8/19/10 Post

BUZZ: 2010 budget deficit at $1.342 trillion

News
Weekly Jobless Claims Jump to Nine-Month High
The number of U.S. workers making new claims for jobless benefits unexpectedly rose last week to the highest level in nine months, a distressing sign for an already weak labor market.
Government Figures Show a Cooling Chinese Economy
In the latest signs that the Chinese economy is beginning to cool after setting a torrid pace in the first half of this year, several government indicators slowed slightly last month, Beijing announced Wednesday morning.
Japan Rises on Hopes of Stimulus
Japanese shares fronted a rally across Asia on Thursday as expectations of further monetary easing measures weakened the yen and bolstered electronics and automobile exporters.
US Homeowner Confidence Drops in Second Quarter
U.S. homeowners were less confident about the value of their homes in the second quarter, with one-third believing home prices had not yet reached a bottom.
Data Point to a Strengthening Recovery in Britain
Britain’s budget deficit shrank at a faster pace than expected in July and retail sales rose the most in five months, according to data announced Thursday — signs that the country’s economic recovery could be strengthening.
Leery of Washington, Alaska Feasts on Its Dollars
More and more Alaskans, particularly of the Republican stripe, identify the federal government and pork-barrel spending as the enemy, although Alaska was built by both.
Five job-killing stimulus projects
Republican Sens. Tom Coburn of Oklahoma and John McCain of Arizona issued a report in early August highlighting about 100 examples of wasteful spending in the $862 billion — the cost as tallied in the senators’ Summertime Blues report — 2009 American Recovery and Reinvestment Act.
Tea Party coalition forming to push for balanced budget amendment
A new Tea Party coalition, the Balance Budget Amendment Now, has begun to push for an amendment to the constitution requiring that the federal budget be balanced every year.
GM files to sell shares to the public
General Motors filed registration documents Wednesday to sell shares to the public again, setting the stage for the U.S. government to reduce its ownership of the automaker.
Common sense saves Illinois $140 million in health care costs
Several states have started "medical home" programs, which centralize patient information around one home base, and one primary care provider. So far, these programs have saved states hundreds of millions of dollars in medical costs.
SEC sues New Jersey for fraud
The SEC alleged that New Jersey misled investors in municipal bond sales totaling $26 billion over a six year period ending in April 2007.
Long-term debt: The real problem
Lawmakers have yet to seriously address how to rein in the country's long-term debt. That broader debate will involve significant policy changes: A likely overhaul of the federal tax code and a reduction in spending across the board.
Taxpayers on the hook for $3 trillion in pensions
Under the current system, unfunded benefit liabilities -- the amount states owe in promised retirement benefits beyond what they've collected -- exceed $3 trillion.
Crude prices resume slide after gov't report shows more oil in storage than expected
Oil prices settled lower on Wednesday as the government said crude supplies shrank less than analysts expected and stock markets showed only modest gains after Tuesday's rally.
Big business in middle of brawl
It seems that no matter what direction business leaders turn, the hyper-partisan atmosphere on Capitol Hill puts them in the unenviable position of either angering the Democrats they need to enact their priorities or the Republicans they want to block anti-business legislation.
GOP Majority Equals Return to Past, Obama Warns
Obama says that the GOP plan for cutting the deficit is a return to “the exact same agenda” of the Bush Administration.
State and Local Debt: $2.4 Trillion
The bottom line: If this debt in the states should be added to the federal debt — and especially if this debt has to be repaid back with higher taxes — there is one very large bill coming our way.

Blogs
The Age of Entitlements Must End
The latest Democracy Corps poll, shows that by a 64% – 29% margin, the American people believe that things in this country “have gotten pretty seriously off on the wrong track.”
Obamacare: A Parent’s Worst Nightmare
At the heart of Obamacare is more government regulation. While it’s true that more families will be covered under the law, the new entitlement comes with strings attached.
Why the Issue of Overpaid Government Workers Matters
Federal workers receive both wages and benefits above market levels. State and local workers receive sub-market wages, but they make up for it with excessive benefits.
Americans to Obama: Don’t Cut Defense
A solid 57 percent of adults say it would be “unacceptable” to reduce spending on national security and defense weapons systems.
What Fed's Decision on Buying Treasuries Means for Economy Fed's objective isn't to move Treasury market or reduce balance sheet, but to tighten credit/collateral.
Are Right and Left Changing Where They Stand on Standing?
Democrats are once again competitive in presidential politics. And the rise of conservative and libertarian public interest law groups combined with a more conservative Supreme Court, ensure that the right can play offense as well as defense in constitutional litigation.
Unions, Peaceful Picketing, And Coercion
….. all picketing in numbers should be prohibited, since it is not only the chief and regular cause of violence but even in its most peaceful forms is a means of coercion.
You're not a Frequent Trader? We'll Take Your Stuff
In other words, I had to take action to prevent E*Trade from turning over my property to a government--I think the California state government.
The Horwitz Challenge
The next time you're engaged in a political discussion with someone who has very strong views different from your own, ask them if they can name two famous thinkers or politicians whose politics are opposed to theirs who they also think are very smart and genuinely concerned with making the world a better place.
Economic Development Agencies Come Under More Fire
Yesterday’s Greater New York section details a scathing report about New York’s economic development efforts, which charges that some of the state’s economic development bodies spend too much money for too few jobs and that “spotty reporting has it made it difficult to analyze the cost and benefits of their projects.”
Fed Officials All Over the Map in Explaining Policy Shift
In the days since the Federal Reserve unveiled a notable shift in its portfolio strategy, policy makers have offered discordant explanations about what’s going on.
Summer spikes
Last week, Casey Mulligan noted that teenage employment continues to rise in the summer as students are let out of school, despite the recession—a sure sign, in his view, that labour supply is a crucial factor in determining the unemployment rate, even in recessions.
The wrong direction
Last week, initial claims touched 500,000. As you can see, this isn't simply an outlying data point. Initial claims have been moving slowly upward for much of the year, with a substantial and almost uninterrupted climb in the last two months.
Democratic Misgivings on a Size Cap for Banks
The Brown-Kaufman amendment to the recently enacted financial regulatory overhaul proposed a size cap on our largest banks, limiting their assets to a very small fraction of the size of our economy. But this proposal to modify Dodd-Frank, as the financial reform legislation is known, failed in the Senate in early May, with 33 votes in favor and 61 — including 27 Democrats — opposed.
The Stealth Debt Restructuring: Inflation
Europe’s sovereign debt crisis seems to have gone on holiday along with most of the rest of the Continent during August. But many economists warn that the underlying debt problem is merely in remission and could recur at any moment, once again upsetting world markets.
Rep. Paul Ryan’s Roadmap in Charts
If you haven’t read the plan, you should — it’s only 87 pages long — but if you don’t read it, Paul Krugman summarizes it well when he says that the plan “calls for steep cuts in both spending and taxes.”

Research, Reports & Studies
The Economic Freedom Act: Economic and Fiscal Effects
The Economic Freedom Act, proposed by Representative Jim Jordan, would terminate the ineffective Troubled Assets Relief Program (TARP), and substitute a proven way to stimulate the economy:
Overcriminalization
Federal criminal law has exploded in size and scope—and deteriorated in quality. Honest, hard-working Americans doing their best to be respectable, law-abiding citizens can no longer be assured that they are safe from federal prosecutors.
The Role of the Courts
The Founders envisioned the judiciary to be the “least dangerous branch,” but activist judges have transformed the courts into policymaking bodies that wield wide-ranging power over virtually all aspects of American life.
Ensure that Congress Follows the Constitution
Congress does not just ignore the constitutional limitations on its powers. Members have repeatedly failed to read the bills upon which they were voting, and some have even declared that they have to pass gargantuan bills first so that they can find out what is in them.
Long-Term Case for Stocks and Commodities Stronger than Case for Bonds
In their understandably concerned state of mind in the present day, investors may have lost sight of the longer-term drivers of asset prices. Bonds, especially U.S. Treasuries, have merit presently as high levels of debt have sparked concerns about deflation. However, in the long-run, the case for stocks, commodities, commodity-related currencies, and precious metals looks quite a bit stronger than the case for bonds.
The Risk of Out-of-Pocket Health Care Expenditure at End of Life
Health Care spending in the last year of life is estimated to be $11,618 on average, with the 90th percentile equal to $29,335, the 95th percentile $49,907, and the 99th equal to $94,310. These spending measures represent a substantial fraction of liquid wealth for decedents. Total out-of-pocket expenditures are strongly positively related to wealth and weakly related to income.

