resolution since the current budget rules were put into place in 1974.

Blogs
Some New Data on Income Inequality
The bottom line is that income mobility is alive and well and seems pretty consistent regardless of who is president or who controls Congress.
The Good Old Days Are Now
How much better off the average American is today than in the past?
Moody's: Commercial Real Estate Prices increase 1.7% in April
It is possible that commercial real prices have bottomed - in general - but it is hard to tell because the numbers of transactions are very low and there are a number of distressed sales.
Existing Home Sales: Inventory increases Year-over-Year
The key is the inventory and months-of-supply, and if these two measures increase later this year as I expect, then there will be additional downward pressure on house prices.
Will Yuan Revaluation Trigger Another Financial Crisis?
Watch for US long-term rates to rise, the risk here is US long-term rates start to spiral higher unless (ha ha!) Uncle Sam starts to borrow less.
Economic Reality: Nowhere to Run, Nowhere to Hide, Part 2
The onset of the Global Sovereign Crisis marks a new dangerous phase of the credit crisis.
Economists React: ‘Next Few Months Will Be Tough’ for Housing
Economists and others weigh in on the drop in May existing home sales.
When to Rely on Coercion
On the one hand, it is a great achievement to have worked out the precise conditions under which decentralized, competitive markets are optimal. On the other hand, mainstream economists do not seem to care about working out the conditions under which government will succeed where markets fail.
Like Taking Cyanide for a Headache
Far from being a momentary side-effect of stimulus spending, uncertainty is a systemic problem with interventionist economic policy. The poison is worse than the medicine.

Research, Reports & Studies
The Three Biggest Myths About Tax Cuts and the Budget Deficit
Balancing the budget by 2020 would require either eliminating one-third of all spending, raising taxes by 50 percent, or a combination of the two.
Controlling Federal Spending
Using Past Budgets as Guides for Spending Restraint
The Prospects for Ending Obamacare: Learning from Health Policy History
Washington’s obsession with controlling, defining, regulating, and restricting private-sector health insurance options overlooks the obvious. Congress must recognize that real cost control begins with the nation’s largest entitlements Medicare and Medicaid.
The Value Added Tax
Too Costly for the United States
EU Bailout: Impact on the United States
To watch developments in Europe today is to peer through a clear window into America’s own future. As the nation runs deficits in the Grecian mode and its own public debt soars toward 100 percent of its economy, a future crisis becomes as predictable as the sunrise—and just as widely predicted.
Weekly Economic and Market Review
The economic data continued its mixed performance last week with little in the way of surprises.
School accountability and teacher mobility
...accountability shocks influence the distribution of the measured quality of teachers (in terms of value added measures) who stay and leave their school, though the average differences are not large.
The Economy Hits Home: International Trade
If you look at the evidence, it’s clear that American and foreign workers, our economy, and the environment are all better off to the degree that we enjoy free trade.
Penalty APR Study
The CardHub.com Penalty APR Study evaluates the post-CARD Act Penalty APR policies of the top 10 credit card issuers, based on outstanding balances.

Graphic of the Day
Extra Taxes Required from Each Taxpayer to Erase the Deficit
See also: How Do Americans Save Money?
VIDEO: Bootleggers and Baptists: A Conversation with Bruce Yandle

Economists’ Comments & Opinions
Is U.S. Now On Slippery Slope To Tyranny?
Those who cannot see beyond the immediate events to the issues of arbitrary power — vs. the rule of law and the preservation of freedom — are the "useful idiots" of our time. But useful to whom?
Spain's Emerging Banking Crisis
The Spanish government narrowly passed a $15-billion austerity package in May. Tomorrow it faces the next big legislative challenge in a move towards more fiscal responsibility.
Bam's Climate Rx: All Pain, No Gain
The cap-and-trade bill won't lower global temperatures but merely make life more expensive. It'll force you to use energy sources that all have to be massively subsidized with your tax dollars.
Europe cuts deep, the U.S. spends on
Some experts think the United States should follow the lead of Britain and other nations in Europe and take steps to cut the deficit. Others warn it's too soon to worry about debt
Wells Fargo Economics Group: China Reintroduces Currency Flexibility
Chinese currency move: much ado about nothing?
Is Illinois the New California?
Illinois has overtaken California as the worst credit risk among American states.
Misguided housing subsidies promote unfairness, bailouts
Over the past half-century, the homeownership rate has risen only modestly, from 62% in 1960 to 68% at the height of the housing bubble. In Canada, which has no mortgage deduction or many of the other subsidies present here, the ownership rate is about the same.

