7/2/10 Post

BUZZ: U.S. Sheds Jobs

Today's News
House passes unemployment benefits extension
After a failed attempt earlier this week, the House voted to extend the deadline to file for federal jobless benefits Thursday. But the bill will be stuck in limbo as Congress takes a weeklong summer break.
Stimulus: The big bang is over
This summer will be the peak of the $787 billion stimulus program in terms of creating jobs and pumping money into the economy. It will be a downhill slide for stimulus even as the economy is expected to continue sputtering.
Bankruptcy filings on the rise
Bankruptcy filings surged 14% during the first half of 2010. Filings totaled 770,117 through June, compared to 675,351 during the same period last year.
Job recovery hits a wall
The U.S. economy lost jobs in June, for the first time this year, a net loss of 125,000 jobs in the month. That was due primarily to the loss of 225,000 Census jobs that had swelled payrolls by 433,000 net jobs in May.
Euro-zone unemployment unchanged at 10%
The number of unemployed workers across the 16-nation euro zone ticked higher in May, but the unemployment rate remained at a 12-year peak of 10% for a third consecutive month.
Jobs report prompts new political sparring
A fresh round of political sparring broke out Friday morning following the release of a disappointing jobs report, as Republicans attacked the White House, and President Barack Obama said the country's "heading in the right direction," but admitted the economy's not whole yet.
US stocks fall on poor economic data
Disappointing economic data that fuelled concerns about the strength of the economic recovery sent US stocks lower on Thursday, but some ground was recovered in the last second half of the trading day.
New Financial Rules Will Lower Bank Profits
The landmark financial overhaul legislation will raise banking industry regulatory costs, lower their profits and limit their use of their own assets in risky investments.
Global Manufacturing Momentum Fades, Fueling Worries
Manufacturing lost momentum around the world in June, adding to worries that global economies are poised for slower growth in the months ahead.
Fiscal Commission Debates Deficit Cuts
The president’s fiscal commission heard from advocacy groups and a few public citizens Wednesday afternoon as it considered ways to reduce the federal deficit.
Car Sales Slowed in June
Auto makers saw their U.S. sales rise in June from the depressed level of a year earlier, but sales fell from May as jittery consumers slowed the pace of recovery in the car market.
Schwarzenegger Pressures Lawmakers in Budget Battle
Gov. Arnold Schwarzenegger's order to pay 200,000 state workers just the minimum wage sent a signal to California lawmakers: In the impasse over closing California's $19 billion budget deficit, Schwarzenegger is ready to play hardball.
Dollar Tumbles in Broad Retreat on Weak Data
The dollar fell against the euro and yen after worse-than-expected economic data fueled concern the U.S. recovery was slowing, leading investors to sell the greenback.
Health overhaul may mean longer ER waits, crowding
Emergency rooms, the only choice for patients who can't find care elsewhere, may grow even more crowded with longer wait times under the nation's new health law.
Premiums for New 'High Risk' Pool Could Be Steep
President Barack Obama's new health coverage for uninsured Americans with health problems won't be cheap — premiums averaging $300 to $600 a month in the largest states, according to a government website that went live Thursday.

"The Employment Situation" Hearing Report
"Today's report is bad news for American workers and their families. At this slow pace it will take much of the decade to reutrn to normal emplyoment levels. President Obama and Congressional Democrats are pursuing reckless fiscal policies that are clearly unsustainable. Unless their excessive spending, deficits, and debt accumulation are quickly reversed, the United States may experienece a debt crisis similar to Greece."

- Representative Kevin Brady, Senior House Republican for the Joint Economic Committee

Total nonfarm payroll employment declined by 125,000 in June, and the unemployment rate edged down to 9.5 percent. The unemployment rate only decreased because there was another step down in the labor participation rate. As the number of discouraged workers continued to rise and the labor force shrunk by 652,000. The decline in payroll employment reflected a decrease (-225,000) in the number of temporary employees working on Census 2010. Private-sector payroll employment edged up by 83,000.

See: BLS Employment Situation Summary

Blogs
June Employment Numbers Raise Specter of a "Lost Decade"
The soft employment numbers build the case for those who believe we may be entering a "lost decade" similar to what Japan experienced before the Great Recession.
Time to Go Global with Greater Economic Freedom
The latest study by the McKinsey Global Institute reveals some astonishing facts concerning contributions of U.S. global companies to the American economy.
Democrats Rescind Recovery Act Funding to Finance More Ineffective Spending
Conservatives began talking about rescinding the stimulus after President Obama signed it into law. Liberals are starting to listen.
Economists React: Is Economy Deer in Headlights or Roadkill?
Economists and others weigh in on the June employment report.
Economic “Experiments”If Barro and the others are correct, we can’t afford to keep throwing good money after bad.
Employment Report: Temporary Help and Diffusion Index
The decrease in the diffusion index in June (almost falling to 50%), is disappointing.
Why Did the Unemployment Rate Drop?
The unemployment rate fell in June to 9.5% from 9.7%, reaching its lowest point since last July. But the decline wasn’t due to improvement in the labor market. Instead, jobless Americans dropped out of the labor force in droves.
Shovel-ready, revisited
Maybe [the stimulus] would have done more stimulating if the spending had actually been directed at projects that use shovels.
State/Local Government Still Shedding Jobs
The pace of state and local government job loss has slowed in recent months. State/Local governments shed 10,000 jobs in June, compared with 18,000 a month earlier and more than 25,000 in each of the first two months of the year.
More Problems With MassCare
If you don't have the mandate, guaranteed issue and community rating will result in the kind of cost spiral we've seen in New York, where only the very sick bother to buy insurance.
Take That, Keynes and Lerner
"Once you break the spell--once governments find that they can get away with borrowing instead of taxing to pay the bills--it is almost impossibly tempting for politicians to do it again and again until the debt is out of control."
Good News about Polluted Water
Pollution is bad, but there is another side to the story. The Hudson River is now clean enough that I’ve swum in it. Air pollution has dropped by 41% since 1990. U.S ocean fisheries have improved substantially in the last few years. Forest cover in the US is larger today than it was 100 years ago. Then, of course, there are the oysters…