Economists’ Comments & Opinions
At 75, Social Security Isn't Aging Well
The Social Security program turned 75 on Aug. 14, and it's not aging well.
Big investors pulling the exit chute
It's just that no one knew when or how it would manifest itself. Same thing is happening right now with the bond bubble.
Free Cities
Free Cities would exemplify free-market globalization, rather than the economic exploitation of protectionist colonialism.
Why Small Banks Are the Key to Recovery, Part 1
Banks need to start lending, but the process by which they do this -- and create real, organic economic growth -- requires two things to happen.
Unserious Cost Cutters Only
The bottom line is that policymakers of all stripes say they want taxpayer money spent more efficiently and effectively. Therefore, if taxpayers want structural changes that will limit the burden of government, they’re going to have to demand that policymakers offer more than just platitudes.

Graph of the Day
A Conservative Foreign Policy
See: Small Firms Lagging, With Bulk of Job Losses
See: Weekly unemployment claims

Book Excerpts
“Stop asking the government for free goods and services however desirable and necessary they may seem to be. They are not free. They are simply extracted from the hide of your neighbors and can be extracted only by force. If you would not confront your neighbor and demand his money at the point of a gun to solve every new problem that may appear in your life you should not allow the government to do it for you. This one insight understood this one discipline acted upon and taught by millions of Americans to others could do more to further freedom in American life than any other.” –Former Treasury Secretary William E. Simon, A Time for Truth (1978)

Did You Know
Authorities in southern Sudan have unveiled a $10bn (£6.4bn) plan to rebuild the region's cities in the shapes of animals and fruit. Elaborate blueprints for the new cities have already been drawn up.

8/18/10 Post

BUZZ: School shopping no spree in slow economy

News
Debate on taxes affects the savers
The nation's highest income groups predictably did better during the recession and socked away their money, new government figures show, but wealthier Americans' newfound penchant for savings is already driving Democratic calls to raise taxes on them this fall.
US Says Bankruptcies Reach Nearly 5-Year High
U.S. bankruptcy filings have reached the highest level since 2005, government data released on Tuesday show, as the economy slows and the unemployment rate hovers just below double digits.
Mortgage Role for U.S. Is Affirmed
The Obama administration has been barraged with ideas for reworking the government’s role in housing finance, spanning the spectrum from guaranteeing all mortgage loans to eliminating all federal subsidies for homeownership.
Given Money, Schools Wait on Rehiring Teachers
As schools handed out pink slips to teachers this spring, states made a beeline to Washington to plead for money for their ravaged education budgets. But now that the federal government has come through with $10 billion, some of the nation’s biggest school districts are balking at using their share of the money to hire teachers right away.
Democrat Frank says abolish Freddie and Fannie
Fannie Mae and Freddie Mac should be abolished rather than reformed as part of the Obama administration's planned overhaul of the government's role in housing finance, Rep. Barney Frank, chairman of the House Financial Services committee, said on Tuesday.
Obama at new low for handling economy
President Barack Obama earned his lowest marks ever on his handling of the economy in a new Associated Press-GfK poll, which also found that an overwhelming majority of Americans now describe the nation's financial outlook as poor.
Retailers Are Sold on Frugality
American retailers are becoming as frugal as their shoppers, cutting expenses to maintain stable profits through what is increasingly looking like another challenging holiday season.
'Economic Benefits' From Tighter Bank Regulation
The global economy won't suffer if banks are forced to adopt tighter standards on capital and liquidity, the Financial Stability Board and Basel Committee for Banking Supervision said in a joint statement Wednesday.
What's costlier than a government run prison? A private one
According to the Bureau of Justice Statistics, between 2000 and 2007, the number of federal inmates housed in private facilities jumped nearly 14% between 2000 and 2007, and nearly 6% between 2007 and 2008.
22 cities in danger of a double-dip recession
The chance of a national double-dip recession is hotly debated amid an increasing number of signs that the economic recovery is losing pace, but the risk is particularly troublesome on a local level.
The big payback: Americans pare debt
Total consumer debt was $11.7 trillion as of June 30. That's down 1.5%, or $178 million, from $12.1 trillion at the end of March. After hitting a record high in September 2008, consumer debt has dropped 6.5% over the last six quarters.
Refinancing applications at 15-month high
The refinance index surged 17.1% in the week ended Aug. 13. As a result, the index reached its highest point since the week ended May 15, 2009.
Fixing Fannie Mae and Freddie Mac: The Debate Begins
The Obama administration acknowledged Tuesday that major changes must be made to mortgage giants Fannie Mae and Freddie Mac, but indicated that it supports continuing government guarantees in the mortgage sector.
Major stores report profits, but sometimes even deep discounts aren't enough
Even deep discounts on everyday items don't seem to be enough to get Walmart shoppers to bite these days, and other chains are worried Americans won't be in the mood to spend in the months ahead, which are critical for those companies.
Yellowstone Club collapse pinned on founder, judge says Blixseth must repay most creditors
U.S. Bankruptcy Judge Ralph Kirscher says in a 135-page ruling issued Monday that Blixseth siphoned hundreds of millions of dollars from the private Montana ski club that counts Microsoft's Bill Gates among its membership.
Federal Role In Housing Drives Debate
Panelists at an Obama administration conference to determine the future of the nation's housing finance system agreed the federal government should continue to play a role in the $11 trillion sector.

Blogs
The Seasonal Job Surge: Supply or Demand?
Keynesian economists designed a fiscal stimulus law that targets aggregate demand and runs roughshod over supply incentives. Evidence on the seasonal labor market shows why their stimulus was ultimately self-defeating.
Why isn't the Fed acting?
One question a number of economic writers have obsessed over is just why the Fed has been reluctant to act in a more aggressive fashion as recent economic data have deteriorated. There are a number of possible explanations to explain this.
End Crony Capitalism
Last December, the Federal Housing Administration loosened its financing rules so that U.S. taxpayers would have the honor of backing loans with down payments as low as 3.5%. Now rich Manhattanites, can better afford condos in buildings with pet spas, concierges and rooftop lounges, all on the taxpayers’ dime.
Deepwater Drilling Gets Tougher, Time to Get NEPA Right
The government should use this time to enact smarter regulations, not unnecessary regulations that make it too costly for projects to move forward.
China Hiding Treasury Purchases
China’s reported holdings of U.S. Treasury bonds fell sharply again in June and are now almost $100 billion lower than they were in July 2009. The press reports this as meaningful and important. It isn’t.
The Back-to-School Supply Tax
Many states offer “tax holidays” for shoppers during the back-to-school season, but families everywhere still pay extra at the checkout counter due to hidden import taxes that increase the price of everything from sneakers to baseball caps.
Side Effects: Obamacare Puts States Between a Rock and a Hard Place
Obamacare creates a host of new federal requirements billed as consumer protections. But enacting these policies falls not on the feds, but on the states.
Beyond Toleration: George Washington’s View of Liberty
Participants in various current controversies would do well to settle into a comfortable chair and ponder these words of George Washington, sent to the Hebrew Congregation of Newport, R.I., 220 years ago today:
Seeking Solutions in an Uncertain World
Is it time for traders to stay and play, or run away?
The Fed Engineers Another Bubble
The biggest money-printing machine in history listed a week in advance exactly what and how much it was going to buy.
Housing Starts and the Unemployment Rate
Usually housing starts and residential construction employment lead the economy out of a recession, but not this time because of the huge overhang of existing housing units.
Declines in demand and how to disaggregate them
Let's say that housing and equity values fall and suddenly people realize they are less wealthy for the foreseeable future. The downward shift of demand will bundle together a few factors:
Lawn Economics
Never mind that lawns are attractive and that they provide safe havens for children to play in. Do suburbanites unthinkingly overvalue these benefits?
Deficient Economics
The U.S. trade deficit rises whenever the amount of dollars foreigners invest in America rises relative to the amount of dollars foreigners spend on American exports.
The Government Mortgage Subsidy
The standard estimate in the literature is that Fannie and Freddie reduce mortgage rates by 25 basis points or less.

