10/13/10 Post

BUZZ: Cities Hide Pension Liabilities, Study Says

News
Fed official: Stop asset buying
Wall Street is counting on the Federal Reserve to announce another round of asset purchases next month. But not everyone on the Fed is in favor of that policy.
Across the U.S., Long Recovery Looks Like Recession
Less than a month before November elections, the United States is mired in a grim New Normal that could last for years.
Health care: You don't get what you pay for
New industry report on health care quality shows plans that allows for many doctor visits and tests don't necessarily deliver the best care.
N.Y. Faces $200 Billion in Retiree Health Costs
...the report casts serious doubt over whether medical benefits for New York’s retirees will be sustainable, given the sputtering economy and today’s climate of hostility toward new taxes and taxpayer bailouts.
Fed's next move could come soon
Fed policymakers split on policy, with many wanting moves soon unless economy picks up, but some opposing action unless conditions get worse.
States to Unveil Joint Probe Into Foreclosures
If the states have their way, mortgage companies will have to revamp the way they handle foreclosures, pay penalties for violations and expand help to homeowners on the verge of foreclosure.
Dodd-Frank Act Faces Lawsuit
Major debit-card issuer TCF Bank announced today that it is suing the Federal Reserve Board over a provision of the Dodd-Frank Act that allows the board to lower debit-card fees charged by institutions with $10 billion or more in assets.
President Obama ends deep-water-drilling ban
The Obama administration Tuesday lifted its ban on deep water oil and gas drilling a month ahead of schedule, but it isn’t enough to get its top budget nominee past Sen. Mary Landrieu, a Louisiana Democrat who said the move doesn’t go far enough.
To Save $1 Trillion, Uncle Sam Should Take Cues from CEOs, Group Says
The biggest potential contributor to savings, the executives say: overhauling the government's supply chain, which could save $500 billion over the next 10 years.
Think tanks' new energy plan
Their vision: to accelerate energy innovation by investing $25 billion per year in clean energy technologies. The proposal advocates funneling cash into the Energy Department’s science funding, energy education, and the Defense Department’s energy innovation efforts.
Google Plans Alternative Inflation Index Using Web Data
Google is using its vast database of web shopping data to construct the ‘Google Price Index’ – a daily measure of inflation that could one day provide an alternative to official statistics.
Canceled NJ tunnel reflects mood on spending
The battle over whether to build a new rail tunnel between Manhattan and New Jersey illustrates the choice facing voters in November's elections: stimulate the economy or cut costs.
'No risk' of currency war: Geithner
There is "no risk" of a global currency war erupting, despite recent currency interventions by nations ranging from Japan to Colombia, US Treasury Secretary Timothy Geithner has said.
No Social Security benefits boost expected for 2011
As if voters don't have enough to be angry about this election year, the government is expected to announce this week that more than 58 million Social Security recipients will go through another year without an increase in their monthly benefits.
Mortgage bonds steady despite foreclosure flap
Warnings abound on the impact of delayed foreclosures on U.S. residential mortgage bonds, but the investors in the securities have not yet taken heed.

