Monday, August 9, 2010

8/9/10 Post


News
Some Firms Struggle to Hire Despite High Unemployment
Employers and economists point to several explanations. Extending jobless benefits to 99 weeks gives the unemployed less incentive to search out new work. Millions of homeowners are unable to move for a job because the real-estate collapse leaves them owing more on their homes than they are worth.
Dollar seeks footing ahead of Fed meeting
The U.S. dollar edged higher on Monday, as traders awaited this week's meeting of the Federal Reserve against a backdrop of rising worries about the staying power of the economic recovery.
Gold May Advance in New York on Dollar, Fed Purchase Concern
Gold may climb in New York on increased demand for a protector of wealth as the dollar weakens and on speculation that the Federal Reserve will step up buying of bonds to prop up the U.S. economy.
After summer slowdown, economy awaits fresh boost
The economy seems to have lost steam as it entered the summer.
Economic Reports This Week
Data will include second-quarter productivity and wholesale trade inventories (Tuesday); the trade deficit for June (Wednesday); import prices for July and weekly jobless claims (Thursday); and the Consumer Price Index for July, retail sales for July, the Reuters/University of Michigan consumer confidence index for August, and business inventories for July (Friday).
BP and U.S. Agree on Oil Spill Compensation Fund
The U.S. completed negotiations with BP Plc over the company’s agreement to establish a $20 billion fund to compensate victims of the oil spill in the Gulf of Mexico.
State, city job cuts taint recovery
Public sector job losses, not counting government losses from temporary positions collecting federal census data, rose to 48,000 in July - the biggest loss in the sector in a year.
America: States of distress
Using a rate of 3.6 per cent – what US Treasuries were yielding in June – Prof Rauh recalculates Illinois’ pension hole at $145bn – about $30,000 for every household in the state.
The $2.5 trillion slush fund
The program is running a deficit this year, and is projected to run growing deficits after 2015. But it will have money in the trust funds to pay full benefits until 2037.
Cash-Hungry States Lure Gamblers with New Casinos
The race in cash-starved states to open new casinos has become frenzy across the United States, lured by the easy money in gambling. But it’s a bet that could hurt taxpayers.
The BP spill is already gone and forgotten
BP's Deepwater Horizon disaster may have drawn more public attention than any other oil spill, but there's a good chance that sordid history of spill cleanup efforts will repeat itself.
Investor Appetite for Bonds in a Tepid Recovery Weighs on Rates
Rates keep falling, and Wall Street increasingly seems convinced that they will stay low for years. But it isn’t the Federal Reserve that is cutting them — it is the bond market. The weak-kneed economy has investors piling into United States Treasury securities, driving prices up and yields down.
How rich is rich?
Experts peg the figure to be somewhere around $2 to $12 million in savings.
GOP cash woes threaten fall gains
The Republican National Committee is entering the fall election season with dire financial problems and, to an unprecedented degree, will be forced to rely on outside groups to fund activities traditionally paid for by the national party.
Ailing public sector leads in layoffs
Congress heeds pleas for states.
In Ky., tea party vs. Obama proxy war
The battle between Conway’s institutional vulnerabilities and Paul’s individual weaknesses played out Saturday at the 130th rendition of one of the country’s longest-running political affairs, the Fancy Farm picnic.
Senate’s Costs for Foreign Travel May Set Record
The Senate is on pace to set an all-time high for foreign travel costs this year, with a burn rate that is 30 percent higher than the first half of last year.
Social Security Faces First Ever Shortfall
More people filed for Social Security in 2009 — 2.74 million — than any year in history, and there was a marked increase in the number receiving reduced benefits because they filed ahead of their full retirement age.
Democrats Put Immigration Back on Agenda
Democrats might prefer to spend the August recess focusing on jobs and the economy as they draw distinctions with the GOP leading up to Election Day.
Prime Numbers: Reasons for Consumers to Start Spending
The latest reports on employment on economic growth include data suggesting that consumers have reason to start spending again, a challenge to fears of a double-dip recession.

