Monday, October 4, 2010

10/4/10 Post

A tax cut both parties should love -- but don't
Would you like a 6% raise in your next paycheck? Some economists want to give you one -- in the form of a payroll tax holiday -- to stimulate the struggling economy.
Voters in 3 states to consider opting out of 'Obamacare'
Following the lead of the successful Missouri initiative, which passed with 71 percent of the vote, Arizonans, Coloradans and Oklahomans will decide this fall whether to approve proposed constitutional amendments that would allow them to opt out of key provisions of President Obama's signature national health care law.
Obama tax plan: Who gets hit - and why
President Obama's plan to raise taxes on the nation's highest income households may not quite mean what you think. A closer look suggests that fewer people may get whacked than either Obama or his Republican critics suggest.
California Budget Plan Draws Skepticism
Rank-and-File Lawmakers Express Doubts About Proposal From Governor, Legislative Leaders to Close $19.1 Billion Gap.
Latest unemployed: Stimulus-subsidized workers
Tens of thousands of low-income workers lost their jobs Thursday as a stimulus-subsidized employment program came to an end.
Cheap Debt for Corporations Fails to Spur Economy
Corporations now sit atop a combined $1.6 trillion of cash, a figure equal to slightly more than 6 percent of their total assets. In the first quarter of this year it was 6.2 percent of assets, the highest level since 1964, when it was 6.4 percent.
Bernanke: Teach us out of the next crisis
Fed Chairman Ben Bernanke told a crowd of schoolteachers in Washington Thursday they can help prevent the next big financial crisis by teaching students personal finance basics of saving and budgeting.
NFL ticket prices on the rise
The average ticket price for professional football games increased 4.5 percent this year to $76.47, even as some teams struggled to fill every seat.
Visa, MasterCard Near Antitrust Settlement: Report
Visa and MasterCard are close to settling a Justice Department antitrust probe over credit card acceptance rules, the Wall Street Journal reported on Sunday, citing people familiar with the negotiations.
UK cuts child benefit payments in austerity drive
Britain will cap payments to jobless families and scrap child benefits for high earners in a sweeping overhaul of the country's welfare system, Treasury chief George Osborne said Monday.
Global Economy Week Ahead-Currency war fears tinge IMF meetings
If there's one thing the world's economic powers can agree on, it's that none of them wants a strong currency right now.
Wall Street Sees World Economy Decoupling From U.S.
Wall Street economists are reviving a bet that the global economy will withstand the U.S. slowdown.
More Countries Adopt China’s Tactics on Currency
As the Obama administration escalates its battle with Chinese leaders over the artificially low value of China’s currency, a growing number of countries are retreating from some free-market rules that have guided international trade in recent decades and have started playing by Chinese rules.
State DOTs: A Word from Our Sponsor
As the recession threatens popular highway programs, the Georgia Department of Transportation is looking to the private sector for creative funding solutions.
Liberals at 'One Nation Working Together' rally press for jobs, unity
Liberal activists who rallied in Washington Saturday seemed as concerned about bridging the divide between Democrats and disillusioned progressives as they were about promoting civil rights and other social issues.
Conflict Awaits in Lame-Duck Session
Democrats studiously avoided Senate floor fights over taxes and spending before hitting the campaign trail last week, but the post election debate on those issues promises drama and gridlock.
Stimulus: Design Is Important
Nobel Prize-winning economist Joseph Stiglitz and former Federal Reserve Board official Vincent Reinhart presented differing views of America's continuing economic challenges at a National Journal Live event on September 28, moderated by NJ Correspondent Major Garrett.
Summers On The Upside Of Economic Cycles
Lawrence Summers looks back at two years on the front lines, and ahead to the prospects of a stronger recovery.
August factory orders decline 0.5 percent
Orders to U.S. factories fell in August, reflecting a big drop in demand for commercial aircraft. But outside of the volatile transportation sector, orders rose for the first time since March.
Bank of America delays foreclosures in 23 states
Bank of America is delaying foreclosures in 23 states as it examines whether it rushed the foreclosure process for thousands of homeowners without reading the documents. The move adds the nation's largest bank to a growing list of mortgage companies whose employees signed documents in foreclosure cases without verifying the information in them.