Research, Reports & Studies
State Spending Restraint:
State and local government spending has grown at a remarkable clip over the last half-century. Since the close of World War II, aggregate state and local spending grew 34 percent faster than the private sector and 37 percent faster than federal government spending.
Re-embracing Federalism
In the American plan of constitutional government, the national government was never supposed to have all of the power or make all of the decisions.
Education Reform
American education is at a crossroads. The federal government’s role in education has grown significantly over the past half-century, infringing on our long-held principle of federalism in education.
Getting Health Care Reform Right
The health care system needs reform, but not the types of changes enacted under the new health care law.
The Federalization of Homeland Security
In the years since it was created, the Department of Homeland Security has spent more than $250 billion, yet many key homeland security areas continue to produce weak outcomes as more programs federalize traditional state and local activities
Uneven Recoveries (Like the Current One) are Normal
Many economists continue to fret about the state of the U.S. economy– about whether it’s still mired in recession– or why, if there’s a recovery, it seems to be weakening– or whether the weakening foretells another recession. Every economic recovery in modern history seems, however, is riddled with complaints about how tentative and prolonged it is, and with so little job creation— even though that’s the norm.

Economists’ Comments & Opinions
Fixing Social Security
So, President Obama believes that Republican leaders are "pushing to make privatizing Social Security a key part of their legislative agenda if they win a majority in Congress this fall." To which one responds, "If only!"
ObamaCare: the Burden on Small Business
How will ObamaCare affect a small business owner who's married with two kids? For one thing, he and his business will pay higher health premiums beginning this year.
Big Government Forgets How to Build Big Projects
The Pentagon took 18 months to construct in the early 1940s, while it is estimated that the currently under-construction Humpback Bridge over the Potomac River will take 42 months to complete. Why this time difference? A major reason is that there is much more government bureaucracy that must be navigated in order to complete a major construction project today.
Pakistan: A Trade Deal to Help Rebuild
One of the best long-term ways to help Pakistan — and improve America’s image there — is to help Pakistanis help themselves.
The U.S. Isn't Greece, and That's a Problem
Our creditors are naive for accepting low returns on Treasury bonds because America is running the risk of being hit with a debt crisis similar to what happened in Greece.
Tax Cuts Are Only Way to Economic Growth
The so-called Bush tax cuts, which are scheduled to expire at the end of the year, should be extended as soon as possible
From the Ashes
As the world continues to recover from the Great Recession, governments and businesses are focused on how to spur economic growth. But if they really want to create jobs, raise incomes, and lift living standards, they should devote more energy to figuring out how to generate economic dynamism over the long term.
U.S. Debt Load Among World's Worst
This year, the U.S. public debt is projected to reach 62 percent of the economy—up from 40 percent in 2008 and nearly double the historical average, according to recent Congressional Budget Office (CBO) estimates. The financial crisis and recession drove much of this debt swing, yet larger problems loom in the future.
Cap-and-Trade Bill Would Make Housing Less Affordable
In addition to the devastating economic effects of cap and trade, the Clean Energy Jobs and American Power Act (S. 1733)—introduced by Senators Kerry Lieberman—would likely lead to the same conditions that caused the housing bubble of a few years ago.
The Great American Bond Bubble
Ten years ago we experienced the biggest bubble in U.S. stock market history—the Internet and technology mania. A similar bubble is expanding today that may have far more serious consequences for investors. It is in bonds, particularly U.S. Treasury bonds.
Let’s get our priorities straight
First, let’s be clear what we’re talking about here. As far as I understand it, net neutrality regulation would apply to communications over the internet, not simply to communications that happen to use internet protocol.
A way forward on gay marriage
The recent sweeping federal court ruling striking down California’s gay marriage ban as unconstitutional provides President Barack Obama, with an important opportunity to shift his views on same-sex marriage.
Frank Rips White House’s ’09 Unemployment Prediction
It was “dumb” of President Barack Obama to predict that unemployment would not top 8 percent if Congress passed the stimulus bill in 2009.
Free Market Reform for Fannie and Freddie
We do need to end the GSEs without replacing them. And we need stable housing recovery, no matter how politically unpalatable.

Graph of the Day
Higher taxes for the rich: What they'll pay
State and Local vs Private Sector Spending

Book Excerpts
“ If every person has the right to defend even by force—his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. Thus the principle of collective right—its reason for existing, its lawfulness—is based on individual right. And the common force that protects this collective right cannot logically have any other purpose or any other mission than that for which it acts as a substitute.” –Frédéric Bastiat,The Law (1850)

Did You Know
A recent study found the U.S. ranks only 12th in the world in the percentage of adults aged 25 to 34 who hold college associate degrees or higher. Canada is ranked number one, followed by South Korea.

8/17/10 Post

BUZZ: Obama hits new polling low

News
Oil Spill Could Take a Toll on Louisiana as Shrimp Season Opens
Shrimpers returned to Louisiana waters Monday for the first commercial season since the Gulf of Mexico oil disaster, uncertain what crude may still be in the water and what price they'll get for the catch if consumers worry about possible lingering effects from the massive BP spill.
Say Yes To The Yen
The Japanese yen recently rallied to 15-year highs against the U.S. dollar along with hitting highs against other major currencies.
Producer-Price Increase Eases Deflation Concerns
U.S. producer prices rose for the first time in four months in July as the cost of raw materials increased, easing concerns that the economy could become so weak that it leads to deflation.
Second in line
China has, at long last, surpassed Japan in terms of nominal GDP, making the Chinese economy the world's second largest.
Stimulus Fight Hits the Trail
President Barack Obama is traveling across the country this week to tout the benefits of his massive stimulus plan, which has become a major flash point of the 2010 campaign a year and a half after its passage.
Credit Card Defaults, Late Payments Drop in July
Consumers keep improving how they manage their credit card payments, with fewer customers in July defaulting or making late payments compared with the previous month.
A Two-Year Budget? GOP Sen. Thune Joins the Chorus
Sen. John Thune is the latest to propose that Congress move from an annual to a biannual budget process to end political gridlock and better control spending.
Stimulus Package: Lots More to Spend at Local Levels
State and local governments have yet to spend much of their economic stimulus funding, and some Americans and officials are questioning the wisdom of this.
Feds rethink policies that encourage home ownership
Just how much should Uncle Sam do to help Americans buy their own homes? For 70 years — and for the last 15 in particular — the answer has been: Whatever it takes. Now, policymakers are pausing to reconsider. In the next few months, they'll weigh whether there can be too much of a good thing when it comes to helping families finance the American Dream.
Mexico slaps tariffs on US goods over trucking ban
Mexico said Monday it will increase tariffs on a total of 99 U.S. products to pressure Washington to lift a ban on Mexican cargo trucks entering the United States.
Economy Led to Cuts in Use of Health Care
The economic crisis in the United States has reduced the use of routine medical care.
Fed to protect consumers from abusive mortgages
The new regulations, which take effect April 1, will ban lenders from paying mortgage originators more for putting borrowers in more expensive loans.
Banks finally lending more to small biz
While most banks said demand for business and consumer loans was unchanged, large banks -- those with assets greater than $20 billion -- eased their lending conditions.
Can't find a job, college grad?
Housing starts rose 1.7% from June to a seasonally adjusted annual rate of 546,000 last month.
Cancer is world's top 'economic killer' as well as its leading cause of death
Cancer costs more in productivity and lost life than AIDS, malaria, the flu and other diseases that spread person-to-person.
Housing conference likely to focus on continued government role in mortgage market
Talk of shrinking the government's involvement in the mortgage market is growing. Just don't expect action any time soon.
Obama: GOP Is ‘on the Sidelines’ in the Fight for Jobs
Obama said it is “clear” that Democratic economic policies are lifting the country out of the recession and warned that Republicans are pushing for a return to failed policies.
New home construction rises, but outlook weakens
Housing starts rose 1.7% from June to a seasonally adjusted annual rate of 546,000 last month.