Research, Reports & Studies
Tax to the Max?
Should we lift the payroll-tax ceiling to fix Social Security? It’s pretty much accepted, even among policy folks well to the left-of-center, that the trust fund isn’t real savings and that marginal tax rates do matter.
Europe's Sovereign Debt Crisis: No Place to Hide?
As the debt-to-GDP ratio approaches 100 percent, the effort to reduce it by cutting government spending, raising taxes, or both actually raises the ratio because it cuts GDP growth faster than it cuts debt.
One More Thing America Must Learn from Europe
The United States could learn a lesson from Europe: how to make flying cheaper. In the European Union, any EU-based airline from any member country can pick up and drop off passengers anywhere within the Union.
The Economic Impact of an Offshore Drilling Ban
In short, petroleum can be a major energy source for many decades. Consequently an offshore drilling ban’s impact on the U.S. would be felt for decades.
Errors, Robustness, and the Fourth Quadrant
The paper proposes a methodology to calibrate decisions to the degree (and computability) of forecast error.
Social Security Policy Options
This CBO study examines a variety of approaches to changing Social Security, updating an earlier work, Menu of Social Security Options, which CBO published in May 2005.
International Business Cycle Synchronization in Historical Perspective
We then examine the role of global shocks and shock transmission in the trend toward synchronization. Our key finding here is that global (common) shocks generally are the dominant influence.
Some Intellectuals and Society
Sowell claims that those of us who favor free markets aremore empirically inclined and have less ego invested in our views than those who advocate central planning and heavy government intervention generally.

Graphic of the Day
the Atlantic: Dismal Jobs Report
See:Today’s Jobs Report in Pictures
See Also: June Nonfarm Payrolls
See Also: Intelligence tested
VIDEO: Pelosi: Unemployment Checks Fastest Way to Create Jobs

Economists’ Comments & Opinions
The Obama Tax Trap
How some Republicans are preparing to walk right into it.
Economy: the musical
Commentary: The song remains the same for the economy

For them this is a financial crisis; to me it is an intellectual crisis, a crisis of civilization. -Nassim Taleb, Twitter

Book Excerpts
"[L]egal plunder can be committed in an infinite number of ways; hence, there are an infinite number of plans for organizing it: tariffs, protection, bonuses, subsidies, incentives, the progressive income tax, free education, the right to employment, the right to profit, the right to wages, the right to relief, the right to the tools of production, interest-free credit, etc., etc. And it is the aggregate of all these plans, in respect to what they have in common, legal plunder, that goes under the name of socialism." -Frédéric Bastiat, The Law (1850)

"Did You Know"
AAA projects that 34.9 million Americans will travel 100 miles or more during the Independence Day weekend, a jump of 17.1% from last year's 29.8 million travelers.

7/1/10 Post

BUZZ: Deficit Panel Stresses Spending Cuts

News
House approves sweeping bank-reform bill for big banks
The legislative package -- which passed 237 to 192 with almost no Republican support -- moves the Obama administration closer to having a significant triumph in its efforts to rein in Wall Street. The legislation must still receive a filibuster-proof 60 votes to pass in the Senate.
1.3 million unemployed won't get benefits restored after Senate fails to overcome filibuster
The unemployment bill would have provided up to a total of 99 weekly unemployment checks averaging $335 to people whose 26 weeks of state-paid benefits have run out. The benefits would be available through the end of November, at a cost of $33.9 billion.
Jobless claims spike
There were 472,000 initial jobless claims filed in the week ended June 26, up 13,000. Some of the spike could be due to workers who held temporary census jobs filing for unemployment insurance as their positions end, as well as workers who have lost jobs due to the oil spill.
Manufacturing activity slows more than expected
Manufacturing activity expanded for the 11th straight month in June but the rate of expansion slowed more than economists expected.
Pending home sales plunge 30% in May
The sharp drop in pending home sales mirrors the 33% drop in sales of new homes in May, which are also recorded at the time of the sales contract.
Homebuyer credit extension heads to Obama
First-time homebuyers will have until Sept. 30 to close on their purchases and land an $8,000 tax credit under a bill passed by the Senate. President Obama is expected to sign the bill, which was overwhelmingly approved by the House.
Treasury has raised a total of $10.5B from selling Citi shares it got in bank's bailout
The Treasury Department said Thursday it has raised $10.5 billion from the sale of a total of 2.6 billion shares of Citigroup stock it received as part of the government's rescue of the bank.
US states face hard budget choices
For 2009 to 2012, US states have faced nearly $300bn in budget deficits, according to figures from the National Association of State Budget Officers (Nasbo).
Expand New York City's Living Wage?
New York City, which faces a predicted budget gap of $4.1 billion this fiscal year, is considering an expansion of the reach of "living wage" legislation that would make the deficit worse, drive jobs out of the city and raise unemployment among low-skill workers.
Ireland starts to grow after deep downturn
Ireland’s return to growth, in spite of having undertaken a huge fiscal retrenchment over the past two years which prolonged the downturn, will provide encouragement to other European economies facing up to tackling rising public deficits.
Governors Plead for Federal Funds for Medical Programs
Funds for FMAP were provided in the $787 billion economic stimulus package, which expires at the end of this year. The proposed extension would go through the end of June 2011, covering the second half of FY 2011 for most states.
Federal Tan Tax Burns Some Badly but Keeps Everybody in the Dark
Ultraviolet Light Sessions Mostly Subject To New Levy, but Spray-On Jobs Are Cool.
CBO Fires Warning Shot About Unsustainable Budget Path
...spending on mandatory health care and Social Security — 16 percent of GDP — would consume almost as much of the nation’s resources by 2035 as the government’s spending on all programs has averaged over the past 40 years.
Free-Trade Winds May Be Blowing Again
Economists argue that trade helps both exporters (yes, jobs) and importers (not only more, cheaper goods, but also competition from abroad that keeps domestic producers on their toes).
S.E.C. Tightens Rules on Public Pension Funds
The Securities and Exchange Commission on Wednesday tightened restrictions against “pay-to-play” practices in the municipal securities market.
High-Risk Insurance Pools Launched
Health and Human Services officials said they might shift funding among states if a new $5 billion program to cover the uninsured runs out more quickly in some states than in others.