The little secret of most New Keynesian models: they explain unemployment as voluntary vacations, just like RBC models. -Garrett Jones, Twitter

Book Excerpts
"The curious task of economics is to demonstrate to men how little they know about what they imagine they can design." F.A. Hayek, The Fatal Conceit (1989)

"Did You Know"
In 2000, the top quintile paid 66.6% of taxes, a share that dipped to 64.8% in 2002 and then rose, peaking at 69.3% in 2006 and settling at 68.9% in 2007. In 2009, 47% of households owed no income tax.

6/21/10 Post

BUZZ: U.S. Gold Rises to a Record on Buying From Investors Seeking to Protect Wealth

News
US manufacturing crown slips
The US remained the world’s biggest manufacturing nation by output last year, but is poised to relinquish this slot in 2011 to China – thus ending a 110-year run as the number one country in factory production.
Bank failure is 83rd in '10; pace more than double last year's
The 83 closures so far this year is more than double the pace set in all of 2009, which was itself a brisk year for shutdowns.
In Budget Crisis, States Take Aim at Pension Costs
But there is a catch: Nearly all of the cuts so far apply only to workers not yet hired.
Fannie and Freddie tab is $146B and rising
The Congressional Budget Office has predicted that the final bill could reach $389 billion.
Bureaucracy frustrates U.S. Gulf oil spill efforts
Those on the front lines of the U.S. Gulf Coast oil spill say they are forced to fight two battles -- one against the crude washing into lush wetlands and another against needless bureaucracy.
States See Growth in Jobs
The sluggish U.S. jobs recovery is inching beyond the industrial South and Midwest, and is spreading toward the service-heavy economies of the two coasts, in a sign of hope for a labor force hit by the worst recession in generations.
Wall Street reform comes down to the wire
With one week down and one week to go on negotiations melding the two Wall Street reform bills, lawmakers have a lot of tough decisions ahead.
Big Sis: Internet Monitoring Needed to Fight Homegrown Terrorism
Napolitano said it is wrong to believe that if security is embraced, liberty is sacrificed.
Is the Fed out of bullets?
Economists are more nervous about the chances of another recession. And one of biggest fears is that the Federal Reserve may have run out of bullets to fight another downturn.
Doc's win on Medicare too late to stop 21% cut
The Senate passed a bill Friday rescinding a 21% cut and adding a 2.2% increase for Medicare payments. The bill was passed by unanimous consent after lawmakers found a way to pay for the boost without raising the budget deficit.

Blogs
Economists React to Yuan News
Here are some initial reactions from China economists to the Chinese central bank’s statement vowing to make the yuan’s exchange rate more flexible.
Weekly Summary and a Look Ahead
Two key housing reports will be released this week: existing home sales on Tuesday, and new home sales on Wednesday.
Dead On Arrival: Financial Reform Fails
Welcome to the next global credit cycle – with too big to fail banks at center stage.
From the AER
It seems as though empirical work without the "con" of econometrics is in. Theorem-proving and low-credibility multiple regression is out.
Adam Levitin on Interchange Price Controls
...the problem with this argument is that it only looks at half of the market.
Response from Brad DeLong on fiscal policy
I believe the "zero bound" is perhaps the single largest "red herring" in the economics profession today.
Housing Starts and the Unemployment Rate
Usually housing starts and residential construction employment lead the economy out of a recession, but not this time because of the huge overhang of existing housing units.
Markets For Everything: North Korean Edition
It turns out that the people in red who were cheering for North Korea in their soccer game against Brazil weren't North Koreans at all, but Chinese actors.
CoreLogic: House Prices increase 0.8% in April
National home prices increased in April, the second consecutive monthly increase.