Blogs
The Fake Jobs of Obama’s Government Union Bailout
The latest bailout for states and government unions $10 billion was earmarked for education spending which would save 160,000 jobs. But as we pointed out before the bill was signed, this number was completely made up.
No More ‘Ethics’ in the White House?
It looks like ethics and transparency are yet again taking a back seat at the Obama White House, this time with the little-noticed news that the president’s ‘ethics’ czar, Norm Eisen, is leaving to become a foreign ambassador and will not be replaced.
Another Green Jobs Debacle from Obama’s Failed Stimulus
The New York Times reports today that only 8.4% of the $3.2 billion Congress included in President Barack Obama’s failed stimulus to create green jobs by improving energy efficiency has been spent through July.
China Passes Japan, Not As Important As It Seems
After months of speculation, it’s finally official: the Chinese economy, as measured by GDP, is larger than the Japanese economy.
Why Theoclassical Economists Fail as Regulators
The inability of neoclassical economists to learn from the recurrent financial disasters and epidemics of accounting control fraud demonstrate that we're dealing with a faith-based economics.
Our Fixed Income Fascination Continues
A whopping $203 billion has now been invested in bond funds, year to date. In comparison, domestic equity funds have raked in just $16 billion so far in 2010.
Does the Cost of Capital Matter?
The cost of capital has plunged, and the only people who seem to be benefiting are the large banks and Uncle Sam himself.
Can Government Put Idle Resources to Good Use?
At the end of July, nearly 18 months after the stimulus passed, more than half of the $275 billion in investments had yet to be spent.
Don't Expect a Cure for Cancer Any Time Soon
Drug discovery is hard enough even before you add these sorts of challenges. We've been spoiled by the last fifty years; the targets we have now are harder, and even the targets we thought we'd beaten are making a comeback.
Use Spoons Rather than Shovels
During recessions government should not only prevent American consumers from buying foreign-made products, but also prohibit American producers from using labor-saving technologies.
Left, Right, and Wrong
Brink Lindsey is interviewed by Jonathan Rauch for the "five books" series. Lindsey's book choices are not as interesting as his comments on the role of the progressive left and the traditionalist-conservative right.
Predatory Educating
Schools must earn and maintain proper accreditation to remain eligible for Title IV programs. In many instances, the for-profit institutions sit on the boards of the accrediting body.
Most Monolithic
Of course the Communist movement wasn't perfectly monolithic. But wasn't it extremely monolithic nonetheless?
Paul Krugman on Carter and Reagan: Wrong Again
The errors of Paul Krugman's logic are revealed.
Interest Rates and House Prices: A Murky World
Did the proliferation of low-down-payment, low-documentation loans cause the housing bubble? Actually, we don’t really know what happened to approval rates or loan-to-value levels over time.
Boston Fed: Economics Couldn’t Reveal Housing Bubble
Should economists and policy makers have identified the housing market bubble before it burst? The answer is most likely no, says the Federal Reserve Bank of Boston, because economic theory was not up to the challenge.

Research, Reports & Studies
Introduction and Highlights
The federal government has grown exponentially, not just in spending but in its reach.
Meeting America’s Energy and Environmental Needs
America needs an energy policy that promotes environmental sustainability and economic growth. Yet many Members of Congress and the Administration are promoting policies and promulgating regulations that centralize power in Washington.
Changing America’s Course
The United States is the world’s strongest, most prosperous, most just, and freest nation. Yet the path we have been following is turning America into a very different place: a country stifled by a highly regulated economy, nationalized industries, and government-run health care, ruled more by bureaucrats and judges than by the consent of the governed.
State and Local vs Private Sector Spending
Real state and local spending growth has consistently out-paced growth in both real GDP and real private GDP. Because state and local governments depend on the private sector for their tax revenue, this path is not sustainable; state and local government spending cannot continually outpace the wealth-creating sector of the economy.
A Fragile Economic Outlook Continues
Last week, the markets responded to further evidence of a slowing in economic activity, including a further deterioration in new claims for unemployment. Clearly, we are in the window where the market would be expected to be very sensitive to changes in the economic outlook, which is largely what we observed last week in both stocks and bonds.
Empire State Manufacturing Remains Weak
The August Empire State Manufacturing index came in weaker than expected. The index continues to show expansion, but a July and August soft patch is evident.
U.S. Workers Still on Elevated Alert for Potential Job, Pay Cuts
U.S. workers' worries about job and pay cutbacks have eased slightly since 2009, but they continue to be high compared with prior years. In particular, roughly one in four Americans employed full or part time is currently worried about being laid off in the near future.

Economists’ Comments & Opinions
Uncle Sam, Venture Capitalist
President Obama kicked off a five-state campaign swing yesterday with a stop at a "clean energy" plant in Menomonee Falls, Wisconsin. As it happens, Mr. Obama couldn't have chosen a better company to demonstrate the risks that taxpayers are taking with their billions in green stimulus investment.
Worried Americans Look Inward
Economic stress has a way of bringing underlying tensions and suppressed emotions to the surface, for people and nations alike. The real question isn't why these feelings are in the air—that's obvious enough—but which leaders in both political parties will push back against them, in this fall's campaign and beyond.
Railroading The Taxpayer
Washington likes to think that government-funded infrastructure projects boost economic activity. But there is at least one form of Washington-generated infrastructure spending we could manifestly do without: high-speed rail projects.
Juveniles in charge
During the past several months, we have seen much of the political class in Washington increasingly act like juveniles, making the rest of us suffer.
2 Zombies to Tolerate for a While
What is the future of Fannie Mae and Freddie Mac? That is still yet to be decided.
Bureaucracy Gets a Bailout
In voting to spend $10 billion to save school teachers' jobs last week, Congress bailed out government employees who have fatter paychecks and pensions than those doing the same kind of work in the private sector.
Regulating Executive Pay
For those of us striving towards a free society, a basic tenet is a respect for mutual agreements between consenting adults. In the absence of fraud or actual physical harm to either persons or property, adults should have their contracts respected by the state and not rewritten upon political whim. So the question is: is the current system of executive compensation fraudulent or does it impose physical harm on others?
Food Stamps Cut?
Prior to last week’s passage of another $26 billion in bailout money for state and local governments, I noted that the legislation wasn’t really offset:
The Dodd-Frank Wall Street Reform and Consumer Protection Act: The Triumph of Crony Capitalism, Part 4
Regulators will never keep up with the next asset class boom and bust because they'll always be looking backward.
Trendspotting: Investing in Federal Stimulus Projects
Much of the money is being routed back into companies such as engineering giant Siemens and its competitors.
Afternoon at the Treasury
A few good lines from a senior treasury official as I recall the gist:
• “Markets believe we can borrow. The public doesn’t. We need both to move forward on the fiscal front."
• “Businesses are investing in a way that shows more confidence than they are talking.”
David Kennedy on the Great Depression
The latest EconTalk is David Kennedy discussing his book, Freedom from Fear, the Great Depression, and the parallels, if any between then and now.