Blogs
The Limitless Power of the Obama-Kagan Congress
The Obama-care provision forces all Americans to buy health insurance. However, Jefferson and the other Constitution framers designed the document to protect our “unalienable Rights” by limiting the power of Congress.
If Deficit Commission Is Serious, They Ought to Look at Welfare Reform
Since 1990, federal welfare spending has more than doubled, from 2.0 percent of GDP to 4.4 percent. This 2.4 percent of GDP expansion exceeds the combined 2.1 percent of GDP expansion of Social Security, Medicare, defense, and education spending over the same two decades.
The Dodd-Frank TARP Raid: Using Yesterday’s Bailout to Pay For Tomorrow’s
Leftists want to use the “profits” from the TARP bailout to pay for future Dodd-Frank financial fiascoes. The left and their allies want us to believe this would mark “the end” of TARP.
The June Employment Report: An Updated (Lower) Scorecard
Many economists have been lowering their estimates of U.S. private-sector job growth in June after a string of weak labor market reports this week.
Why This Isn’t A Time to Worry that Government Is Spending Too Little
It seems to me that by just about any measure, we are currently conducting a large-scale experiment in massive government spending. Moreover, I believe the results of previous experiments predict that this one will lead to slower growth and less economic opportunity.
Austerity?
...it is hard to imagine that anyone would call our fiscal situation austere, even in the event that Team Obama were to freeze non-defense non-homeland-security spending, as it promised back in February.
Economics is hard, but bloggers are undeterred
Economics blogging is not about furthering the economics profession, its purpose is to integrate economic thinking into the daily thought processes of citizens, thereby leading to a more well-informed populace that is not left to blindly follow those in authority – which is, perhaps, exactly what Dr. Athreya is afraid of.
“The Only Place Innovation Will Come From”
Trying to reproduce the innovation, replication, dissemination cycle outside the free market system is like trying to make a wheel more round by increasing or decreasing the value of pi–-and it’s just as unnecessary.
Sticky wage transmission mechanisms
The standard story explains that sticky wages increase unemployment. The standard story, however, is not the only and perhaps not the most important transmission mechanism.
Expectations and GDP, Second Quarter 2010
Using that latest data, we anticipate U.S. real GDP for the second quarter of 2010 will fall into a range between $13,107 billion and $13,642 billion, with a target value of $13,374.8 billion.
ISM Mfg index shows slower expansion in June, Pending Home sales collapse
Both the ISM index and pending home sales were below consensus.
Keynes versus Hayek: Past is Prologue
It does not take much to see that the issues are basically the same today. The positions of the opposing sides are also the same. As I have said many times before, the great debate is still Keynes versus Hayek. All else is footnote.
Recommended Books
Paul Seabright, The Company of Strangers and more.
The Debate Continues: Keynes, Pigou, & co. vs. Hayek, Robbins, & co.
Recovery requires government to get lean and out of the way, and individuals to pursue opportunities for mutual gain through trade and wealth creating entrepreneurial ventures.

Research, Reports & Studies
Revitalizing Federalism: The High Road Back to Health Care Independence
The Patient Protection and Affordable Care Act represents more than a federal takeover of health care; it is a direct threat to federalism itself.
The Nation's Mid and Long-Term Fiscal Challenges
Testimony before the National Commission on Fiscal Responsibility and Reform
‘Clean’ Energy and Disguised Costs
One of the big benefits of economics is that it restrains the enthusiasm of zealots who want government to have a big say in how our resources are allocated. Economics reminds us that there are no free lunches.
Trends in World Inequality in Life Span Since 1970
The sources of widening inequality in length of life between countries remain unclear, but signs point away from trends in income, leaving patterns of knowledge diffusion as a potential candidate.


Graphic of the Day
A special report on debt: Repent at leisure
See: Count on this: Hiring will be weak
See also: World Debt
See also: Banks' profits and losses
See also: The Unsustainable Welfare State: Reform is Necessary

Economists’ Comments & Opinions
Greece Must Restructure Debt and Quit the Euro
Any debt restructuring for Greece would need to involve at least a 50 per cent write down to provide any meaningful relief. Such a large write down would constitute a severe hit to the European banking system
Thanks to Tax Competition, Corporate Tax Rates Continue to Fall in Europe
Many people assume that Europe is the land of high-tax welfare states and America is an outpost of laissez-faire capitalism. But the United States is a lot closer to France than it is to Hong Kong
Obama and the Fiscal 'Road to Hell'
G-20 leaders don't agree with the president that more spending will revive the economy. Nor do most Americans.
Paul Krugman's Depression Economics
To put it very simply, government spending is a huge tax on true economic productivity, so contrary to Krugman's deeply held views, global economic revival will be at least partially authored by the spending cuts he decries, not the increases that he endorses.
The Bucyrus Travesty
A tale of two Obama loan guarantees.
Stocks, like most of us, like job growth
Commentary: Correlation between stocks and jobs at strongest since 1960s
The Dodd-Frank Financial Fiasco
The bill all but guarantees bailouts as far as the eye can see, while failing to address real problems like Fan and Fred and our outdated bankruptcy code.
Piecing it together
Putting a central planner (or committee of planners) in charge won't work. First, there's no way that the planner, gazing at a huge pile of [economic] puzzle pieces, can foresee any of the possible meaningful pictures that might emerge once these billion pieces are assembled. This jigsaw puzzle doesn't come in a box whose cover depicts the final result.

