7/26/10 Post

BUZZ: Forecast for 2011 Deficit Is Raised to $1.4 Trillion

News
Fight brews over drilling watchdog
Now the agency that oversees offshore drilling - already entangled in a sex, drugs and rubber-stamping scandal even before the BP disaster - is up for a complete overhaul.
Tax hikes for the rich: Can the economy afford them?
The debate over what Congress should do, which has been playing out for months in policy circles, is now receiving more prominent attention.
Private sector must drive economy
The U.S. economy is gradually recovering, but the private sector now must drive growth rather than the government.
New-home sales rebound from record low in June
Sales rose 23.6% in June to a seasonally adjusted annual rate of 330,000.
Obama, Republicans spar over jobs
Obama has argued that the health-care law and the economic stimulus package will save money and create jobs. But Republicans say Democrats' spending is out of control and cite the deficit as they try to regain control of Congress this fall.
Democrats' fix for thorny economic debate: Manufacturing
With their manufacturing agenda, Democrats can skip the internal stimulus versus deficit-cutting debate altogether. The party is holding close its plans for the entire legislative package.
Europe's prospects brighten as U.S. fades
Dig beneath the headline and the contrast between the United States and Britain looks even sharper. Nearly all the growth in the British economy came from the private sector, led by construction and services.
Economic Outlook: US recovery stall expected
Recent weeks have been marked by increasing concern about the slow pace of recovery in the US and by disputes among policymakers on both sides of the Atlantic about whether stimulus measures should be maintained or public deficits cut.
Britain Plans to Decentralize Health Care
Practical details of the plan are still sketchy. But its aim is clear: to shift control of England’s $160 billion annual health budget from a centralized bureaucracy to doctors at the local level.
Health Law Augurs Transfer of Funds From Old to Young
The trims mark the leading edge of a spending shift that could broaden as lawmakers grapple with a deficit expected to hit $1.47 trillion this year. Left unchanged, Medicare and Social Security will consume half of all federal spending by 2035, up from about one third today, according to the Congressional Budget Office.
At Risk: The Impact of Long Term Unemployment
Men hit hardest, suffering 75 percent of job losses.
Taleb: Government Deficits Could Be the Next 'Black Swan'
In a new edition of The Black Swan, author Nassim Nicholas Taleb warns against depending "on financial assets as a repository of value."
Next Test for Europe's Banks: Finding Funds
Europe's Tentative Economic Recovery May Hinge on Financial Institutions' Ability to Raise Billions to Lend to Business.
Cities View Homesteads as a Source of Income
The calculus is simple, if counterintuitive: hand out city land now to ensure property tax revenues in the future.
Van Jones: Stop worrying about the deficit.
The government can just take more money from rich companies.

Blogs
Secondary Sources: Jobless Recovery, Happiness and Productivity, Uncertainty
A roundup of economic news from around the Web.
New Home Sales: Worst June on Record
May was revised down sharply and that makes the increase look significant. Here is the bottom line: this was the worst June for new home sales on record.
What Kind of Job Can You Hope to Get with Your Education? Georgetown University's Center on Education and the Workforce is out with its latest publication: Help Wanted: Projections of Jobs and Education Requirements Through 2018.
Number of the Week: Tax Cuts and Debt
0.26%: Added revenue, as a percentage of annual economic output, generated by raising tax rates on top earners.
Does Europe Have a Paul Ryan? It Needs One
I think this is what keeps Rep. Paul Ryan up at night.
Taxes With and Without Bush Tax-Cut Extension
The Tax Foundation has come up with a new tax calculator that allows people to figure out their 2011 tax burden under three scenarios.
Chicago Fed: Economic activity declined in June
"The index’s three-month moving average, CFNAI-MA3, decreased to –0.05 in June from +0.31 in May."
The Complicated Economics of a Postal Increase
The cost of a stamp has increased from 34 cents in 2001 to, if approved, 46 cents in 2011.
Measuring fiscal policy and evaluating its results
The most important, most effective, and least controversial forms of fiscal policy are the automatic stabilizers.
Good Gubmint Rithmitick!
Our ethanol follies reduce a ton of carbon for the cost of $754 per ton.
Weekly Summary and Schedule, July 25th
The focus this week will be on the Q2 GDP report to be released on Friday. There are also two key housing reports: New Home Sales on Monday and Case-Shiller house prices on Tuesday.
The Recalculation Story: A Summary
Try not to think of macroeconomics in terms of equations or in terms of aggregate demand. Try to learn to think in a new language, rather than translate from the Recalculation language to something you are used to...
Exporting Trade Fallacies
"Alas, there’s nothing special about exports – which is to say, there’s nothing special about the geographic locations in which products are sold."
Fun Facts to Know and Tell: Stimulus Job Creation Edition“… the Mid-Willamette Valley Community Action Agency in Oregon had claimed to create 205 jobs with its $397,761 in stimulus money — spending less than $2,000 per “new” job.”
More Weird Metrics for Elizabeth Warren
Todd Zywicki wrote this a few years back; it's typical of the problems with the Two Income Trap.
Unintended Consequences, Episode 5829104571
"Some major health insurance companies will no longer issue certain types of policies for children, an unintended consequence of President Barack Obama’s health care overhaul law, state officials said Friday."
The Mid-Session Review
This budget document shows what would happen to the federal budget under the Administration's economic forecast and assuming that all the President's proposed policies are adopted.
The Government's Role in the Housing Bubble
As it happens, I think that the government did play a role. A big role. But I think it's rather subtler, and thus, rather more problematic, than most people on either side are discussing.
This Week’s Sign of the Economic Apocalypse
The government’s recipe for brownies is … 26 pages long. You cannot make this stuff up.
European Bank Stress Test Results
German financial supervisors say Hypo Real Estate is the only German bank to fail stress test. All Dutch banks pass. All Spanish listed banks pass.
The White House Has Declared Class War on the Rich, but the Poor and Middle Class Will Suffer Collateral Damage
The folks at the White House apparently don’t understand, however, that higher direct costs on the “rich” will translate into higher indirect costs on the rest of us.
Federal Court Strikes Down Another Example of Overcriminalization
A Colorado federal court last week struck down another of Congress’s well-intentioned but poorly drafted criminal laws—a law that exemplifies some of the root problems of overcriminalization.
An Admission of Failure
According to Friday’s report, the Obama administration now projects that unemployment will average 9% throughout all of next year and 8.1% throughout 2012.