Graph of the day
Voters Back Tough Steps to Reduce Budget Deficit
See: Food Stamps Cut?
See: Reining in Runaway Spending and Deficits
See also: A Need for Tax Reform

Book Excerpts
“ The greatest misfortune in America today is that most people do not understand that …when men are left free by the state to engage in productive action guided by self interest above all they do create the most efficient and powerful production system that is possible in their society” –Former Treasury Secretary William E. Simon, A Time for Truth (1978)

Did You Know
The tax cuts that expire at the end of 2010 include marriage penalty relief that has been in place for a decade. The Joint Tax Committee estimates that 35 million couples will pay an average of $595 more in taxes in 2011 alone if marriage penalty relief is not extended.

8/16/10 Post

BUZZ: The End of American Optimism

News
The Fed Can't Solve Our Economic Woes
A policy of low interest rates is a textbook response of monetary authorities to the economic weakness brought on by deficient aggregate demand. While these effects are theoretically plausible, this textbook policy does not apply to our present situation.
China overtakes Japan in 2Q as No. 2 economy
Japan lost its place as the world's No. 2 economy to China in the second quarter as receding global growth sapped momentum and stunted a shaky recovery.
White House Under Fire for Unspent Infrastructure Cash
The Obama administration has paid out less than a third of the nearly $230 billion allocated to big infrastructure projects in the economic-stimulus program. Now Republicans are zeroing in on the unspent stimulus money in fresh attacks on the administration's economic policy.
Breaking down the $862 billion stimulus
See the full agency-by-agency breakdown of stimulus funds
appropriated, available and paid out.
Fed's Hoenig: Keeping Rates Too Low 'Dangerous Gamble'
The Federal Reserve is undertaking a "dangerous gamble" by keeping rates at near zero for so long, and must start raising rates or risk damaging the nascent U.S. recovery, Kansas City Reserve Bank President Thomas Hoenig said in the text of a speech to the Lincoln, Nebraska, Chamber of Commerce.
'Junk' Bonds Hit Record
U.S. companies issued risky "junk" bonds at a record clip this week, taking advantage of keen investor appetite for returns amid declining interest rates and tepid stock markets.
China Favors Euro Over Dollar as Bernanke Alters Path
China, whose $2.45 trillion in foreign-exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the U.S.
Manufacturing in New York Area Expands Less Than Forecasted as Orders Slide
Manufacturing in the New York region expanded less than forecast in August as orders and sales declined for the first time in more than a year.
Homebuilder Index Hits Lowest Level in 17 Months
Homebuilder confidence dropped for the third straight month in August as the struggling economy and a flood of cheap foreclosed properties kept people from buying new homes.
Recession-Worn Seniors Tap Social Security Early
Saturday marked the 75th anniversary of Social Security, and many questions remain unanswered about its future.
Renewable energy: The government piggy-bank
Green jobs and renewable energy were boldly funded in the stimulus bill, yet whenever Congress and the Obama administration need to scare up capital to fund some other program, they chip away at the initial $37 billion allocated for climate and energy-related efforts.
Who will fix the economy? The Fed, Congress, shoppers and businesses all shrug
The Federal Reserve has little power left to lift the economy out of its rut. Congress, with an election looming, has no appetite for more stimulus. Shoppers are reluctant to spend, and businesses are slow to hire.
States avoid massive layoffs through $26B in federal aid, but bill only postpones hard choices
States are relieved that the $26 billion state aid bill was passed by Congress this week and has saved hundreds of thousands of jobs. But it might be the last time the federal government comes to the rescue.
Toomey Ignores Social Security Attack, Assails Spending
“Our strength does not come from bailouts and government spending, it comes from free enterprise system and the hard working honest citizens who make it run”.
Corker wants extension of Bush tax cuts
Sen. Bob Corker (R-Tenn.) advocated Sunday for an extension of the Bush tax cuts, pushing a message Republicans hope will benefit them in the coming midterm elections.
Obama helps governors to help himself
President Barack Obama will do more in two days this week for his party’s candidates for governor than he has done all year, wrapping his arm around several of the most highly touted gubernatorial hopefuls on the ballot in 2010.
Dems may use food stamp money to pay for Michelle Obama's nutrition initiative
Democrats who reluctantly slashed a food stamp program to fund a state aid bill may have to do so again to pay for a top priority of first lady Michelle Obama.

Blogs
The Automatic IRA: A Conservative Way to Build Retirement Security
With the introduction of new legislation to implement the Automatic IRA the effort to enable many more Americans to use a payroll deduction to build retirement security moves to a more active phase.
Obama’s Tax Hike: The Movie
Obama’s tax hike will have devastating effects on an economy already on the ropes.
Real or Fake: $3.2 Million Turtle Tunnels
The creative team at Bankrupting America has highlighted some other big government spending doozies and turned them into this hilarious but troubling video.
Death, Taxes and the Failure of Obamanomics
There is hope for the U.S. economy, but it doesn’t lie in more Obama stimulus spending. The answer is in the private sector, where billions of dollars in pent-up cash could be unleashed to fuel new investment and more jobs, if only Washington would get out of the way.
Free Markets for Free Parking
“High-cost-of-free-parking” arguments from UCLA urban planner Donald Shoup.
The Fed Declares War on America
Bond markets aren't as forward-looking as Wall Street may believe.
Weak economy and low yields are threat to retirement
Is the economy threatening retirement plans, or is less spending from those saving for retirement threatening the economy? Probably both ...
Idle Resources Don't Eliminate Inflation
One of the gravest sins of modern economics is its tendency to treat resources, both capital and labor, as essentially homogenous aggregates.
Presidents and the Economy
It's sad, but the economy makes presidents seem like geniuses or clowns more than it should.
Parking Spaces: What is the Free-Market Equilibrium?
Suppose there were no state provision of parking places. What would the equilibrium look like? Some possibilities:
My First Look at Strictly Confidential
The book doesn't disappoint on either inspiration or outrage.
Leave Us Alone
…the lack of government-mandated paid maternity leave in the United States is “a sign of how little our society values childrearing.
In a Funk Over Trade
Trade is mutually beneficial.
They Come Here to Acquire Wealth?? Horrors!
We should encourage such immigration rather than dismiss it on the grounds that the typical immigrant might be motivated by ideals no more lofty than those that prompt the typical American to rise from bed each morning in order to earn a living.
What Say You, Keynesians
One data point proves nothing – but It is suggestive that Germany’s economy is starting to boom while the US economy continues to sputter.
Momentum in Employment: Why it Matters
Suppose we are talking about the growth rate of GDP or the growth rate of employment. Broadly speaking, there are three ways that a macroeconomic variable can behave:
Harry & Teddy and High Inflation
A little economics goes a long way
Ignoring China’s Bad Debt, or, Business as Usual
You’d think the rolling over of a $46 billion bond, one which the issuing firm neither has the assets or income stream to repay and guaranteed by little more than a vaguely worded promise by the Finance Ministry to “support” repayments, should be met with howls of protests from the bondholders. Maybe elsewhere in the world, but this is China, which makes it business as usual.

