Tuesday, September 14, 2010

9/14/10 Post

News
Obama says his policies have stabilized economy
Less than two months before the midterm elections, President Barack Obama is imploring voters to support his party's economic policies, even though he acknowledged that those policies haven't brought about a recovery fast enough for many Americans.
Thicker cushions, when you’re ready
Bank regulators make poor story-time princesses. Before the crisis, banks under their watch progressively thinned out the cushions of capital they were resting on while regulators slumbered on, oblivious to the huge lumpy risks beneath. Now they are trying to make amends.
US poverty on track to post record gain in 2009
The number of people in the U.S. who are in poverty is on track for a record increase on President Barack Obama's watch, with the ranks of working-age poor approaching 1960s levels that led to the national war on poverty.
Aug. retail sales up 0.4 percent, best in 5 months
Retail sales rose in August by the largest amount in five months, suggesting a late-spring economic swoon was temporary and not the start of another recession.
Rand Paul: GOP Shares Blame for Deficits
Paul said Democrats share greater blame for rising red ink, but the tea party favorite said Republicans squandered past congressional majorities by presiding amid times of growing federal deficits.
Banks get years to adjust to new global rules
Bankers and analysts said new global rules could mean less money available to lend to businesses and consumers, but they praised a decision to give them plenty of time — until 2019 — before the so-called Basel III requirements come into full force.
Cuba to Cut State Jobs in Tilt Toward Free Market
Cuba will lay off more than half a million state workers and try to create hundreds of thousands of private-sector jobs, a dramatic attempt by the hemisphere's only Communist country to shift its nearly bankrupt economy toward a more market-oriented system.
Jobless Are Straining Social Security's Disability Benefits Program
Applications to the program soared by 21 percent, to 2.8 million, from 2008 to 2009, as the economy was seriously faltering.
Reinsurers face taxing time on premiums
The insurance industry is facing political and regulatory tension between the US and Europe that threatens to make life more difficult for companies doing business in the US – and more costly for US consumers.
Boehner Budget Rollback would Cut Scores of Agencies
It sounds easy, but House GOP leader John Boehner’s proposal to roll back non-security federal spending to 2008 levels would require wrenching 20 percent reductions in many agencies, possibly including the FBI.
GOP leader nixes talk of taxing
Dares Obama to pursue hike.
Positions Harden on Tax Cuts
Boehner's Hint at Possible Compromise on Bush-Era Rates Doesn't Gain Traction.
Buffett: No double-dip recession
"I'm a huge bull on this country," said the Omaha, Neb.-based billionaire investor and philanthropist. "We will not have a double-dip recession at all," he said. "I see business coming back almost across the board."
Plan to end oil industry tax breaks draws fire
The debate over eliminating tax breaks for the oil and gas companies is heating up, with an industry group saying Monday that the move could cost the energy sector thousands of jobs.
Retail: Not out of the woods yet
Several encouraging signs in the retail sector -- including a strong retail sales report and an improved outlook from a retail bellwether -- show that spending is picking up.
Intel CEO: Stimulus didn't work
"Take the uncertainly out. Businesses can't invest until they have fewer variables and right now there are just too many variables,"
Hill battles over Bush tax cuts
With their backs to the wall, Democrats want two things from Congress this fall: a fast break and a political bank shot — melding small-business relief with a fight over Bush-era tax cuts for the wealthy.
House GOP Presses Democrats On Spending
Republican leaders of the House Ways and Means, Appropriations, and Budget committees today wrote to their Democratic counterparts asking them to cooperate on legislation to be enacted this month that would reduce federal spending in FY11 to FY08 levels and freeze federal tax rates for the next two years.

Blogs
Secondary Sources: Mortgage Deduction, Unemployment, Lost Generation
A roundup of economic news from around the Web.
Are Social Security Commitments a Sunk Cost?
The Supreme Court made it supremely clear in Flemming v. Nestor that the the Social Security system is essentially a tax and transfer scheme. If the government decides that it doesn't want to give benefits to people who paid into it over a lifetime, it can legally do so. So it's not a debt and it's not a sunk cost.
Small-Business Optimism Recovers Slightly
The Small Business Optimism Index edged up 0.7 points to 88.8 in August, said the National Federation of Independent Business.
What If Size Does Matter?
Swedish economists Andreas Bergh and Magnus Henrekson looked at the available literature in their book Government Size and Implications for Economic Growth and found “with few exceptions … a negative relationship between government size and economic growth in rich countries.”