"Marginal product of capital that matters is net, not gross. MPK-depreciation rate<0 likely true when K not very useful." -Garrett Jones, Twitter

Book Excerpts
"...federal deficits distorted allocation of resources, damaged the stability of financial markets, and, because the money was borrowed from the capital market, inhibited the formation of capital. Since capital investment is necessary for productive growth and high levels of unemployment, the “uncontrollable” deficits constituted a direct assault on the productive system and a direct cause of unemployment.

"Further complicating matters, the federal budget has itself been touted by government economists as a “tool for economic stabilization.” Rationalizers of deficit spending have argued that increased federal spending and the resultant deficits were a creative act, that they were actually economic activity. Thus, at every dip of the economy, the proposed cure was always deficit spending. Unfortunately, the deficits never disappeared. They continued during both “stop” and “go” periods, during periods of both weak and strong economic activity. There were two destructive results of this alleged “stabilization” by deficits: The momentum of government spending was incessantly upward and inflationary, and the capital markets were further drained of investment capital." -Former Treasury Secretary William E. Simon, A Time for Truth (1976)

"Did You Know"
Today in History
1862 - The office of Commissioner of Internal Revenue (forerunner of the IRS) was established.
1943 - Federal income tax withholding began.

6/30/10 Post

BUZZ: Stocks Drop on Growth Fears

News
Private Sector Adds Few Jobs
Private-sector jobs in the U.S. increased by 13,000 last month, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. Economists had expected ADP to report a jobs gain of 60,000 for June. The estimated change in employment for May was revised to a gain of 57,000 from an increase of 55,000 first reported.
Bank Fee Is Eliminated in Financial Bill
The Obama administration supported the change in the final bill, in part because of concern that the proposed fee on big banks in the financial regulatory measure would complicate Mr. Obama’s efforts to impose a separate, larger $90 billion bank tax over 10 years.
23 Doomsayers Who Say We're Heading Toward Depression In 2011
The truth is that we are facing the greatest sovereign debt crisis in modern history. There is no way out of this financial mess that does not include a significant amount of economic pain.
Top 5 Most Economically Optimistic Countries
Who's Weathering the Global Recession?
House votes to give homebuyers 3 extra months to qualify for tax credit
Under current law, homebuyers who signed purchase agreements by April 30 have until Wednesday to close on the sale to qualify for tax credits of up to $8,000. The bill would give buyers until Sept. 30 to complete their purchases. The bill passed 409-5. It now goes to the Senate.
High rates, more fees -- credit card traps here to stay
Beginning Aug. 22, your credit card company won't be able to charge you inactivity fees or excessive late fees, and it will only be allowed to charge you one penalty fee at a time. That's the good news. But banks will still be able to get around many of these rules.
U.S. debt to reach 62% of GDP by year-end: CBO
Lower tax revenues and higher federal spending to fight the recession will push the federal debt to 62% of gross domestic product by the end of this year.
Fiscal 2011 could be hardest yet for states
Fiscal 2011 begins on Thursday for most states, which have turned to another round of cuts and tax increases to try to wipe out the gap. All states with the exception of Vermont must balance their budgets.
Dodd-Frank bill amended to change funding method
The sweeping Dodd-Frank bank reform bill was amended Tuesday by a joint House-Senate conference committee to change the way the bill is funded, in order to address the objections of several key Republican senators.

Blog
Is it 1937 again?
There are many commentaries on David Leonhardt's article today on whether we should be raising taxes and cutting government spending, as was done in 1937. Yet I don't see anyone -- at least not today -- talking about monetary policy during 1936-7.
Secondary Sources: Absent Recovery Engines, Growth Risks, 401(k)s
A roundup of economic news from around the Web.
Oops, they may have made the data up
Fraud can happen to anyone. But confirmation bias always make fraud easier.
City Unemployment Rates: Vegas Struggles, Washington on Top
Fifteen of the 49 largest cities in the U.S. saw year-over-year declines in their unemployment rates in May, according to new Labor Department data, even as the unadjusted national rate — at 9.3% — was 0.2 percentage points above its year-ago level.
2nd Half: Slowdown or Double-Dip?
No one has a crystal ball, but it appears the U.S. economy will slow in the 2nd half of 2010.
Recovery Faces Tough Road, Double Dip or Not
...both the data and the gloom pervading financial markets suggest the current recovery will be a long, painful process.
No Easy Way to Fix Social Security
Keeping Social Security just as it is means not doing a lot of other things that progressives want, because the pockets of the rich are not a bottomless resource.
Treating R&D as Investment, Rather Than Expense, Boosts GDP
If research and development costs were treated as an investment, rather than as an expense, gross domestic product would have been 2.7% higher between 1998 and 2007, according to updated figures released Wednesday.
American Austerity
Austerity is an expensive form of insurance against a true fiscal crisis. And though it doesn't necessarily seem like it when you're not having one, fiscal crises are much, much worse than austerity budgets. Fiscal crisis means that rather than unpleasant cuts, you have sudden, unmanageable collapses in things like public pension plans. The resulting suffering is not unpleasant; it is disastrous.