Blogs
Don’t Raise Taxes
"...I am aware of no serious analysis that would claim smaller costs to the economy—in lost output and foregone economic growth—of raising capital income taxes as opposed to increasing other taxes or limiting deductions or reducing federal spending."
‘Costs’ and ‘Benefits’ Not Our Concern When Regulating, Say Top FDA Officials
While Republicans and Democrats spar over how best to bring medical costs under control, the federal agency overseeing much of the healthcare industry says costs shouldn’t be considered when setting regulations.
Did Health Care Reform Cure Medicare?
Obamacare looks to me like the Massachusetts plan, which was supposed to save money, but did not. So I tend to think you have to be pretty gullible to believe that Obamacare will save money.
Consumer Credit Declines in June
"Consumer credit decreased at an annual rate of 3-1/4 percent in the second quarter. Revolving credit decreased at an annual rate of 9-1/2 percent, and nonrevolving credit was about unchanged."
No Common Ground on Energy Subsidies
Per-capita is the more meaningful metric of who gets more subsidies. And for energy, it’s subsidy-per-unit-of-energy-production that matters more than simply which sector gets more money.
On Congressman Paul Ryan
Princeton's Paul Krugman plays offense.
Brookings's Ted Gayer plays defense.
Consider the Source
Paul Krugman has an interesting post up on how to read a CBO document. He highlights the fact that the CBO reports using the assumptions it is required to make, not any estimate of what is particularly likely to happen in the real world...
How is Medicare doing?
Worse than official projections suggest...
A Wise Passage
"Politicians are in charge of the modern economy in much the same way as a sailor is in charge of a small boat in a storm. The consequences of their losing control completely may be catastrophic (as civil war and hyperinflation in parts of the former Soviet empire have recently reminded us), but even while they keep afloat, their influence over the course of events is tiny in comparison with that of the storm around them. We who are their passengers may focus our hopes and fears upon them, and express profound gratitude toward them if we reach harbor safely, but that is chiefly because it seems pointless to thank the storm."
Krugman Is Wrong on Ryan and the CBO
...it is not correct to accuse Ryan of deliberate dishonesty; he asked the CBO to score it, and they turned him down. Nor is it correct to imply that this is somehow out of the ordinary. If you supported the health care plan, you supported the exact same process that Ryan is now proposing to use to tweak his proposal.
Unofficial Problem Bank list increases to 811 institutions
The number of institutions has more than doubled since we started the list in early August 2009 - even with all the bank failures (failures are removed from the list).
Two from the New York Times