Blogs
Secondary Sources: Currency Battle, Small Business, Tax Evasion
A roundup of economic news from around the Web.
Good-Bye Job Killing Moratorium, Hello Job Killing Regulations
The White House announced today that the Department of Interior will be lifting the ban on off-shore oil drilling. Unfortunately, the Obama administration is leaving costly new job killing regulations in its place.
Where Public Trumps Private
Economists have shown that the wage premium is related to admissions selectivity, but for students choosing among similarly selective colleges, there is far less information to go on.
Regulating the College Dream
President Obama wants to see the U.S. lead the world in the number of college graduates by 2020. But new regulations being proposed by the Department of Education would undermine that goal by presenting more obstacles to students seeking to attend the higher education institutions that work best for them.
Refinance Activity and Mortgage Rates
As mortgage rates have fallen, there has been an increase in refinance activity. The peak this year was in late August, although the most recent week was close.
The Oil Drilling Moratorium Doesn’t End Till the Permits Begin
While yesterday’s announcement does remove one legal barrier to the resumption of energy investment in the Gulf, the Obama administration still retains full discretion over whether or not any new permits will be issued. And all indications are that those new permits will not be coming any time soon.
Bernanke to Repeat Japan's Mistakes
Years ago, as a Princeton professor, he chastised the Bank of Japan for failing to thwart deflation. Today it seems he hasn't learned the real lessons.
A Look Inside the Fed’s Balance Sheet
Assets on the Fed’s balance sheet have remained relatively stable around $2.29 trillion since mid-August when the central bank announced that it would reinvest the proceeds from its mortgage-backed securities and agency debt portfolios into Treasurys.
Fighting Food Subsidies with Food Subsidies
So their solution, subsidizing the low-carb foods that could counteract the lower costs that high-carb foods enjoy due to their own government subsidies would seem to be an ideal solution for the massive health problem being aggravated by the government's existing food subsidies in the first place!
Fed’s Hoenig Again Attacks Asset Buying
The central banker has been a persistent critic of Fed policy throughout the year, fretting that the current policy of zero interest rates is risking trouble. He has dissented against the majority at every FOMC meeting this year.
The Next Layer in the Pension Crisis: Local Governments Also Face Shortfalls
States together face unfunded pension obligations that, when using the risk-free discount rate,total $3 trillion. But, what happens when local pension plans are factored in? That number gets larger by an estimated $574 billion.
Rivlin Sees Tax Compromise at $500,000 Income Level
Democratic lawmakers could seek a compromise on extending the Bush administration’s tax cuts by exempting more people to the higher tax thresholds than the White House has proposed, said Alice Rivlin, a member of the White House’s National Commission on Fiscal Responsibility and Reform.
Mankiw's Bequest
...you can certainly disagree with the analytical choices he made in arriving at the government's cut of his children's inheritance, but the basic point is sound: we tax income many times as it is earned, which is especially hard on capital formation.
How bailouts (and political power) destroy markets
A reader the other day asked me something about the power of banks and what the government lets them do and I suggested that the most important thing government could allow banks to do is to fail and go out of business when they do a lousy job.
Delay on Bush-Era Tax Cuts May Cost You in January
If Treasury follows the current law and issues the 2011 tax withholding tables as if the tax relief expires, then workers will see a large decrease in their withheld taxes and lower take home pay.
Austerity Within Reason
I would say that the biggest iron law of fiscal policy is that We Don't Know. Some economists have models that tell us what the effects will be, assuming that the models are right. But we don't know whether or not the models are right.
The Mortensen and Pissarides employment model
The Mortensen-Pissarides model is daring and subversive and it is impressive that the committee would award a prize for what is essentially a single paper. Yet I don't see too many bloggers trying to come to terms with it.
Why the Public Sector Can No Longer Build
In the 19th and early 20th centuries, private enterprise, interested in making a profit rather than appeasing interest groups, created a quality rail and mass transit infrastructure funded by user fees. We need to return to that approach.
Higher Education Subsidies Wasted
A study from the American Institutes of Research finds that federal and state governments have wasted billions of dollars on subsidies for students who didn’t make it past their first year in college. The federal total for first-year college drop outs was $1.5 billion from 2003 to 2008.
Cato Study: ObamaCare’s Hidden $550 Billion Cost
In a study released today by the Cato Institute, Duke University professor Chris Conover estimates how much ObamaCare and related provisions will reduce economic output.
Meltzer on Looming Inflation
Allan H. Meltzer, a frequent participant in Cato’s annual monetary conferences, warns in the Wall Street Journal that the Federal Reserve may be about to lay the groundwork for another Great Inflation like we saw in the 1970s.
Cut (Really Cut) Military Spending
It is time for President Obama and the administration to finally notice the increasing calls—from across the political spectrum—that the Pentagon’s budget should not be off limits when reducing the deficit.
The Court Tackles a Hard Case: Implications for ObamaCare?
The Supreme Court hears oral argument today in an important pre-emption case, Bruesewitz v. Wyeth, which asks whether the National Vaccine Injury Compensation Act of 1986 pre-empts state law “design defect” suits brought against vaccine manufacturers. This could have implications for ObamaCare.