Research, Reports & Studies
CBO: The Long-Term Budget Outlook
Federal Debt Held by the Public Under Two Budget Scenarios
Consumer Confidence Plunged in June
Consumer confidence plunged 9.8 points in June, as consumers lost faith in both the pace and sustainability of the recovery. Expectations fell with fewer consumers expecting economic conditions to improve.
The Political Economy of the Subprime Mortgage Credit Expansion
The evidence suggests that both subprime mortgage lenders and subprime mortgage borrowers influenced government policy toward housing finance during the subprime mortgage credit expansion.
A Comparison of OMB's and CBO's Technical Assumptions Used in Estimating Defense Spending
Letter to the Honorable Nancy Pelosi
Missing the Point: Lessons from The Big Short
The book Big Short raises questions about the validity of the ideas underpinning the financial regulation legislation Congress is now considering.
Markets: The Credit Ratings Agencies
Can financial institutions instead be trusted to
seek their own sources of information about the creditworthiness of bonds, so long as financial regulators oversee the safety of those bond portfolios?

Graphic of the Day
Study Measures Impact Beyond the Jobless Rate as Pay Cuts and Furloughs Take Toll
See: 50 Dead-Simple Ways for the US to Cut Its Budget
See also: Total Nonfarm Payrolls
See also: The Facebook Economy

Economists’ Comments & Opinions
Financial Overhaul Is Politics in Worst Sense: Richard Posner
The most sensible legislative response to the financial collapse of September 2008 would have been to do nothing until the causes of the collapse were fully understood.
Obama's fiscal fantasyland
Responsible people, whether they are national leaders or average citizens, understand that both in their personal and public lives they cannot spend themselves into prosperity.
2010 mid-year review
Commentary: Where we've been and where we're going
Why Obamanomics Has Failed
Uncertainty about future taxes and regulations is enemy No. 1 of economic growth.
It's Time To Bring Back Jobs
The focus should be on better long-run policy, not more feeble short-term fixes.
A Big Bang for Greece
How did Greece get into the death spiral that it's in? Unfunded entitlements. In other words, promise somebody something, don't come up with the financing for it, and pretty soon you find yourself in a fiscal/debt crisis. What should Greece have done?
The Bailout Tax
CBO estimates that the bill's vaunted "Orderly Liquidation Authority," which is being sold as tough medicine for failing banks and their creditors, will cost taxpayers $20.3 billion between now and 2020.

Book Excerpts
"...entrepreneurship and competitiveness are two sides of the same coin: that entrepreneurial activity is always competitive and that competitive activity is always entrepreneurial..." -Israel Kirzner, Competition and Entrepreneurship (1973)

"Did You Know"
"Estimates of the size of the “informal sector” (i.e. the Black Market) in the US indicate that 9% of activity occurs in this sector.

The Western European average: 18%
Greece: 28.6%

6/29/10 Post

BUZZ: Finance Bill's Fate Uncertain in Senate

News
Consumer Confidence Tumbles
U.S. consumer confidence dropped sharply in June, as concerns over the sustainability of economic recovery and the outlook for jobs brought one closely watched indicator's three-month streak of consecutive gains to an end.
G20 deficits
The goal is the same, but the paths to deficit reduction are separated by a transatlantic rift.
Dow Slips on Deficit Vow
Investors again favored bonds over stocks, with major stock indexes slumping late in the day due to swirling fears about global growth.
For Sale: Government Tower, Ideal for Business Startup
Facing the prospects of a $1.4 trillion budget deficit for the second year in a row, President Obama has called for a major effort to cull the federal government’s property holdings in search of fresh revenue.
Consumers Stay Tightfisted
Gains in wages and salaries helped lift U.S. personal income 0.4% in May from April, the Commerce Department reported Monday, but consumer spending rose a more muted 0.2%.
Pentagon Looks for $100 Billion in Cost Savings
Defense Secretary Robert Gates said Monday he wants to trim some of the billions of dollars the Pentagon spends on weapons systems and contractor services, part of a Pentagon-wide effort to find $100 billion in savings in the next five years.
BIS Warns Countries About Risks of Debt
The Bank for International Settlements delivered a stern message to central banks and governments that keeping interest rates low for too long, or failing to act quickly to cut budget deficits, could sow the seeds for the next crisis.
Tax Amnesty Programs: Source of Quick Cash for States
To fill their coffers and avoid hiking taxes or enacting new ones, states are flocking to taxpayer amnesty programs, which encourage delinquent taxpayers to pay up in return for escaping penalties and interest, in some cases.
Interest rates keep falling as investor view of economy dims further
A darkening view of the economy sent bond market interest rates to their lowest level in 14 months and kept many investors out of the stock market.
States struggle to balance budgets after Congress refuses to offer more stimulus money
Now, with a new fiscal year just days away in most states, many governors are proposing to make up for the shortfall with tax increases, cuts in essential services and potential layoffs of thousands of public employees.
$5 billion for the uninsured
The Obama administration will dole out $5 billion to states to provide insurance for people who don't have coverage because of pre-existing medical conditions.
Pass the statins
Between 2000 and 2008 health spending per person increased by 4.2% a year on average, according to the latest data from the OECD, a rich countries' club. Average spending over the same period was 8.4% of GDP; last decade the average was 7.3%.
In Ireland, a Picture of the High Cost of Austerity
Wage cuts were easier to impose here because people remembered that leaders moved too slowly to overcome Ireland’s last recession. This time, Mr. Cowen struck accords swiftly with labor unions, which agreed that protests like those in Greece would only delay a recovery.