Research, Reports & Studies
The Case for Auditing the Fed Is Obvious
The profit or loss of the Fed’s investments would provide a very helpful indicator of whether the Fed’s actions served the economy as a whole or merely transferred wealth from ordinary taxpayers to bank shareholders.
Corporate Tax Incidence: Review of General Equilibrium Estimates and Analysis
The analysis identifies the major drivers of the results from open-economy models and compares estimates from four major studies that have examined corporate tax incidence in an open economy.
Crisis Economics
As Milton Friedman once put it: "The role of the economist in discussions of public policy seems to me to be to prescribe what should be done in light of what can be done, politics aside, and not to predict what is ‘politically feasible' and then to recommend it."
The Hudson Institute Weekly Economic Report
Housing starts are down, initial unemployment insurance claims are up, and some price indices show deflation.
Wells Fargo Economics Group: Weekly Economic & Financial Commentary
Production seems to be running ahead of demand...
Looking Ahead to Economic Reports This Week
Data will include existing home sales for May (Tuesday); new-home sales for May (Wednesday); durable goods orders for May and weekly jobless claims (Thursday); and the Reuters/University of Michigan consumer confidence index for June and the revised first-quarter gross domestic product (Friday).
Sales Taxation of Business Purchases: A Tax Policy Distortion
One might think that the prevalence of the sales tax would be good news for citizens and economists who support efficient taxation. But such a tax raises relatively few efficiency problems.

Graphic of the Day
See also: Jobs may rebound in 2010

Economists’ Comments & Opinions
New Bank Taxes Under Financial Reform Will Raise Borrowing Costs, Hurt Growth
The beleaguered American taxpayer deserves a break. The housing-led financial crisis begat trillions of dollars of red ink.
Bad Policy Explains Dow Stuck At 10,000
To many... the Dow’s inability to sustain increases above 10,000 is a replay of a downward market cycle that began in 1966.
Of Brown Pelicans And Black Swans
No one could have ever predicted that a single exploding oil well in the Gulf of Mexico, the Deepwater Horizon, would destroy 50% of oil giant British Petroleum's stock market valuation.
Cutting the Pentagon Budget
The important question is not how much money we spend but whether we spend it effectively and meet our defense needs in the process.

Book Excerpts
"…I ultimately realized the profundity of the difference between the businessman and the bureaucrat. The businessman’s standard of efficacy is a solution to the problem, and the more responsive he is to external reality, the better. The bureaucrat’s standard of efficacy is obedience to the rules and respect for the vested interests of the hierarchy, however unyielding of a solution; response to external reality is often irrelevant. That is why bureaucracies so often produce nothing but wastepaper and destroy the productive institutions they supervise." –Former Treasury Secretary William E. Simon, A Time for Truth (1978)

"Did You Know"
The U.S. shed 2.3 million jobs since February 2009, Obama's first full month in office. Going back to World War II that is by far the worst record for any president in his first 17 months, outpacing the job destruction experienced in the early Bush years by more than 800,000 jobs.

6/17/10 Post

BUZZ: U.S. Debt and the Greece Analogy

FCC Split as It Launches Internet Regulation Effort
What promises to be a contentious debate about government's role in controlling Internet traffic and access.
Consumer Price Drop Squeezes Profits
U.S. consumer prices fell 0.2% last month from April, even as commodity prices from metal to fuel to food remain higher than they were a year ago.
What Crisis? The Euro Zone Adds Estonia
According to economists, the preparation to join the euro zone created some disadvantages for Estonia compared with neighboring countries, which have enjoyed a relative degree of flexibility by hanging on longer to their legacy currencies.
State pension plans in crisis: underfunded by $1 trillion?
According to the Manhattan Institute for Policy Research pension plans for public school teachers, which comprise about half of states' total pension liabilities, were underfunded by $933 billion dollars in fiscal year 2008
House passes bill to increase lending by small banks as Senate defeats GOP jobless aid bill
A $30 billion government fund would be available to community banks to increase lending to small businesses under a bill passed by the House.
Foreclosure crisis hits minorities harder
Of the total homeowners, 17% of Latinos, 11% of African-Americans have lost their homes to foreclosure or are at imminent risk of losing their homes.
Estate tax in limbo
Unless Congress acts, the estate tax will be back next year and no more than $1 million of a person's estate would be exempt from it. That's below the $3.5 million exemption of last year.
Philippine Price Controls Hamper Rise of Generics
The recent embrace of drug-price controls to lower the cost of life-saving medications is creating unexpected problems.
Senators voted against scaled-down Republican package of extended jobless benefits and tax breaks
Thune's proposal would have cut funds for state and local governments to invest in infrastructure, dropped a temporary funding increase to help states pay for Medicaid, and eliminated a proposal to raise taxes on hedge-fund managers.
The euro is still trash
The euro may have enjoyed a slight bounce in the past week against the dollar. But it's still a long way from where it was in late 2009.