Research, Reports & Studies
Wells Fargo Economics Group: Weekly Econmoic & Financial Commentary
Home Is Where the Economy's Heart Is...
The Role of Immigrants in the U.S. Labor Market: An Update
...the growth of the foreign-born labor force was much slower between 2004 and 2009 than between 1994 and 2004. In that earlier period, the size of the foreign-born labor force grew at an average annual rate of more than 5 percent, whereas from 2004 to 2009, the rate was about 2 percent.
Some Welcome Signs of Life From Private Sector
The American private sector somehow seems to be exerting itself despite the vast expansion of government by the Obama administration and congressional Democrats.
Obama Defines Dysfunction with One Appointment
One of President Barack Obama's first acts in office was signing Executive Order 13502. Obama launched a dizzying flurry of actions designed to reward organized labor at the expense of everyone else. Perhaps the low point was his attempt to appoint Becker to the National Labor Relations Board.
The “Beijing Consensus” in Energy and the Environment
There are many flaws in the notion of using the Chinese economy as a model, perhaps chief among them that widespread imitation of Chinese policies would cause those same policies to no longer work for China itself.
Crisis Economics
Why were the administration's projections off the mark? What should their experience teach us regarding stimulus policies in future downturns? And what can the government do now, as unemployment remains very high, to help the patient heal faster? Trying to resolve these questions illustrates not only the difficulty confronting policymakers in a crisis, but also the inherent limitations of the economics profession — limitations that both economists and politicians would be wise to keep in mind.

Economists’ Comments & Opinions
Sam's Club Exposes The Bank Bailout Lie
By leaving the economy alone, non-traditional forms of finance grow and traditional banks decline in relevance.
Uncle Sam has worse woes than Greece
...debt alone tells us little about a country’s fiscal condition. Economists call this the labelling problem, because governments can describe receipts and payments in any way they like. Payroll taxes to fund pensions and healthcare can, for instance, be labelled as borrowing, with the future benefits called repayment less a future tax. Measured thus, the US budget deficit is 15 per cent of GDP, not 9 per cent.
Prime Numbers: Deficit Cuts A Priority for Americans
Big deficits rob national savings, pushing up interest rates and crimping private investment, which eats into economic growth. They limit the government’s ability to respond to recessions, and can erode investors’ confidence in the government’s fiscal responsibility.
The Democratic Fisc
The White House budget office offers a scorecard on Obamanomics.
Autopilot Thinking on the Bush Tax Cuts
Congressional tax analysts largely do not take into account how people and businesses react--whether they shift income into different, non-taxable investments, work more or less, or hide their income to lower their taxes.
Early Returns on ObamaCare Are Disappointing
The evidence suggests that it is a failure even by the standards of its supporters.
How financial reform could impede growth
If we have made the financial institutions much less profitable that they no longer have as much money to lend, or they're going to be so gun shy that they don't even lend to even very credit-worthy customers, then that would impact economic growth.

Graph of the Day
Mercatus Center: Marginal Tax Rates Must Nearly Double to Fund Entitlement Spending
See: Big Mac index suggests the euro is still overvalued
See also:Federal Spending per Household Is Skyrocketing

Book Excerpts
"Forecasting by bureaucrats tends to be used for anxiety relief rather than for adequate policy making." –Nassim Nicholas Taleb, The Black Swan (2007)

Did You Know
The World Trade Organization (WTO) today issued its World Trade Report 2010, an annual publication that offers definitive statistics on international trade. In recent months, media reports have widely described China as the world’s largest exporter, but today’s report indicates that the United States remained the world’s largest exporter of goods and services through 2009. China has indeed overtaken the United States and Germany to become the world’s largest exporter of merchandise.