Research, Reports & Studies
U.S. Funding of the United Nations Reaches All-Time High
The U.S. has been the largest financial supporter of the U.N. since the organization’s founding in 1945. The U.S. is currently assessed 22 percent of the U.N. regular budget and more than 27 percent of the U.N. peacekeeping budget.
Policy Basics: Social Security
See the top ten facts about social security.
Evidence of a Modest Price Decline in US Broadband Services
There is evidence of a quality adjusted price decline in U.S. broadband services between 2004-2009, but the evidence points towards a modest decline at most. Estimates of the price decline range from 3% to 10% in quality-adjusted terms for the five-year period, which is faster than the BLS estimates for the last three years. These modest price declines look nothing like other parts of electronics, such as computers or integrated circuits, which raises many questions.

Economists’ Comments & Opinions
Attacking Social Security
Social Security turned 75 last week. It should have been a joyous occasion, a time to celebrate a program that has brought dignity and decency to the lives of older Americans. But, the program is under attack.
The American Engine Still Can
The American economy is in serious trouble, and the remaining weapons we have available to prevent a double dip are few indeed
Deflation: Are We Heading for America’s ‘Lost Decade’?
As recently as this spring, everybody knew that the greatest economic risk on the horizon was inflation. The new nightmare scenario is the other “flation,” in which prices fall and dollars become scarcer and more valuable.
Did the Stimulus Stimulate?
It really should be no surprise that the stimulus bill has created far fewer jobs, dollar for dollar, than past stimulus measures. Our policy problem today is that the bill that was actually passed into law was both so expensive and so badly flawed that it gives the whole concept of macroeconomic stimulus a bad name.
Return of the Killer Trade Deficit
The world economy is falling back on very dangerous habits. The United States is tentatively emerging from recession but is still at risk of another dip. Yet trade statistics released last week indicate that American consumers are sucking in large quantities of imports as spending recovers, while weak demand in the rest of the world is crimping American exports.
Not Trusting the Voters
Now that a federal district court has struck down Proposition 8, California's voter-approved definition of marriage as the union of a man and a woman, speculation turns to whether the decision will hold up on appeal.
Obama Politicizes Gulf Oil Spill
With little to gain in Louisiana there's little chance of seeing Obama return there anytime soon. Despite the significant damage to the state's economy and ecosystem, Obama's actions suggest he's more interested in purely advancing his own political agenda.
Auto IRAs Can Shore Up Retirement Security
Enter the Automatic IRA, a private-sector, small-business retirement savings program with support from both the right and the left that would allow 90 percent of Americans to use the simplicity of a payroll deduction to save for retirement.
The Dodd-Frank Wall Street Reform and Consumer Protection Act: The Triumph of Crony Capitalism, Part 3
A continued look at the Act's provisions.
Is This a Bond Bubble?
Many people think that corporations will use their hoarded cash for investment or stock buybacks. I don't think so, at least not any time soon, given the "unusually uncertain" economic picture.
Why do I expect the unemployment rate to increase?
Here are a few reasons why I think the unemployment rate will increase

Graph of the Day
Border security push will boost 1,500 jobs
See: Another Threat to Economy: Boomers Cutting Back
NAHB Builder Confidence falls in August to lowest since March 2009

Book Excerpts
"NOTHING is more apt to surprise a foreigner, than the extreme liberty, which we enjoy in this country, of communicating whatever we please to the public, and of openly censuring every measure, entered into by the king or his ministers." –David Hume, Of the Liberty of the Press (1742)

"Did You Know"
"Some of the cattle cloned to boost food production in the US have been created from the cells of dead animals. JR Simplot Company is the leading US animal cloning company. The driving force behind the project is the head of the company, Scott Simplot, who firmly believes that cloning can be used to improve beef production. His stated aim is to raise the standard of the great American steak. "The notion behind what we are doing is to find that animal that created that great steak - and once we have it, we want to reproduce it," he said."

8/13/10 Post

BUZZ: Economists Want Policy Makers to Back Off Now

News
U.S. Retail Sales Rise Less Than Economists Estimated
Sales at U.S. retailers rose less than forecast in July, indicating a lack of jobs is prompting Americans to hold back on spending.
Fiscal fundamentalists
By most people’s standards, George Osborne, Britain’s 39-year-old chancellor of the exchequer, is a fiscal hawk. In his first budget, announced in June, he promised to raise taxes and cut spending without flinching. As a result, Britain’s net public debt should peak at about 70% of GDP in March 2014.
Consumer Prices Rise in U.S., Easing Deflation Risk
The cost of living in the U.S. climbed in July for the first time in four months, pointing to a stabilization that may ease concern a slowdown in growth will spur deflation.
German economy surges 2.2% in quarter
Germany on Friday reasserted itself as the economic growth engine of the eurozone, after gross domestic product expanded at a stellar 2.2 percent rate in the second quarter compared with the previous three months.
The world's best stock market
Which country's stock market has been the best performer in the world -- not just over the past year or decade, but over the last 110 years? It's Australia, which stands above all others in its combination of higher returns and lower volatility.
Tale of the Totem: $23G Census Project to Thaw Alaska Hearts and Minds Questioned
The Census Bureau spent $20,000 on a totem pole art project in a effort to try to the disparate and hard-to-count communities of America's largest state.
Dow's Losing Streak: 3 Days
Stocks declined for a third straight session as economic warnings from weekly jobs data and Cisco Systems added to investors' concerns about a possible double-dip recession.
Stocks look to extend losses as investors wait for government's July retail sales report
Stocks appear headed for their fourth straight day of losses as investors wait for the latest readings on consumers and how confident they feel about spending.
Progressives: Don't Touch Social Security
The leaders of the Progressive Caucus today wrote to the co-chairmen of the president's deficit commission urging them not to seek savings by cutting Social Security.
Obama Plans Coast-to-Coast Dash for Democrats
President Obama swings into full campaign mode next week crisscrossing the country for a string of fundraisers aimed at boosting Democrats before the November elections.
Hong Kong Lifts GDP Forecast
The government raised its full-year GDP growth forecast to 5%-6% from 4%-5% and maintained its forecast of a 2.3% rise in the consumer price index this year, up from last year's 0.5% increase.
Money can't always buy them love
Along with conveying their distinct dislike of career politicians, voters seem increasingly intent on delivering another pointed message to candidates: They’re not necessarily impressed with wealthy businesspeople-turned-politicians, either.
Greek Recession Deepens
The national statics service Ellsta said Thursday that second-quarter gross domestic product fell 1.5% on a quarterly basis, weaker than forecasts of a 1% drop and the 0.8% fall in the first quarter.
Senate passes $600M border bill
The Senate briefly suspended its month-long summer recess to give final approval to a $600 million border security bill Thursday.