Blogs
The Euro and Armageddon
Individual debts matter for individuals. Government debts matter for constituents. But what is the significance of aggregate non-government debt of specific geographic territories within a currency union?
Economists React: Sustained Upturn in Confidence Remains Elusive
Economists and others weigh in on the June drop in consumer confidence.
Paul Krugman, Ipse Dixit 2
...we face government created uncertainties in the healthcare markets, the coming bankruptcy of Medicare and Medicaid, difficulties with Social Security as the population ages, state and local governments which have refused to make sensible reforms in the provision of their “vital” services for decades, and so forth. ...And the root of our problems, says Krugman, is the lack of Aggregate Demand.
A Look at Case-Shiller, by Metro Area (June Update)
The S&P/Case-Shiller Composite 20 home price index, a broad gauge of U.S. home prices, posted a 0.8% gain in April from a month earlier and rose 3.8% from 2009, as the expiration of a federal tax credit boosted prices.
Reject All Energy Subsidies, Not Just the Ones for Fossil Fuels Make no mistake, subsidies for fossil fuels are no better than subsidies for wind and solar. You may get more bang for your buck in terms of energy produced, but only in the short term. Subsidies create complacency within the industry and reduce the incentive to innovate
The United States: Deficit Champion
Evidence that the current Administration is taking a different tack on economic policy was abundant at the recent Group of 20, budgets must be cut.

Research, Reports & Studies
Are Free Trade Agreements Contagious?
This paper presents a new model of the domino effect which is used to generate an empirical index of how “contagious” FTAs are with respect to third nations... contagion is present in our data and is robust to various econometric specifications and samples.
Knowing What the Federal Government Owns
With millions of acres and thousands of assets in government portfolios, officials should take steps to identify what they own, determine whether government or private ownership is most effective, and streamline the efficient transfer of all unneeded real property.
Financial Reform in Congress: A Disorderly Failure
The goal of the legislation is clear: to minimize the chances that another financial crisis will occur. Unfortunately, the massive bill on the whole would hurt consumers and the economy, and rather than decrease the chances of another crisis or bailout, it would make them more likely to occur.

Graphic of the Day
State and Local Tax Revenue increased slightly compared to Q1 2009
See: Recession Continues to Depress Revenues
See: Federal Spending Is Growing Faster Than Federal Revenue

Economists’ Comments & Opinions
The End of Community Banking
Creditworthy borrowers will be denied loans as small banks devote more and more energy to regulatory compliance.
The Unemployment Insurance Crisis
As of this summer, unemployment insurance trust funds in 30 states were insolvent.
Prime Numbers:Inflation May Be Ahead Despite Federal Reserve Outlook
If the economists are right, a pickup in inflation next year may well be a greater risk than consumers — and even policymakers — now expect.
Paul Krugman's Depression
Nobel Prize-winning economist Paul Krugman says the U.S. is in the "early stages of a third Great Depression." If he's right, it's only because American policymakers have been following his advice.

Book Excerpts
"It is your mind that matters economically, as much or more than your mouth or hands. In the long run, the most important economic effect of population size and growth is the contribution of additional people to our stock of useful knowledge. And this contribution is large enough in the long run to overcome all the costs of population growth." -Julian Simon, The Ultimate Resource (1981)

"Did You Know"
Consumers' view on the present economic situation fell to 25.5 in June from 29.8 in May. Respondents saying current business conditions are "good" fell to 8% in June from 9.7% in May, while those saying jobs are "hard to get" rose to 44.8% from 43.9%. Respondents saying they expect business conditions to be worse in six months rose to 14.9% in June from 11.9% in May, while the percentage of those expecting better business conditions fell to 17.2% from 22.8%. Those expecting fewer jobs rose to 20.8% from 17.8%, while those expecting more jobs fell to 16% from 20.2%.

6/28/10 Post

BUZZ: IMF Report Shows Deeper Cuts Would Boost Growth

Economic Outlook: Worsening picture in the US
Investors will this week be bracing themselves for signs that the US recovery is slowing, as a slew of economic data on the world’s largest economy is expected to paint a downbeat picture.
Finance Bill: How Changes Could Affect You
The sweeping finance legislation negotiators wrapped up early Friday morning would constitute the biggest overhaul of U.S. financial regulations since the 1930s.
On Finance Bill, Lobbying Shifts to Regulations
The surge in hiring has sent a joke bouncing around Washington: Congress finally passed a jobs bill — full employment for lawyers.
Growing Deficit Concerns Are Trumping Spending
In a poll by the Pew Research Center for the People & the Press earlier this month, 60 percent of those surveyed said the president’s stimulus plan had not helped the economy. Only 33 percent thought the stimulus had helped.
G-20 Agrees to Cut Debt
Rich Nations Back Halving Deficits by 2013, Signaling Intent to Ease Stimulus
Handicapping a Double Dip
According to a model developed by Credit Suisse, there's scant possibility of a relapse into a recession.
Wall Street Hiring Jumps Most Since 2008 as Guarantees Return
Firms are adding jobs for the first time in two years, rebuilding businesses cut during the financial crisis and offering guaranteed payouts to lure top bankers.
Economic damage caused by oil spill may not go beyond the Gulf region.
Analysts say the spill will reduce economic growth by only about one-half of 1 percentage point this quarter, and even less during the second half of the year.
Personal income edges higher
Personal spending ticked higher in May, while income rose for a 7th straight month.
Job blues for gray-haired workers
The nationwide unemployment rate for older workers -- while lower than that of younger workers -- has barely moved since hitting a record high of 7.2% in December. It's currently 7.1%.
Congress blasts Medicaid hole in states' budgets
Officials in Massachusetts and 29 other states that counted on the funds to balance their budgets are left with the task of slashing services and payrolls once again.
Obama urges Congress to pass Wall Street reforms
President Barack Obama on Saturday urged Congress to pass the financial reform bill aimed at strengthening consumer financial protection and enhancing transparency in derivatives trading.

