7/1/10 Post

BUZZ: Deficit Panel Stresses Spending Cuts

News
House approves sweeping bank-reform bill for big banks
The legislative package -- which passed 237 to 192 with almost no Republican support -- moves the Obama administration closer to having a significant triumph in its efforts to rein in Wall Street. The legislation must still receive a filibuster-proof 60 votes to pass in the Senate.
1.3 million unemployed won't get benefits restored after Senate fails to overcome filibuster
The unemployment bill would have provided up to a total of 99 weekly unemployment checks averaging $335 to people whose 26 weeks of state-paid benefits have run out. The benefits would be available through the end of November, at a cost of $33.9 billion.
Jobless claims spike
There were 472,000 initial jobless claims filed in the week ended June 26, up 13,000. Some of the spike could be due to workers who held temporary census jobs filing for unemployment insurance as their positions end, as well as workers who have lost jobs due to the oil spill.
Manufacturing activity slows more than expected
Manufacturing activity expanded for the 11th straight month in June but the rate of expansion slowed more than economists expected.
Pending home sales plunge 30% in May
The sharp drop in pending home sales mirrors the 33% drop in sales of new homes in May, which are also recorded at the time of the sales contract.
Homebuyer credit extension heads to Obama
First-time homebuyers will have until Sept. 30 to close on their purchases and land an $8,000 tax credit under a bill passed by the Senate. President Obama is expected to sign the bill, which was overwhelmingly approved by the House.
Treasury has raised a total of $10.5B from selling Citi shares it got in bank's bailout
The Treasury Department said Thursday it has raised $10.5 billion from the sale of a total of 2.6 billion shares of Citigroup stock it received as part of the government's rescue of the bank.
US states face hard budget choices
For 2009 to 2012, US states have faced nearly $300bn in budget deficits, according to figures from the National Association of State Budget Officers (Nasbo).
Expand New York City's Living Wage?
New York City, which faces a predicted budget gap of $4.1 billion this fiscal year, is considering an expansion of the reach of "living wage" legislation that would make the deficit worse, drive jobs out of the city and raise unemployment among low-skill workers.
Ireland starts to grow after deep downturn
Ireland’s return to growth, in spite of having undertaken a huge fiscal retrenchment over the past two years which prolonged the downturn, will provide encouragement to other European economies facing up to tackling rising public deficits.
Governors Plead for Federal Funds for Medical Programs
Funds for FMAP were provided in the $787 billion economic stimulus package, which expires at the end of this year. The proposed extension would go through the end of June 2011, covering the second half of FY 2011 for most states.
Federal Tan Tax Burns Some Badly but Keeps Everybody in the Dark
Ultraviolet Light Sessions Mostly Subject To New Levy, but Spray-On Jobs Are Cool.
CBO Fires Warning Shot About Unsustainable Budget Path
...spending on mandatory health care and Social Security — 16 percent of GDP — would consume almost as much of the nation’s resources by 2035 as the government’s spending on all programs has averaged over the past 40 years.
Free-Trade Winds May Be Blowing Again
Economists argue that trade helps both exporters (yes, jobs) and importers (not only more, cheaper goods, but also competition from abroad that keeps domestic producers on their toes).
S.E.C. Tightens Rules on Public Pension Funds
The Securities and Exchange Commission on Wednesday tightened restrictions against “pay-to-play” practices in the municipal securities market.
High-Risk Insurance Pools Launched
Health and Human Services officials said they might shift funding among states if a new $5 billion program to cover the uninsured runs out more quickly in some states than in others.

Blogs
The Limitless Power of the Obama-Kagan Congress
The Obama-care provision forces all Americans to buy health insurance. However, Jefferson and the other Constitution framers designed the document to protect our “unalienable Rights” by limiting the power of Congress.
If Deficit Commission Is Serious, They Ought to Look at Welfare Reform
Since 1990, federal welfare spending has more than doubled, from 2.0 percent of GDP to 4.4 percent. This 2.4 percent of GDP expansion exceeds the combined 2.1 percent of GDP expansion of Social Security, Medicare, defense, and education spending over the same two decades.
The Dodd-Frank TARP Raid: Using Yesterday’s Bailout to Pay For Tomorrow’s
Leftists want to use the “profits” from the TARP bailout to pay for future Dodd-Frank financial fiascoes. The left and their allies want us to believe this would mark “the end” of TARP.
The June Employment Report: An Updated (Lower) Scorecard
Many economists have been lowering their estimates of U.S. private-sector job growth in June after a string of weak labor market reports this week.
Why This Isn’t A Time to Worry that Government Is Spending Too Little
It seems to me that by just about any measure, we are currently conducting a large-scale experiment in massive government spending. Moreover, I believe the results of previous experiments predict that this one will lead to slower growth and less economic opportunity.
Austerity?
...it is hard to imagine that anyone would call our fiscal situation austere, even in the event that Team Obama were to freeze non-defense non-homeland-security spending, as it promised back in February.
Economics is hard, but bloggers are undeterred
Economics blogging is not about furthering the economics profession, its purpose is to integrate economic thinking into the daily thought processes of citizens, thereby leading to a more well-informed populace that is not left to blindly follow those in authority – which is, perhaps, exactly what Dr. Athreya is afraid of.
“The Only Place Innovation Will Come From”
Trying to reproduce the innovation, replication, dissemination cycle outside the free market system is like trying to make a wheel more round by increasing or decreasing the value of pi–-and it’s just as unnecessary.
Sticky wage transmission mechanisms
The standard story explains that sticky wages increase unemployment. The standard story, however, is not the only and perhaps not the most important transmission mechanism.
Expectations and GDP, Second Quarter 2010
Using that latest data, we anticipate U.S. real GDP for the second quarter of 2010 will fall into a range between $13,107 billion and $13,642 billion, with a target value of $13,374.8 billion.
ISM Mfg index shows slower expansion in June, Pending Home sales collapse
Both the ISM index and pending home sales were below consensus.
Keynes versus Hayek: Past is Prologue
It does not take much to see that the issues are basically the same today. The positions of the opposing sides are also the same. As I have said many times before, the great debate is still Keynes versus Hayek. All else is footnote.
Recommended Books
Paul Seabright, The Company of Strangers and more.
The Debate Continues: Keynes, Pigou, & co. vs. Hayek, Robbins, & co.
Recovery requires government to get lean and out of the way, and individuals to pursue opportunities for mutual gain through trade and wealth creating entrepreneurial ventures.