Blogs
More Nonsense about the Trade Deficit
Contrary to the conventional wisdom reflected in this morning’s headlines, that an expanding trade deficit does not appear to be a drag on growth. In fact, the plain evidence is that an expanding trade deficit is more often than not a signal of stronger growth.
Time to Reclaim Our Economic Future
Now that the congressional money tree has bloomed again, this time in the form of new stimulus money for the states, we are faced with the question of whether the federal government will ever learn self-control.
The Gulf Recovery Obama Does Not Want to See
Next week, for the fifth time since July, the first family will board Air Force One for yet another luxury vacation. If the President really wanted to see the economic damage his policies are causing in the Gulf, he could first stop in Pascagoula, Miss.
Latest Bailout Paid for Only in Fantasyland
The newest bailout spends $10 billion for education funding in the states. This money is on top of the $100 billion in education funding the states got from the stimulus. The remaining $16 billion will bailout states’ bankrupt Medicaid programs.
No Hope and Little Change
Unrealistic expectations of the Obama presidency lie at the heart of the problem, raised mainly by the President himself, first during the presidential campaign and then in the first six months of his presidency.
Another Recession, Already?
There’s not much Washington policymakers can do at this point to address many of these economic forces, but they can do a lot to begin to restore some confidence in America’s economic future.
The Self-Destructive Path of Growing Public Sector Employment
We're currently headed in the wrong direction, needing instead to grow the private sector, lower tax rates, and fix the pension system.
The Dodd-Frank Wall Street Reform and Consumer Protection Act: The Triumph of Crony Capitalism, Part 2
The Financial Stability Oversight Council has the power to do almost anything and there's very limited judicial review of their decisions.
Economists React: Consumer Can’t Drive Recovery
Economists and others weigh in on the increase in retail sales.
How much border security does $600 million buy?
Short answer: Not too much.
After the Tape: What’s Really Going on With CPI?
Deflation? Apparently not in the consumer-price index, which posted its first increase in four months in July. Yet that may be a somewhat misleading result.
Does it Matter Where the Laffer Curve Bends?
So the right question to me is not "where do we maximize revenue", but "where do we maximize utility?" Obviously, that's not an easy question to answer. But when you add in deadweight loss, and the long-run drag on economic growth it implies, I think it's pretty clear that the right answer is well short of the rate where we collect the most taxes.
Secondary Sources: Deficit Questions, Manufacturing, Germany
A roundup of economic news from around the Web.
Reuters University of Michigan's Consumer Sentiment increases slightly in August
This was a big story last month when consumer sentiment collapsed to the lowest level since late 2009. Even with the slight increase, this is still at the levels of late last year.
What Does Seasonal Employment Show About Nominal Rigidity?
What we learn from seasonal employment, in short, is that if all workers were like temporary workers, there wouldn't be much of an unemployment problem. Unfortunately, most workers aren't like temporary workers, and the unemployment problem is very real.
Dallas Fed Research Questions Stimulus
The 2009 fiscal stimulus plan enabled the economy to grow in the short term, but it is unclear how large the boost has been, the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter suggests.
Seasonal Employment (Not Wonkish)
In any event, this seasonality has become less pronounced over the years. I suspect that as we have become a Garett Jones economy, we have moved some of the Christmas seasonality offshore.

Research, Reports & Studies
The Second World War and Hayek’s Road to Serfdom
Free choice meant ―that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion.
Social Security Keeps 20 Million Americans Out of Poverty:
A State-By-State Analysis

Economists’ Comments & Opinions
Say Goodbye to Fannie and Freddie
Can the home mortgage market stand on its own, without support from federally sponsored mortgage companies? Experience tells us that the answer is an unambiguous yes.
Financial Repression
Although the large banks are in no immediate danger, there are warning signs that the banking sector is more fragile than commonly understood.
Don't blame the consumer
The economy appears locked in a self-defeating cycle, where consumers won't spend more unless the jobless rate improves and companies won't hire more until GDP growth steadily recovers -- like two gunslingers, both waiting for the other to draw first.
EDITORIAL: Obama's economic tragedy
U.S. fiscal gap makes Greece look responsible.
Market Compass Goes Awry When Governments Steal: Mark Gilbert
...it looks like the U.S. plans to tweak the rules governing Fannie Mae and Freddie Mac to enhance the pace of mortgage forgiveness. In other words, it will force the now government-controlled agencies to let debtors keep their houses without making all of their debt payments.
America: A new way forward
...the economic focus of Wichita – population 366,000 – is very different from the emphasis on services and consumer demand typical of 21st-century America. According to a study published late last month by the Brookings Institution, a Washington think-tank, nearly 28 per cent of the city’s gross metropolitan product is sold abroad.
Taxes No Longer So Certain
United States taxes may soar next year, or they may not.
A Small Price For Jobs
A new study from the Democratic Congress claims that keeping the Bush tax cuts is too expensive. What's too costly, though, is the economic price of adding to the tax burden of job creators.
Are We Headed for a Lost Economic Decade?
Not if we embrace pro-growth fiscal policies. A good start would be the bipartisan Wyden-Gregg tax reform bill.

Graph of the Day
President Obama says he wants to “invest in our people without leaving them a mountain of debt.” CBO's debt projections paint a different picture
See: Forgotten Men
See: Race to the Bottom
See also: July Retail Sales

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." –Former Treasury Secretary William E. Simon, A Time for Truth (1978)

"Did You Know"
"As a public service, British researchers are proposing that fast-food eateries dole out complimentary cholesterol-lowering statin drugs to offset the hazardous glories of their fatty cuisines."

8/12/10 Post

BUZZ: Deficit in July Totals $165.04 Billion

News
US jobless claims jump to highest level since February
New claims for US jobless benefits jumped unexpectedly last week to the highest level in about six months. Initial claims climbed by 2,000 to 484,000 in the week to August 7 from the previous week's upwardly revised figure of 482,000.
Taleb Says Government Bonds to Collapse, Avoid Stocks
“I’m very pessimistic,” he said at the Discovery Invest Leadership Summit in Johannesburg today. “By staying in cash or hedging against inflation, you won’t regret it in two years.”
Homes lost to foreclosure up 6 pct from last year
The number of U.S. homes lost to foreclosure surged in July. Lenders repossessed 92,858 properties last month, up 9 percent from June and an increase of 6 percent from July 2009.
Wider Trade Gap Signals Weak Growth
Imports Jump, Exports Sag in Sign U.S. Upturn Is Slowing; Demand Rises for Foreign-Made Autos, Electronics Goods.
Watchdog panel cites global impact of US bailout
The $700 billion U.S. bailout program launched in response to the global economic meltdown had a far greater impact overseas than other countries' financial rescue plans did on the U.S., according to a new report from a congressional watchdog.
Obama Administration to Provide $3 Billion in Housing Aid
The Obama administration is providing $3 billion to unemployed homeowners facing foreclosure in the nation's toughest job markets. The Treasury Department says it will send $2 billion to 17 states that have unemployment rates higher than the national average for a year.
We Want Our IOUs
State Controller John Chiang said Tuesday that without a state budget, California's government would be unable to pay its bills in late August (or maybe early September). That means issuing IOUs to some people.
Debts Rise, and Go Unpaid, as Bust Erodes Home Equity
The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.
Economists Cut U.S. Growth Forecasts as Firms Limit Hiring
Gross domestic product will expand at an average 2.55 percent annual rate in the last six months of 2010, according to the median of 67 estimates in a survey taken July 31 to Aug. 9, down from the 2.8 percent pace projected last month.
Science Stimulus Funds Called Wasteful
Funding for a range of other studies on substance abuse and public health has raised eyebrows, including research into whether female college students are more likely to engage in casual sex after drinking alcohol, the reasons why young men don't use condoms correctly, how methamphetamine enhances the motivation for female rats' sexual behavior and "obesity and psychosocial adjustment during adolescence."
Market Drop Signals Fears About Global Recovery
...after downward revisions to other economic data like inventories and the export figures, even that 2.4 percent annual rate is now looking too rosy — and may even be as low as 1 percent, some economists say.
Markets Swoon on Fears
Stocks Pummeled on Signs of Global Slowdown; Money Flees to Dollar and Yen.
Analysts Detail Tax Cuts’ Deficit Implications
New data from the nonpartisan Joint Committee on Taxation show that households earning more than $1 million a year would reap nearly $31 billion in tax breaks under the GOP plan in 2011, for an average tax cut per household of about $100,000.
2010s a 'lost decade,' or temporary funk?
Economic outlook divides Fed.
Support for Broadband Loses Speed as Nationwide Growth Slows
The center said 53 percent of those surveyed felt that the government's programs for broadband access should not be attempted or were "not too important" a priority, and those who felt most strongly were older than 50 and skeptical that they would benefit from the Internet.
GM Posts $1.33 Billion Profit, Prepares for Public Offering
It was the second straight quarterly profit for GM, which made $865 million in the first quarter.
Foreclosures rise in July
They're up 3.6% from the month before but down 9.7% from 12 months earlier.
Will 'tax the rich' save the economy?
Higher taxes on the nation's top wage earners could give a needed jolt to the struggling U.S. economy. Or it could be the tipping point that topples the nation back into recession.
Is this finally the economic collapse?
With 40.8 million Americans on food stamps and 45% of the unemployed having been seeking employment for 27 weeks or more what's left if QE2 doesn't kick start GDP growth?
The preventative medicine problem: nobody wants it
The health care system in America has been set up, thanks to decades of government and private sector incentives, to be all about treatment, not prevention.
Foreign economies aided by bailout, didn't help U.S.
The $700 billion bank bailout program helped rescue overseas economies, but international bailout programs did little to help the United States in return.