Blogs
Secondary Sources: Austerity, Financial Illiteracy, Free Trade
A roundup of economic news from around the Web.
The Future According to Dividends, Mid-2010 Edition
...the S&P 500's trailing year dividends per share have been projected to change into the future since 14 July 2009 for each quarter where we have dividend futures data available...
Chicago Fed: Economic Activity increased in May
This is a composite index based on a number of economic releases.
“In the Long Run We Are All Dead” What Does It Mean?
If we are all dead in the long run, then Keynes-Krugman must argue that we are all dead in the short run as well, too.
Personal Income up 0.4%, Spending Increases 0.2% in May
The increase in income was good news, but personal income less transfer payments are still only 1.4% above the low of last year.
The new financial regulation bill
The best equilibrium is to have discredited ratings agencies, not revamped and reregulated agencies.
Housing Supply Metrics
Various housing supply measures compiled from various sources.
Signal and Noise in Economics Writing
...non-economists should express opinions about macroeconomics only with great humility. ...economists, too, need to show humility.
Weekly Summary and a Look Ahead
The key economic report this week will be the June Employment Report to be released on Friday.
Will We Learn from Greece?
If Mr. Hoenig is right and Greece is a lesson, let’s hope that policy makers in the US learn it before the pension crisis hits.
The Constitution is Still Number One
Majority of people strongly agreed with the statement that judges should “Uphold the values of those who wrote the U.S. constitution long ago".
Protecting the Second Amendment
In what is probably the most important Second Amendment case in Supreme Court history, the Court today held that the “right of the people to keep and bear Arms” cannot be infringed by the states.
Economic Insights from Fed President Hoenig
“Artificially low interest rates tend to promote consumer spending over saving and, over time, systematically affect investment decisions and the relative cost and allocation of capital within the economy.”
BIS Warns Central Banks Against Keeping Rates Low for Too Long
...keeping rates low for too long, and other actions like buying government bonds, creates risks to financial stability and opens central banks up to political pressure.

Research, Reports & Studies
Hudson Institute Economic Report
This week saw disappointing data for GDP and housing, suggesting that the economy's rebound is not imminent.
Wells Fargo Economics Group: Weekly Economic & Financial Commentary
Despite disappointing data, the recovery is still on.
Adverse Selection, Reputation and Sudden Collapses in Secondary Loan Markets
...a variety of policies that have been proposed during the recent crisis to remedy market inefficiencies do not help resolve the adverse selection problem.
Obama Discovers One More Crisis for a Toxic Tax
Obama's team seems to believe that even though doubts over new regulations and higher taxes may undercut job creation, the sacrifice is worth it because Democrats get a legislative win.
Americans Relate to Founders, Not Progressives
A nation of property owners is less willing to plunder the property of others in search of some promised gain than a nation where most people don't and will never own significant property.

Graphic of the Day
PER SECOND Debt Increase during Obama Presidency Exceeds ANNUAL Household Income
See: Inflation-Adjusted Cost of a K-12 Public Education and Percent Change in Achievement of 17-Year-Olds, since 1970
See also: Average Federal Tax Rates by Quintile
PODCAST: Caplan on Hayek, Richter, and Socialism
VIDEO: Obama Calling "Bluff" Of Those Complaining About "Deficits And Debt"

Economists’ Comments & Opinions
Why Friedrich Hayek Is Making a Comeback
With the failure of Keynesian stimulus, the late Austrian economist's ideas on state power and crony capitalism are getting a new hearing.
A Pendulum Swing Toward Austerity
In many respects, the expansionary phase of big government is coming to an end, and quickly.
Hillary Clinton: Accidental Supply-Sider
She's right about Brazil's growth. She's wrong about its tax rates.
The Keynesian Dead End
Spending our way to prosperity is going out of style.

Don't talk abt "progress" in terms of longevity, safety, or comfort before looking at zoo animals compared to those in the wildrnss. -Nassim Taleb, Twitter

Book Excerpts
"Representative democracy cannot subsist if a great part of the voters are on the government pay roll. If the members of parliament no longer consider themselves mandatories of the taxpayers but deputies of those receiving salaries, wages, subsidies, doles, and other benefits from the treasury, democracy is done for." -Ludwig Von Mises, Bureaucracy (1945)

"Did You Know"
According to preliminary estimates by The Heritage Foundation’s Center for Data Analysis; Americans’ dependence on government grew by 13.6 percent in 2009. The Index’s dependence variables that grew the most over that past year are: Health and Welfare at 22 percent, Rural and Agricultural Services at 20 percent, and Housing at 15 percent. The Index has grown by 49 percent since 2001. Americans’ dependence on the government was 14 times greater in 2009 than it was in 1962.