Number of the Week: 41.7 Million Spend Too Much on Housing
As of 2009, some 41.7 million U.S. households, or 36.7% of the total, faced housing costs that exceeded 30% of their pretax income — a level typically defined as the threshold of affordability. That’s an increase of 1.5 million from 2007, despite a sharp drop in house prices and policy makers’ extraordinary efforts to bring down mortgage payments.
Rates keep falling: 2-Year Treasury Yield Hits Record Low
"The 30-year fixed-rate mortgage rate [4.32 percent] dropped to tie the survey’s all-time low and the 15-year fixed-rate [3.75 percent] set another record low."
Secondary Sources: Tech and Income Redistribution, Keynes, IMF and Currency
A roundup of economic news from around the Web.
Limited Purpose Banking?
Whether the case for narrow banking can finally be convincingly made remains to be seen. The case for mutual-fund banking is a giant leap beyond that. The FFA would, I predict, create an even more horrible mess than yet witnessed in financial services.
Weekly Schedule for October 3rd
The key economic release this week is the September employment report on Friday. Fed Chairman Ben Bernanke will speak Monday evening, and his speech will be closely watched for additional hints on QE2.
The Debate over Fiscal Adjustment
1.The IMF and the Economist take on Alesina and Ardagna.
2.My Harvard colleague Alberto Alesina responds.
Real-Cash-Balance Effect
Beijing’s policy makes all consumer prices in the U.S. lower than they would otherwise be. Therefore, any given volume of dollar spending allows Americans to purchase more real goods. The volume of dollar aggregate demand depends most importantly on Federal Reserve policy, not on the Chinese.
Unofficial Problem Bank List increases to 877 institutions
"The number of institutions on the Unofficial Problem Bank List rose this week but assets fell with the removal of a large publicly traded bank."
Another Empty Promise of ObamaCare: More Jobs
Data is not Information: Would you like a Receipt for your Taxes?
Just because a only a couple hundred of your tax dollars were appropriated to the Department of Agriculture doesn’t make farm subsidies a good idea.
September Employment Report Preview
Goldman Sachs is forecasting a minus 50,000 headline payroll number and an increase in the unemployment rate to 9.7%.
Medicaid Costs: Take II
Coughlin and Zuckerman found that since 2001, 24 states expanded eligibility. In some cases, the expansion was dramatic. For example, New York expanded its eligibility requirements so that the share of those eligible grew from 13 to 35 percent of the state’s population. Most of these expansions did not target those who are least-advantaged.
The Sad State of Economic Modeling
It's fine to say "Our best guess is that TARP and the stimulus did some good. But it's well to remember that our best guess really isn't very good. And putting an exact number on it--"3.1 million jobs created or saved!" creates a dangerous false precision, giving people the illusion that we have good knowledge in a very foggy area.
School House Pork
By focusing on education pork—legislative earmarks that go directly to favored constituencies—the report highlights politicians literally glorifying themselves with “education” dough.
Immigration Enforcement at the Crossroads: Arizona v. Obama Administration
The Obama Justice Department has launched an unprecedented legal assault on Arizona’s attempts to stem the tide of illegal immigration, filing at least three lawsuits against Arizona and other state officials and entities.
Reviewing a Do-Nothing (Right) Congress
As Members of Congress limp out of Washington to face their constituents, it’s worth reviewing their accomplishments—or lack thereof.
Claim Check Needs to Do Fact Checks
Claim Check, which supposedly fact checks public statements, employs the different-must-be-wrong-theory in dismissing a Heritage analysis because it is an “outlier.”
Public Citizen and EPI on Trade and Employment
Reports from the Economic Policy Institute (EPI) are being misrepresented by leftist organizations like the AFL-CIO and the Alliance for American Manufacturing.
Marriage Goes Down, Poverty Goes Up
For the first time in recent history, adults between 25 and 34 years of age who are single outnumber their peers who are married. On top of this, the number of married adults in 2009 reached a historical low.
Small Reactors, Large Potential Impact
A new report by the Energy Policy Institute, in collaboration with the American Council on Global Nuclear Competitiveness, titled “Economic and Employment Impacts of Small Modular Nuclear Reactors,” investigates how four separate scenarios of small modular reactor (SMR) construction could affect the U.S. economy.
The Obama Experts vs. the Rule of Law
Last week President Barack Obama’s most recently minted czar, Special Advisor to the President for the Consumer Financial Protection Bureau Elizabeth Warren, spoke to 400 bankers at the swanky Mandarin Oriental Hotel in Washington, DC. Her message, according to The Washington Post: “Behave, play nice, and we’ll get along just fine.”
Where to Put Your Money in the Homestretch of 2010
Choppy markets are tough, but they usually signify good trends ahead. Here, a look at what's happening in equities, bonds, commodities, and more.
The Best Ideas in Oil, Capacity Utilization, Real Estate and Employment
John Hofmeister talks oil and gas, David Rosenberg sees negative growth by year end, and David Shilling looks at relationship between employment growth and GDP.
Markets Will Unravel Faster Than Expected
Peak Oil, sovereign insolvency, and currency debasement will permanently transform the economic landscape.