CardHub Study says Decline in Credit Card Debt a Result of Chargeoffs, Not Frugality
A spreading meme is that there is a new frugality among consumers, as evidenced by a decline in credit card balances outstanding over the past several quarters. An interesting new analysis by CardHub, however, argues that this is a measurement error: that the decline in outstanding balances is actually a result of increased chargeoffs of debt, not consumers paying down debt. In the aggregate a chargeoff or a payoff both count as retiring the debt.
The “s” word
This is one of the most honest and depressing statements about the state of our knowledge of macroeconomics that I have ever seen. The CBO is admitting that the “new data”—what actually happened in the aftermath of the stimulus—cannot be used to evaluate the stimulus.
CR Index: Amid declines in spending and jobs, one bright note
The U.S. job outlook remains especially bleak. The August results for the Consumer Reports Employment Index marks a two-month decline, down in September to 49.1 from 50.2 in August.
TARP Deadbeat list grows to more than 120 banks
"The latest report ... shows that more than 120 institutions ... have missed their scheduled quarterly dividend payments ... a record six banks each missed six dividend payments."
The Output Gap Story
I am not sure about the economic parallel between stimulus spending and foreign-aid spending. But the political parallel is clear. I think that people who believe in foreign aid are not going to change their minds, and I think that people who believe that stimulus works are not going to change their minds.
Pension Reforms on the Horizon in New Jersey
Governor Chris Christie has announced his plan to tackle New Jersey’s pension shortfall. Officially estimated at $46 billion, Andrew Biggs and I estimate the figure is closer to $174 billion (using the risk-free discount rate to assess the size of the liabilities).
Viard on Marginal Tax Rates
Alan says supporters of the Bush tax cuts have neglected the best arguments.
Does spending create prosperity?
People will argue forever whether the Obama stimulus package was a waste of money, saved the economy from an even bigger downturn, or delayed the natural rebound of the economy. There is no evidence that it saved the economy from a bigger downturn. It could be true, but there is no evidence. The evidence that we do have on massive injections of money into broken economies is that they have little effect on the economy as a whole. They benefit the people who receive the money but do not repair what is broken.
Investment Contributions to GDP: Leading and Lagging Sectors
The key leading sector - residential investment - has lagged the recovery because of the huge overhang of existing inventory. Usually RI is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and this is a key reason why the recovery has been sluggish so far.
The Dynamics of Creative Destruction
The future of empirical macro is in the new labor dynamics (JOLTS) and business dynamics data sets. I predict that if the CBO, Mark Zandi, and other traditional macro modelers continue to ignore these data sets, they will be stuck in a time warp, like somebody who doesn't know how to use email or a cell phone.
Why inequality is a red herring
My only quibble with Alex is that it’s not really a winner-take-all world. It’s more of a winner-take-lots kind of world. If LeBron James had decided to be a social worker, yes, someone else (Kobe, maybe) would be considered the best player alive and that person would get some extra rents for being the best.
The Cost of High Taxes
If the U.S. had higher tax rates, we might not end up with any higher revenues. Instead, we would spend more time mowing our own lawns, cooking our own meals, doing our own household repairs, and so on.
The Return of No-Money Down
...having negative equity is very, very dangerous. And that's what a no-money-down borrower has in this market, because prices aren't rising much, and they need to find thousands of dollars to pay broker commissions and closing costs if they want to sell.
Did France cause the Great Depression?
The results indicate that France was somewhat more to blame than the United States for the worldwide deflation of 1929-33. The deflation could have been avoided if central banks had simply maintained their 1928 cover ratios.
Social Security: The Privatization Shell Game
So the government is going to have to come up with revenues to pay two groups of workers: those who want the present value of their future SS checks and those who don't want it but, instead, want to get the checks. The government hasn't come up with any new revenues to do this.
What will Basel III do?
1. This agreement is probably good news.
2. It is difficult to divine the net future effects of such changes upon announcement. There is also the question of how binding this ends up being and whether the implementation lags will matter.
3. One key question is how much current systems prevent regulatory arbitrage, namely driving more intermediation into less regulated, less reliable and less easily monitored institutions.
Sizing Up Obama’s Nominee as Chief Economist
In nominating Austan Goolsbee as chairman of the Council of Economic Advisers, President Obama chose a first-rate scholar and an exceptional expositor, an economist as good as anyone in his (and my) generation at the essentials of this position – thinking through the economic implications of a wide range of policies.
How Many Jobs Do We Need?
The answer to how many jobs the United States needs depends on how you define “we” and how you define need.
Keynes Was Wrong on Stimulus, but the Keynesians Are Wrong on Just about Everything
It’s very important to draw a distinction between Keynes, who was wrong on a couple of things, and today’s Keynesians, who are wrong about almost everything.
ObamaCare’s Threat to Free Speech
HHS Secretary Kathleen Sebelius is attempting to stifle political speech by using the new powers that ObamaCare grants her to threaten health insurance companies that claim ObamaCare’s coverage mandates are one cause behind rising premiums.
Tax Hikes on the Rich Will Hurt the Recovery
Supporters of President Obama’s refusal to extend the Bush-era tax policies have cloaked themselves in a mantle of fiscal responsibility, arguing that extending cuts, particularly for high-income earners, would increase the deficit and national debt.
Advance Competitiveness Through Economic Freedom
Early this year, The Heritage Foundation’s Index of Economic Freedom reported that the U.S. economy is no longer in the top tier of economically free countries and runs the risk of falling further behind.
Obamacare vs. the Rule of Law
Obamacare is deeply unpopular with the American people because, as the massive regulatory regime goes into effect, the American people are noticing that none of the administration’s promises are being honored.
Setting the Record Straight: Spending Cuts
The Federal Government takes and spends an ever-growing portion of the wealth of this Nation, and spends the money of future generations. This cannot continue. We must overhaul Federal entitlement programs and get their cost under control, before the country bankrupts itself.
Kids Deserve Better: Stopping the Obama Education Agenda
An education agenda that serves only to empower bureaucrats and politicians will never improve children’s education. It is time for the federal government to step aside and give authority back to parents and local leaders.
Medicaid May Bust State Budgets Next Year
Medicaid spending now represents on average about 21 percent of the typical state budget. If state Medicaid spending increases by 41 percent as projected by CMS, then by next year Medicaid could end up consuming nearly 30 percent of the average state budget.
Obama Sweeps the Declaration of Independence Under the Rug
President Obama just redecorated The Oval Office. Part of his feng shui includes a new rug featuring several of his favorite quotes. Of all the memorable quotes in American history, Obama chooses no Founders’ words for his office rug. There is not even a nod to the Declaration of Independence.
Side Effects: Obamacare’s Small Business Tax Credits Won’t Go The Distance
Though small firms eligible for some level of the tax credit employ approximately 16.6 million employees, the report estimates that businesses that might actually take advantage of the credit employ only 3.4 million workers. Moreover, a large portion of those 3.4 million already receive health insurance through their job.
Obamacare in Pictures Busts Health Care Myths
As America closes in on the six-month anniversary of the passage of Obamacare and prepares for the November elections, liberal health groups are revving up to defend the unpopular new health care law.
Are Big Companies Regaining Their Luster?
There's been a shift underway in terms of recent performance: Large-cap just rose for a second straight week while mid-cap, small-cap dropped.