Research, Reports & Studies
Revitalizing Federalism: The High Road Back to Health Care Independence
The Patient Protection and Affordable Care Act represents more than a federal takeover of health care; it is a direct threat to federalism itself.
The Nation's Mid and Long-Term Fiscal Challenges
Testimony before the National Commission on Fiscal Responsibility and Reform
‘Clean’ Energy and Disguised Costs
One of the big benefits of economics is that it restrains the enthusiasm of zealots who want government to have a big say in how our resources are allocated. Economics reminds us that there are no free lunches.
Trends in World Inequality in Life Span Since 1970
The sources of widening inequality in length of life between countries remain unclear, but signs point away from trends in income, leaving patterns of knowledge diffusion as a potential candidate.


Graphic of the Day
A special report on debt: Repent at leisure
See: Count on this: Hiring will be weak
See also: World Debt
See also: Banks' profits and losses
See also: The Unsustainable Welfare State: Reform is Necessary

Economists’ Comments & Opinions
Greece Must Restructure Debt and Quit the Euro
Any debt restructuring for Greece would need to involve at least a 50 per cent write down to provide any meaningful relief. Such a large write down would constitute a severe hit to the European banking system
Thanks to Tax Competition, Corporate Tax Rates Continue to Fall in Europe
Many people assume that Europe is the land of high-tax welfare states and America is an outpost of laissez-faire capitalism. But the United States is a lot closer to France than it is to Hong Kong
Obama and the Fiscal 'Road to Hell'
G-20 leaders don't agree with the president that more spending will revive the economy. Nor do most Americans.
Paul Krugman's Depression Economics
To put it very simply, government spending is a huge tax on true economic productivity, so contrary to Krugman's deeply held views, global economic revival will be at least partially authored by the spending cuts he decries, not the increases that he endorses.
The Bucyrus Travesty
A tale of two Obama loan guarantees.
Stocks, like most of us, like job growth
Commentary: Correlation between stocks and jobs at strongest since 1960s
The Dodd-Frank Financial Fiasco
The bill all but guarantees bailouts as far as the eye can see, while failing to address real problems like Fan and Fred and our outdated bankruptcy code.
Piecing it together
Putting a central planner (or committee of planners) in charge won't work. First, there's no way that the planner, gazing at a huge pile of [economic] puzzle pieces, can foresee any of the possible meaningful pictures that might emerge once these billion pieces are assembled. This jigsaw puzzle doesn't come in a box whose cover depicts the final result.

"Marginal product of capital that matters is net, not gross. MPK-depreciation rate<0 likely true when K not very useful." -Garrett Jones, Twitter

Book Excerpts
"...federal deficits distorted allocation of resources, damaged the stability of financial markets, and, because the money was borrowed from the capital market, inhibited the formation of capital. Since capital investment is necessary for productive growth and high levels of unemployment, the “uncontrollable” deficits constituted a direct assault on the productive system and a direct cause of unemployment.

"Further complicating matters, the federal budget has itself been touted by government economists as a “tool for economic stabilization.” Rationalizers of deficit spending have argued that increased federal spending and the resultant deficits were a creative act, that they were actually economic activity. Thus, at every dip of the economy, the proposed cure was always deficit spending. Unfortunately, the deficits never disappeared. They continued during both “stop” and “go” periods, during periods of both weak and strong economic activity. There were two destructive results of this alleged “stabilization” by deficits: The momentum of government spending was incessantly upward and inflationary, and the capital markets were further drained of investment capital." -Former Treasury Secretary William E. Simon, A Time for Truth (1976)

"Did You Know"
Today in History
1862 - The office of Commissioner of Internal Revenue (forerunner of the IRS) was established.
1943 - Federal income tax withholding began.