I agree with Phelps that the focus on aggregate demand is misplaced. I also really like the idea of tax credits for employing low-wage workers. Of course, as Greg Mankiw pointed out, the minimum wage is like a subsidy for low-wage workers paid for by a tax on firms that hire low-wage workers. Repealing the minimum wage and replacing it with a straight subsidy would be better.
Confusions about the multiplier...
The case against fiscal policy should examine long-term budgetary costs, possible confidence factors, implementation lags, political economy problems, difficulties in targeting unemployed resources, and also the (underrated) notion that sometimes fiscal policy postpones problems into the medium run rather than solving them through jump-starting a recovery. But it is difficult to deny that fiscal policy brings some economic benefits in the short run, or can brake an economic decline, even if the measured multiplier is less than one or for that matter well under one.
Weekly Summary and Schedule, August 8th
The key economic report this week will be July retail sales to be released on Friday. The FOMC statement on Tuesday will also be closely watched.
The Coming War Over Public Pensions
"At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying."
Political Mood Cycles
My casual observation of American politics suggests that national political mood follows a four-year cycle that syncs with the presidential electoral cycle.
National Parks – A Celebration of Democracy?
Once again, Burns shows us that government is raw power, and that the idea of democracy is not only cloudy, but invoked in the name of things that some individuals think is desirable. Saying something is democratic does not make it so, and invoking the term democracy does not make the objects of political decisions somehow sacred. I am happy we have National Parks. Whether they are best managed by the US Government is a very open question, and whether their creation was some sort of democratic success is not exactly historically accurate.
Why Encourage Discrimination? The Case of Mandatory National Origin Labels
The most obvious effect of such regulation is to slightly disadvantage foreign producers by raising their cost of production. But the only slightly less obvious effect is to reduce consumers' cost of discrimination.
Drop in Temps Signals Trouble Ahead
Temporary-help employment is generally considered a leading indicator for the overall labor market. So July’s decline in temp payrolls is a worrisome indicator for the coming months.
How economists (and how many) advise the President
Keith Hennessey serves up a first-rate post; to excerpt it would diminish the impact.
Number of the Week: Cheap Money Isn’t Free
This week, IBM set a sort of milestone in the bond market’s recovery from crisis: The iconic computer company borrowed $1.5 billion at the bargain-basement interest rate of only 1%.
Why No Jobs?
Sometimes commonsense economics trumps high theory. Firms aren’t hiring because it isn’t cost effective. The owner could hire more people and expand his business, but it isn’t cost effective.
Secondary Sources: Spending, Stagnation, Presidential Advisers
A roundup of economic news from around the Web.
Freddie Mac: $4.7 billion Loss, REO Inventory increases 79% YoY
Freddie Mac reported that their Real Estate Owned (REO) inventory increased 79% year over year, from 34,699 in Q2 2009 to 62,178 in Q2 2010.
Higher Freight Volume Lifts Buffett’s Railroad Revenue
Warren Buffett has often said he’d look at rail car loadings if he were forced to pick just one economic statistic to be stuck with for the rest of his life. The figure, he says, is a great real-time proxy for the health of the economy.
Summer of discontent
Why the White House has seen better days.
Time to admit Obamanomics has failed
It's no coincidence that Christina Romer, chairwoman of the White House Council of Economic Advisers, announced her retirement the day before Friday's brutal unemployment report.
The Problem With Pensions
Here, a peek into a very sobering report on how badly underfunded public pension are.
Obama’s Failed Stimulus and Opportunities Forgone
The immediate effects of Obama’s policies are easily seen. We can observe the workers of which billions of dollars have been spent to employ.
Heritage in Focus: The Bush Tax Cuts and the Deficit Myth
The leftist majority in Congress likes to blame their trillion-dollar budget deficits on the Bush tax cuts of 2001 and 2003, but The Heritage Foundation’s Brian Riedl disagrees.
Blaming Bush Doesn’t Create Jobs
Speaker Pelosi can try to play the blame game all she wants, but the facts of her economic record are rapidly catching up with her.
Why Buying Manpower Won't Work
With earnings well off its pre-recession peak and valuation stretched by historical standards, its highly cyclical shares appear primed for a contraction.
Should Corporate America's Excess Cash Be Returned to Shareholders?
The relationship between dividend returns and total returns.
Will US Avoid Double Dip Recession? Goldman Sachs Says Yes
Goldman's report confirms that QE2 is right around the corner.
Economy Will Likely Recover With Inflation, Not Deflation, to Follow
While transfer payments to middle-/lower-income recipients aren't going to be all that stimulative given falling housing prices, that still doesn't spell deflation.
Drilling Moratorium Devastating to Gulf
The president’s policy halts more than energy exploration: It also hurts the coastal economy and the day-to-day lives of workers.