BlogS
Secondary Sources: Deflation, Fed and Inflation, Fannie and Freddie
A roundup of economic news from around the Web.
A Challenge to Extreme Keynesians
Most economists, Keynesians and otherwise, ignore this summer change in employment because we focus on seasonally adjusted data. But as Casey points out, the raw unadjusted data may have something important to teach us.
Consumer Spending Slows in July
MasterCard Advisors’ SpendingPulse, a unit of MasterCard Worldwide, said Thursday that retail sales, excluding auto, fell in July by a seasonally adjusted 0.9% from June, but grew by 1.4% over a year earlier.
Why is there a boom in temporary hiring?
"The only obvious culprits here are a) higher required wages and healthcare costs (minimum wage, housing interventions and Obamacare are prime candidates here) and b) general lack of confidence in the economy and policy (the political climate in general is the prime candidate here)."
Policy is the Problem
Epistemological issues aside, as Tyler Cowen points to today, the fact is that temporary hiring has experienced a boom, while private sector permanent hiring is lagging behind. This is a strong indicator that the policies have created regime uncertainty which has clouded the investment horizon.
Mortgage Modifications Aren't Working So Well
That means that even post-modification, there are a lot of people who cannot afford their debt loads.
When Only Certain Jobs Count
...apparently some jobs are created more equal than others. While America’s schools continue to collapse thanks to ideologically rigid teachers’ unions, they can nonetheless count on more taxpayer handouts.
The End of Retirement as We Know It
Mathematically, society simply cannot have a high and growing dependency ratio--at least, not if the retirees expect to be supported in the style to which they have become accustomed.
The Great Recession and the Specificity of Labor
Rather than a more complex, wealthier economy having greater dampening effects on the volatility of cycles, it may well be the case that an economy with a greater division of labor and specialization, and therefore more heterogeneous human and physical capital will actually suffer larger booms and longer and deeper busts from the same bout of inflation than would simpler economies.
Strange Question from Ed Glaeser
It seems to me that if you look at the ratio of median house prices to median incomes, you learn something. That ratio rose significantly, particularly in California.
The Dodd-Frank Bailout is Already Here
The Dodd-Frank “no more taxpayer-funded bailouts forever” bill is not even a month old, and already President Obama is using it to turn your tax dollars into yet another bailout.
The Private Sector Can’t Keep Bailing Out the Public Sector
The public sector has been thriving at the expense of the private sector. So how much longer can the private sector continue to bail out the public sector?
Can You Call it ‘Social Security’ if it’s Built on Nothing but Monopoly Money?
Social Security faces the serious danger of failing to live up to its name due to its unfunded obligations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act: The Triumph of Crony Capitalism
The revolving door between Washington and Wall Street allows people attracted to power and skeptical of free markets to dominate economic policy for their benefit.
Why Sellers, Not Buyers, Are Now the Urgent Players
Among other reasons, lousy sentiment data and the ghastly financial sector make the probability of profitability appear to favor the bears.

Research, Reports & Studies
RCM: Wells Fargo Economics Group: Budget Deficit Narrowed in July—Challenges Remain
At -$165.0B for the month of July, the deficit is on pace to notch a near-record reading of -$1.3T in fiscal year 2010. Marginal improvement over 2009 stems from higher corporate profits and less emergency spending.
The Trade Performance of Asian Economies During and Following the 2008 Financial Crisis
In September and October 2008, the world experienced the onset of a major Financial Crisis. Although the worldwide crisis seemingly originated in the United States, its effects were felt by all economies around the world. This paper compares the trade performance of the major Asian economies both during and following the 2008 financial crisis.
2010 Social Security Trustees Report: Reform Needed Now
The 2010 annual report by the Social Security trustees has been released. It comes as no surprise that the Trustees Report predicts massive—and permanent— yearly deficits if the Social Security system is not reformed.
The President’s Worrisome Narrative to Discourage Homeownership
There is much evidence to indicate that many of the costly efforts by the federal government to promote housing and homeownership were at best ineffective and at worst contributed to a serious recession

Economists’ Comments & Opinions
Washington vs. Paul Ryan
What happens when a politician is more honest than his critics.
Say Goodbye to Fannie and Freddie
A practical approach would be to set a gradually rising schedule of fees, motivating private companies to enter the securitization business.
Wall Street Plays Uncle Sam Like A Fiddle In Matters Of Finance
Congress does the bidding of some of its biggest patrons, the titans of Wall Street. Don't expect real reform.
Congress Decides to Help Its Own
Although private sector employment has declined by 7.8 million since December 2007, on Tuesday President Obama signed into law the Education Jobs and Medicaid Assistance Act, a bill that would spend $10 billion on state and local government workers and $16 billion on state Medicaid payments.
The Great Stock Myth
Why the market’s rate of return—and your nest egg—may never recover.
Memo to Alan Greenspan: Keep Quiet
If cutting taxes leaves less money for government programs, the answer is simple: Ax the programs!
The true costs of very low interest rates
Hayek observed that interest rate stimulus interfered with economic calculations, causing managers to invest in projects that would not otherwise have appeared profitable.
Europe Jumps Off the Keynesian Bus
The economy is looking bright in Britain and Germany after those governments announced plans to reduce spending.
Debt and growth revisited
With the advanced economies at a critical juncture, some economists are urging more fiscal stimulus while others argue that raising debt levels will stunt growth. This column presents the Reinhart-Rogoff findings on the relationship between debt and growth based on data from 44 countries over 200 years with a focus on the debt-growth link during high-debt episodes.
Did the Stimulus Stimulate?
Since the beginning of the recession, the number of unemployed has increased by more than 8 million people. For $800 billion, we could have handed every one of these people a check for $100,000.
When Keynesians Attack
So, it is rather silly to say the recession was caused by tax cuts and the recovery was triggered by tax increases.
Green Protectionism
Western policy makers know it is against established trade law to block imports for protectionist purposes; no trade court would allow it. So they have shifted strategy. Welcome to the world of “green protectionism.”

Graph of the Day
Shadow economies have grown since the financial crisis began
See: Lower Rates, Higher Revenues

Book Excerpts
"Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other. If government spending is financed by borrowing from the commercial banks, it means credit expansion and inflation. If in the course of such an inflation the rise in commodity prices exceeds the rise in nominal wage rates, unemployment will drop. But what makes unemployment shrink is precisely the fact that real wage rates are falling." –Ludwig von Mises, Socialism: An Economic and Sociological Analysis (1922)

Did You Know
The UN is considering strategies to cut levels of meat consumption worldwide as part of its commitment to stamp out famine and cut global warming. The UN claims livestock, such as cows and pigs, require too much space and fodder to be an energy-efficient source of food for the everexpanding population. Ultimately, it argues, there’s simply not enough land for us all to eat roast beef. So, the UN Food & Agriculture Organisation is urging people to try other alternatives, including insects. The UN reports that ‘as a food source, insects are highly nutritious’, and they require a mere fraction of the resources to rear, pound for pound, as more conventional meats.