6/25/10 Post

BUZZ: House, Senate leaders finalize details of sweeping financial overhaul

News
Mortgage Rates, Stocks Drop
Treasury Yields Fall Amid Hunt for Safety, Pushing Home-Loan Rates to Lowest in Nearly 40 Years.
A New Plan for Valuing Pensions
At the heart of the dispute is the way governments gauge the value of the pensions they owe future retirees in today’s dollars — a commonplace financial calculation known as discounting.
Jobless Bill Dies Amid Deficit Fears
Spooked by concern about deficits, the Senate shelved a spending bill that included an extension of unemployment benefits, suddenly cutting off a federal cash spigot opened by President Barack Obama when he took office 18 months ago.
Greece starts putting island land up for sale to save economy
Desperate attempt to repay debts also driven by inability to find funds to develop infrastructure on islands
Sanders Estate-Tax Proposal Would Hit Wealthy Harder
Under the proposal, as in 2009, the exemption would be $3.5 million for an individual, or as much as $7 million for a couple, with a tax rate of 45%. But estates with taxable assets between $10 million and $50 million would pay a 50% rate, and estates valued above $50 million would pay 55%. A further 10% surtax would apply to assets above $500 million.
Two Ships Passing in the Night: Asian Millionaires Pass European Counterparts
According to a report out by Merrill Lynch, the number of individuals with at least $1 million in investable assets in Asia surpassed the number of Europeans bearing the same distinction.
In Europe, U.S. Allies Target Defense Budgets
U.K. Is Latest to Seek 'Ruthless' Cuts, Auguring Trouble for Afghan Effort
Banks win battle for limits to Basel III
Plans by global regulators to compel banks to set aside billions of dollars in extra capital to cope with future crises are to be pared back after intense lobbying by the industry.
For Gold Investors Who Want It 'To Go'
The bull market in gold has sparked a new growth industry: providing a venue for investors to buy and store their personal stash.
Dollar Weakens Against Euro, Yen
The U.S. dollar declined against the euro and yen but gained against some other growth-linked currencies as the Federal Reserve's subdued statement on the economic outlook kept demand for risk in check.
Seeing Economic Rebound, Firms Step Up Spending
Companies are stepping up spending on equipment as the recovery that first took hold in manufacturing broadens to other areas of the economy.
U.S. economic growth revised lower to 2.7% for first quarter
First-quarter growth, originally estimated two months ago at a 3.2% annualized rate, was revised down to 3.0% growth in last month's estimate and now is down to 2.7%.
Highlights from the financial regulation bill
A 10-member Financial Services Oversight Council made up of the treasury secretary, Federal Reserve chairman, a presidential appointee with insurance expertise, heads of regulatory agencies and a new consumer protection bureau would monitor financial markets and watch for threats.
Congress reverses Medicare cuts
The House voted Thursday to reverse a 21% cut in government fees paid to doctors who treat Medicare patients.
Corporate Bond Sales in U.S. Slump 19%
U.S. corporate bond sales tumbled from $140.1 billion in March, the most since January 2009, to $32.9 billion last month amid concern among investors that the sovereign debt crisis in Europe would stifle global economic growth.

Blogs
Conference Agrees on Financial Regulation Details: "We'll See How It Works..."
My first reaction to news that the Congressional conference had finally agreed on language for the financial services regulatory overhaul: numbness.
Time to Take on the Welfare State
Trillions in welfare spending will drive America to bankruptcy unless Congress puts on the brakes and encourages able-bodied adults to seek work and act responsibly.
Misc: Quote of the Day, Greece Bond Spreads increase Sharply, and Market Update
"Given the depth of the nation’s recessionary impacts on homeowners, a considerable number of customers will transition from homeownership over the next two years."
What Do Mortgage Lenders Want?
...it is not in the interest of private sector lenders to deliberately make loans that have a high probability of default.
Not from the Onion: EPA Classifies Milk as Oil
New Environmental Protection Agency regulations treat spilled milk like oil, requiring farmers to build extra storage tanks and form emergency spill plans.
Secondary Sources: Krugman on Yuan, Home Buyer Credit, Fiscal Adjustment
...the net benefits from the home buyer tax credit were small compared to the cost.

Research, Reports & Studies
Immigration, Remmittances and Business Cycles
During recessions, established migrants are deterred from returning to their country of origin, which places an additional downward pressure on the wage of native unskilled workers. Thus, migration barriers reduce the ability of the stock of immigrant labor to adjust during the cycle, enhancing the volatility of unskilled wages and remittances.
News and Sovereign Default Risk in Small Open Economies
News shocks affect equilibrium outcomes because they contain information about the future ability of the government to repay its debt.
Confronting the Unsustainable Growth of Welfare Entitlements: Principles of Reform and the Next Steps
As government spending on means-tested welfare approaches $1 trillion per year, it is time to reboot the other poverty programs to control costs and promote greater self-reliance.
Should We Raise Taxes on the Middle Class? We Already Are
But by 2020, income tax receipts are projected to rise to 9.5 percent of GDP, even if all of President Bush’s tax cuts are made permanent. By 2030, income tax receipts will rise to 10 percent of GDP, 22 percent higher than the historical level.
Current Regulatory Developments in the United States
The danger is that politicians will not bother to learn the proper lessons of the causes of the financial crisis and will sow the seeds for the next crisis.

Graphic of the Day
Oh, To Be a Government Worker
See: Real GDP Q1 2010 revised to 2.7%
See also: New Home Sales Plunge

Economists’ Comments & Opinions
What the U.S. can learn from Canada at the G20
...President Obama would be smart take a long moment during his Toronto visit to learn some lessons from the Canadian way of growing an economy. It starts by relying on the private sector for job growth instead of government help, as Obama has so far futilely offered.
Why banks aren't afraid of reform
JPMorgan Chase and other big banks are betting that when the rules are written, they will permit the activities that banks deem crucial.
Financial Reform Bill Won't Stop Next Crisis
Until Washington takes a long, deep look at its own role in causing the financial crisis, we will have little hope for avoiding another one
A Budget Deal That Did Reduce the Deficit
Budget experts now agree that the Budget Enforcement Act of 1990, which was strengthened in 1993 by another budget deal that was opposed by all Republicans, deserves much of the credit for the subsequent improvement in the deficit, which shrank from 4.7 percent of GDP in 1992 to virtual balance in 1997 and gave us budget surpluses from 1998 to 2001.

It takes extraordinary wisdom & self control to accept that many things have a logic we do not understand that is smarter than our own. -Nassim Taleb, Twitter

Book Excerpts
"I genuinely do not know whether we will or will not ultimately survive the desperate damage our government has done to our economy. The potential power of the economy is immense, and its regenerative power in freedom is incalculably great. I am prepared to say, however, that a financial collapse is not only possible but probable unless we reverse almost half a century of irrational and unrealistic policies." -William E. Simon, A Time for Truth (1978)

"Did You Know"
Government now spends 13 times more on welfare, adjusting for inflation, than when LBJ declared the nation’s War on Poverty some 45 years ago. Welfare is the fastest-growing portion of government spending, nearly quadrupling from fiscal 1979 to fiscal 2008.