Research, Reports & Studies
Congress Should Account for the Excess Burden of Taxation
A well-established principle of public finance holds that taxes impose costs on society beyond the amount of revenue government collects.
Technology Explains Drop in Manufacturing Jobs
During the past decade, manufacturing employment has fallen by one-third while manufacturing output has remained roughly constant. Technological improvements, not international trade, are reducing U.S. manufacturing employment by automating many rote tasks.
Stagnant Economy in September
Earlier this year some economists and politicians predicted a “recovery summer” during which private sector job creation would finally pick up. This did not happen—employers created few jobs and unemployment remained high. This stagnation continued in September, now is the wrong time for Congress to raise taxes.
RCM: The Muni Opinion
Many state workers have been promised generous retirement benefits. At the same time, pensions have put some states on a trajectory toward fiscal ruin. Muni bond investors need to incorporate pension policy into their analysis—because something has to give.
The Foolish Foreclosure Moratorium
Democrats are calling for a nationwide end to mortgage foreclosures. It’s hard to imagine a more shortsighted policy under our current economic circumstances.

Economists’ Comments & Opinions
KLING: Foreclose on our antiquated title system
Real estate market needs dose of reality more than lawsuits.
Scoundrels and Pensions
...the best reform—the one that really takes the politics out of pension investing—is to turn defined benefit retirement plans into 401(k)-style defined contribution plans.
Why America is going to win the global currency battle
...behind the squabbles, lies a huge challenge: how best to manage the global economic adjustment.
Four Governors on How to Cut Spending
Four governors tell us how they are coping and how they plan to save money in the future.
For Orderly Dissolution Of The Fed, Before It Does Us Even More Harm
The Fed was established 97 years ago, and Fed officials were given considerable power over the economy as if they knew what they were doing, but they didn't. They're still winging it today.
A Growth Agenda for America
An economy grows through increased production, which is financed by capital or savings. Congress can encourage this process with the right tax reform.
Broken Promises
This month, McDonald's warned that the health-care reform law passed in March could force it to drop health coverage for some 30,000 workers. A few days later, 3M announced that starting in 2013 it will no longer provide health-insurance coverage to its retirees. This is the tip of the iceberg.
The Postal Service Can't Afford Unions
If you believe in a higher power, then I've got evidence for you that God has a sense of humor. Last week, the American Postal Workers Union, which represents more than 200,000 workers, had to extend its elections for national officers because ... wait for it ... thousands of ballots got lost in the mail.

Graph of the Day
Mercatus Center: Putting Tax Cuts in Perspective
See: Small Business Optimism, Hiring and "Biggest Problem"
See also: Many pension plans retain high return assumptions
See also: Your January 2011 Paycheck

Book Excerpts
"Exchange develops naturally to the point where further development would be more onerous than useful, and stops of its own accord at this limit. If exchange saves effort, it also requires effort. It expands, increases, multiplies to the point where the effort it requires equals the effort it saves, and then it comes to a halt until, through improvement in the commercial machinery, through the mere fact of increased population, of more men living closer together, it encounters the conditions necessary to resume its forward march. Consequently, laws that limit exchange are always either harmful or unnecessary. Governments, which are always disposed to believe that nothing can be done without them, refuse to understand this law of harmony. Consequently, we see governments everywhere greatly preoccupied either with giving exchange special favors or with restricting it. To carry it beyond its natural limits, they seek after new outlets and colonies. To hold it within these limits, they think up all kinds of restrictions and checks." –Frederic Bastiat, Economic Harmonies, (1964)

Did You Know
After nearly a decade, the Cape Wind offshore project has a lease approval from the Department of Interior, but it is not quite up and running. Once the 130 turbines that stand 440 feet high start moving, consumers will pay a hefty premium for the electricity the nation’s first offshore wind farm generates.