Blogs
State Unemployment Rates: Slightly lower in May
Sixteen states and D.C. now have double digit unemployment rates. New Jersey is close.
Regulation Grows Faster than Government Spending
"...the growth in dollar terms over the last ten years is more than double that of any previous decade."
Paul Samuelson Misread Hayek
Samuelson was mistaken to say that their socialism is of the sort that Hayek believed paved the road to serfdom. Those countries have reasonably free trade, only light regulation of capital markets and business, and strong private property rights. In short, all Scandinavia retains what for Hayek was the most significant protection against serfdom: competitive economies.
Zingales Joins the Swamp
Even if you think that the IMF truly would do the best job of resolving international bank failures, does anyone believe that there would be no further expansion of world-government power once this precedent has been set?
European Bond Spreads continue to widen
Greece is up to 668 bps, Ireland 290 bps, Portugal 293 bps, and Spain 211 bps. Oh, and Hungary is up sharply to 495 bps.
Drudge and Huffington Post Push the “Internet BS Switch”
Suddenly the Internet is full of chatter about Senator Lieberman (and Collins and Carper) proposing an “Internet kill switch.” It’s the one issue that Huffington Post and Drudge have agreed on in months: there’s a kill switch coming and they don’t like it.
Bruce Bartlett on Debt Default
On the prospect of U.S. government default on its debt...
Hail Interfluidity!
…we should expect a lot more austerity theater than actual austerity, for better and for worse.

Research, Reports & Studies
Oil, Automobiles, and the U.S. Economy: How Much have Things Really Changed?
…the effects of oil shocks on the mix of vehicle sold and on capacity utilization appear to have been proportional in recent decades to the effects observed in the 1970s.
Lugar’s Energy and Climate Plan: More Big Government, Less Consumer Choice
The bill does not contain a cap-and-trade or carbon pricing provision; however, it does include a host of mandates and regulations that would hurt the consumer.

"Did You Know"
Nevada passes Michigan for the level of unemployment; the State’s unemployment rate climbed to 14% in May, the highest in the state since 1976. It is now the highest in the country.

Graphic of the Day
After the recession ends, trillion-dollar deficits will persist
See also: The Post-Housing Tax Credit Slump Begins

Economists’ Comments & Opinions
Another Myth: Gov't Can Cure Economy's Ills
While the market produced a peak unemployment rate of 9% — briefly — after the stock market crash of 1929, unemployment shot up after massive federal interventions in the economy.
Durbin's antitrust fantasies
Instead of engaging in a serious economic analysis of interchange fees... the Durbin amendment is based on the simple-minded epithet of "duopoly" with no understanding of the past 30 years of antitrust economics. In the end, it will be consumers who will pay for this ignorance.
Obama’s actions prevent timely clean-up by U.S. allies
…even the staunchest supporters of the Jones Act are now distancing themselves from refusals to accept foreign help…
$7-a-gallon gas?
That's a Harvard University study's estimate of the per-gallon price of the president's global-warming agenda.
Financial Reforms Threaten Innovative Lending Option
The P2P business grew as the availability of traditional credit tightened during the recession.
Reality of America’s fiscal mess starting to bite
A report from the US Center on Budget and Policy Priorities issued last month estimates that in fiscal 2010 the US states collectively posted a $200bn-odd budget shortfall, equivalent to 30 per cent of all state budgets.

Bank bailouts: Institutionalizing debt overhang. –Garrett Jones, Twitter

Book Excerpts
"A mere enumeration of government activity is evidence -- often the sole evidence offered -- of "inadequate" nongovernment institutions, whose "inability" to cope with problems "obviously" required state intervention. Government is depicted as acting not in response to its own political incentives and constraints but because it is compelled to do so by concern for the public interest: it "cannot keep its hands off" when so "much is at stake," when emergency "compels" it to supersede other decision making processes. Such a tableau simple ignores the possibility that there are political incentives for the production and distribution of "emergencies" to justify expansions of power as well as to use episodic emergencies as a reason for creating enduring government institutions." –Thomas Sowell, Knowledge and Decisions