Research, Reports & Studies
RCM: Cato Policy Report: The Era of Expert Failure
A key difference between experts in the private sector and experts in the government sector is that the latter have monopoly power, ultimately backed by force.
The High-Income Rate Reductions: The Neglected Stepchild of the Bush Tax Cuts
Congress is considering allowing the Bush tax cuts’ rate reductions for high-income households to expire at the end of 2010 while providing a deficit-financed extension of the middle-class portion of the tax cuts. This combination would damage economic growth by hiking marginal tax rates on saving and investment while swelling the budget deficit.
Don’t Ask, I’ll Just Tell You What the Law Should Be: Log Cabin Republicans v. United States
In Log Cabin Republicans v. United States, the Obama Administration sought to win a policy victory by losing a case. By failing to adequately defend the “Don’t Ask, Don’t Tell” (DADT) statute President Obama is able to undermine or do away with a statute that he opposes.
Legalizing Marijuana: Why Citizens Should Just Say No
The scientific literature is clear that marijuana is addictive and that its use significantly impairs bodily and mental functions. Nonetheless, this November, California voters will consider a ballot initiative, the Regulate, Control and Tax Cannabis Act of 2010 (RCTCA), that would legalize most marijuana distribution and use under state law.
Short Sales Bans: Shooting the Messenger?
In response to the recent financial crisis, many governments chose to ban or restrict short sales, hoping to mitigate the impact of the stock market downturn.