Research, Reports & Studies
Time for a "Demographic Stress Test" for the Western Economies
The current global economic crisis is at heart a banking crisis (originating with bad debts in the US mortgage sector)--and historically banking crises end up being very expensive for modern Western taxpayers.
Down with Legal Tender
When studying the history of money, one cannot help wondering why people should have put up for so long with governments exercising an exclusive power over it for almost 2,000 years.
Cutting Is So Hard to Do
In recent months, fiscal austerity among governments on all levels has come to the political fore, albeit for different reasons.
No Secret to Improving Intelligence
Our intelligence bureaucracy is about as ineffective as any other facet of the federal government. That's why we need to make the system leaner and nimbler, less bureaucratic and more responsive to elected officials.
Heritage Employment Report: July Jobs Scarce
It is clear that the labor market has faltered since the spring. Employers are reluctant to hire given the looming tax increases and uncertainty over the economy and new regulations that will be imposed by federal bureaucrats.
RCM: Wells Fargo Economics Group: Weekly Economic & Financial Commentary
Slower Growth Looks Certain, but Not a Double Dip.
Ch 5: The Great Depression and Keynes’s General Theory
Why was the economy languishing through the 1930s? Several economic historians cite government policies such as the Smoot-Hawley tariff of 1930, the tax hike of 1932, and the NIRA along with similar policies as hampering market adjustments and thereby delaying recovery.

Economists’ Comments & Opinions
Not In 25 Years, Social Security Is Bankrupt Now
For the first time in its history the Social Security program will pay out more money than it takes in. This watershed event will occur this year, to the tune of $41 Billion dollars. Under any rational accounting standards this makes the Social Security program bankrupt. And that's right now, not in 25 years when the so-called Trust Fund becomes insolvent.
Canada, Land of Smaller Government
Its corporate income tax rate is 18% and falling. America's is 35%.
The end of responsibility

From homeowners to government, the buck stops nowhere.
Make the '03 Tax Cuts Permanent, But Curb the Enthusiasm
Here's hoping Congress does in fact make the '03 reductions law, but if so, investors and citizens more broadly would be wise to curb their enthusiasm. In no way would permanency be a sign that the U.S. economy is set to roar.
Fairness and the Capital Tax Fetish
No serious economist thinks higher dividend and cap gains taxes are efficient ways to raise revenue. Why not limit deductions for high earners instead?
Taxes, Fertility and Economic Growth
Our society does not -- despite rhetoric to the contrary -- put much value on raising children. Present budget policies punish parents, who are taxed heavily to support the elderly.
How public worker pensions are too rich for New York's - and America's - blood
He did nothing illegal. At 44, Hugo Tassone retired from the Yonkers police force with an annual pension of $101,333 - thanks to overtime pay he tacked on to his $74,000 salary. Tassone told The New York Times it was the pension he could collect after 20 years of service that attracted him to the job in the first place.
What Would it Take to Cut Government Spending?
Reforms won't be easy to implement, because of the havoc brought about by runaway spending, taxing, borrowing and inflation. There are two main approaches to reform: go slow or go fast.
The Great Privacy Debate
Only one thing is certain here: Nobody knows how this is supposed to come out. Cookies and other tracking technologies will create legitimate concerns that weigh against the benefits they provide. Browser defaults may converge on something more privacy-protective.

Graph of the Day
Australia appears to be showing the same signs of a housing bubble that the U.S. did prior to its collapse
See: U.S. Job Market Loses Steam

Book Excerpts
"To allow unrestricted access to either capital taxation or to public-debt issue ensures that a revenue-maximizing government may appropriate future revenue potential for current-periodA usage, a result that the potential taxpayer could hardly be expected to prefer." –Geoffrey Brennan and James M. Buchanan, The Power to Tax: Analytical Foundations of a Fiscal Constitution (1980)

Did You Know
Michelle Obama's vacation to Spain is estimated to cost taxpayers almost $75,000 a day. Mrs. Obama flew in on a type of aircraft used by Vice-President Joe Biden, which costs the government $11,555 an hour to operate the plane, according to the air force. Assuming a nearly eight-hour flight to nearby Malaga, the total round-trip cost of the flight is about $178,000. The Obama family will reimburse the government an amount equal to two first-class tickets, officials said, but, a round-trip first-class flight to Málaga only costs about $7,400 a piece.