Research, Reports & Studies
RCM: Wells Fargo Economics Group: Weekly Economic & Financial Commentary: U.S. & Global Review
Slow Growth Is Still the Order of the Day; Japan’s Economy Stumbles as Export Growth Fades.
Learning From Canada's Budget Triumph
The United States can replicate this by pursuing fiscal discipline, with heavy emphasis on spending cuts rather than tax increases, and by making changes in the responsibilities for congressional committees.
From ‘Government’ Motors to ‘Shanghai’ Motors?
President Obama has a delicate balancing act to manage in the upcoming General Motors initial public stock offering.
Why is America Exceptional?
To this day, so many years after the American Revolution, these principles still define America as a nation and a people. Which is why friends of freedom the world over look to the United States not only as an ally against tyrants and despots but also as a powerful beacon to all those who strive to be free.

Economists’ Comments & Opinions
The Trade and Tax Doomsday Clocks
Thankfully, we're not repeating all the mistakes of 1937. But Congress and the Obama administration are flirting dangerously with one of them by failing to extend the expiring low tax rates for all Americans.
The Ghost of Smoot-Hawley Stalks Congress
Congress is angry that the Chinese government is screwing itself delivering great bargains to American consumers while financing the Obama administration's spending orgy. The solution is to tax American consumers every time they try to buy something made in China.
Entrepreneurs: The Real Jobs Machine
The good news is that the entrepreneurial instinct seems deeply ingrained in the nation's economic culture. Americans like to create; they're ambitious; many want to be "their own bosses"; many crave fame and fortune... The bad news is that venture capital for start-ups is scarce, and political leaders seem largely oblivious to burdensome government policies.
Facebook Exposes Tax and Consumption Myths
...Facebook’s existence is the certain result of rich individuals who chose to delay their consumption, as opposed to spending current income on fancy cars and mansions. Absent Thiel’s willingness to “squirrel” away his earned income, Facebook, along with every other economic innovation, would not be with us today. The seen is consumption, but the unseen is what delayed consumption brings to the economy.
Count on Sequels to TARP
Given the multiple bailouts of 2008, it is to be expected that the line of institutions clamoring to join the cannot-fail party will grow longer. That’s the definition of moral hazard — if you rescue one group, others are sure to want the same treatment and behave in a way that ensures they’ll get it. The losses that taxpayers may endure in the next debacle, meanwhile, mount higher.
...McDonald's didn't deny that the new rules will wipe out its existing plans. And that's precisely the point. The entire philosophical and policy architecture of ObamaCare is explicitly designed to standardize health benefits and how those benefits should be paid for. Those choices and tradeoffs will be made for everyone by Ms. Sebelius's regulators.
We Can't Afford the Luxury of High-speed Rail
This past Tuesday, Amtrak proposed to spend more than $100 billion increasing the top speeds of trains in its Boston-to-Washington corridor from 150 to 220 miles per hour. In August, Secretary of Transportation Ray LaHood estimated that President Obama's proposal to extend high-speed rail to other parts of the country will cost at least $500 billion.
Task force undermines freedom
The health reform law undermines Americans’ control over their health care in multiple ways. One of the most troubling provisions gives unchecked power to the U.S. Preventive Services Task Force.
Taxing the Rich
As I've said before, a tax cut is not a handout. It simply means government steals less. What progressives want to do is take money from some—by force—and spend it on others. It sounds less noble when plainly stated.
Doomsday Math That Doesn't Add Up
The US economy may actually face Armageddon, but the arguments that have been offered in substantiation of these claims often don't make sense.

"Key macro and finance theories are about twice-century events. Min. acceptable sample size=30 observations=15 centuries." -Garett Jones, Twitter

Graph of the Day
Dollarization Keeps Ecuador Economically Stable Despite Political Instability
See: 36% - Okay to "Walk Away" from a Mortgage

Book Excerpts
"If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants." –F.A. Hayek, "The Pretence of Knowledge," (1974)

Did You Know
"In fiscal year 2009, [San Francisco] spent $175 million on homelessness—that's $26,865 on each of the city's 6,514 "homeless" persons, the majority of whom are housed in city-subsidized lodgings. Its police budget was $442 million, or $52 per San Franciscan. The gargantuan outlay for the homeless has done little to dent the vagrancy problem."