Economists’ Comments & Opinions
Reagan, Obama, Summers All Wrong on Tax Credit: Amity Shlaes
In reality, Obama’s idea isn’t such a noble idea. Because the investment tax credit has been around in different forms since the 1950s, it’s possible to examine the record. When you do, you find not great success but uneven performance.
Rep. John Boehner's Taxation Blunder
The real "cost" that needs to be trimmed is the $44.8 trillion in added federal spending expected over the next 10 years - which represents an 83% surge from the preceding decade.
The 1099 Insurrection
The White House fights an effort to ease a burden on small business.
Impulse Response
Except for a burst of census hiring that briefly pushed payroll growth above trend during the second quarter of this year, job growth has been perpetually below trend over the past two years.
The Day After Tomorrow
Throughout American history, in other words, there have been leaders who regarded government like fire — a useful tool when used judiciously and a dangerous menace when it gets out of control. They didn’t build their political philosophy on whether government was big or not. Government is a means, not an end. They built their philosophy on making America virtuous, dynamic and great. They supported government action when it furthered those ends and opposed it when it didn’t.
CANNON: Obamacare silences health insurers
Sebelius threatens companies that speak out of turn.
How Unreliable is CBO Scoring?
The bottom line is that CBO projections should be taken with a grain of salt — to say the least.
Obamanomics Meets Incentives
Why cuts in marginal tax rates increase economic growth, but cash for clunkers merely created a boom and bust cycle in auto sales.
Jump-starting the Economy
Because pumping trillions into the economy hasn't worked this time, maybe we ought to reflect on the last time government spending was under control — back in the 1920s.
Gangster Government Stifles Criticism of ObamaCare
"There will be zero tolerance for this type of misinformation and unjustified rate increases." That sounds like a stern headmistress dressing down some sophomores who have been misbehaving. But it's actually from a letter sent Thursday from Health and Human Services Secretary Kathleen Sebelius to Karen Ignagni, president of America's Health Insurance Plans--the chief lobbyist for private health insurance companies.
The Next Hoover
I'm beginning to think Barack Obama isn't the next FDR--as so many promised--but the next Hoover.
How to jump-start the economy
Americans have had enough of bailouts, government takeovers and stimulus spending sprees. All have combined to create massive uncertainty for businesses large and small, and our economy is showing the effects. The country has lost confidence in Washington — and rightly so.
Why It's More Than Just the Deficit, Part 2
If we want to reduce the deficits and reduce our personal debt, we must find a way to reduce the trade deficit.
Investing in the Coming Boom in Farming
Farming machinery, grain processing, and fertilizer companies are all options for investors who aren't prepared to buy a farm.

Graph of the Day
2010, a Year of No Inflation
See: Top 10% of Earners Paid 71% of Federal Income Tax
Obamacare: The Real Price Tag is a Moving Target

Book Excerpts
"We know, of course, that taxpayer adjustments to tax-rate changes take time. In response to rate increases, persons must seek out and find nontaxable substitutes for the tax base, or at least substitutes that are taxed at differentially lower rates, whether the tax is imposed on a source or a use of income. Persons must shift investment to nontaxed or low-taxed opportunities and must invest in opportunities that are complementary to those directly advantaged. Individuals must learn about, and take advantage of, legal loopholes, which may have to be invented by lawyers and accountants. The whole analysis here depends only on the plausible assumption that in considering the revenue potential of a tax or tax-rate increase, the participant in governmental decision making operates on the basis of a shorter time perspective (a higher discount rate) than the one that describes the adjustment of persons as taxpayers to a posttax equilibrium." –Geoffrey Brennan & James M. Buchanan, The Reason of Rules: Constitutional Political Economy (1985)

Did You Know
"From August 2008 to August 2010, the U.S. civilian workforce shrunk by 6.4 million, or 4.7 percent. While almost every single sector of the economy employed less workers in August than two years ago, two notable exceptions are the Federal government and the education & health services sector... Interestingly, there is one quasi-private sector that is booming and hiring a greater number of workers than the Federal government. The education & health services sector (defined as a single entity by the Bureau of Labor Statistics) employed 676,000, or 3.6 percent more workers than it did two years ago. In fact, for the past two years, this sector has never posted a single month-to-month decrease in employment."