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Commentary

The Misguided Arguments against Social Security Reform, Part II: (The Prequel)

e21 Staff Editorial | 09/02/2010

e21’s last editorial on Social Security reviewed some analytical mistakes commonly committed by opponents of Social Security reform. Such mistakes include both implausible hopes that Social Security’s shortfall might disappear by itself, as well as a failure to appreciate the harm done by further delays in its correction. Our last piece addressed both of these areas of confusion in significant detail. Read more...

The Misguided Arguments Against Social Security Reform

e21 Staff Editorial | 09/01/2010

The ancient Greek playwright Aeschylus is often credited with the well-worn maxim, “In war, truth is the first casualty.” Judging by the commentary circulated whenever a hint of Social Security reform is in the air, Social Security politics are the equivalent of war for many people. Sorting out Social Security fact from Social Security fiction can become practically a full-time job for those who take it on. Read more...

Round 2 on Lessons from Germany

e21 Staff Editorial | 8/31/2010

U.S. commentators, like Jonathan Chait and Paul Krugman, have taken issue with holding out Germany’s economic recovery as a success story – one that contains lessons for U.S. policymakers. Contrary to their claims, Germany’s recovery does not appear to just be about trade flows and global demand for their manufactured goods. 50% of their second quarter GDP came from private sector consumption and investment growth. Read more...

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Responding to Klein: Don’t Cross the Revenue Streams!

e21 team | September 1, 2010

The Center on Budget Policy and Priorities has released a chart that is causing a stir among those who want to raise taxes on the top 2% (for a variety of reasons, to pay for an expanding list of programs). In fact, so many have seized on this chart that we have to take exception and respond. Read more...

Volker Panel Offers Lots of Pages, but Nothing New

e21 team | August 30, 2010

Amid no fan fare at all on Friday, the Administration released the report from its Economic Recovery Advisory Board, headed by former Fed Chairman Paul Volker, “The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation”. The 126 page report is primarily comprised of a long list of suggestions to simplify the tax code or improve compliance, most of which we’ve seen before. In the end, the report offers little that is new. Read more...

The U.S. v Germany: David Brooks Weighs In

e21 team | August 27, 2010

Last week, we called attention to Germany’s incredible second quarter growth rate (9.1% on an annualized basis). It was an interesting data point in intense debate between the German and American political establishments about whether the right economic recipe (for today) was more borrowing to stimulate growth or less debt and more action to balance budgets. Today, David Brooks weighed in with some very interesting comments of his own. Read more...

Friday GDP Arithmetic

Keith Hennessey for KeithHennessey.com | August 27, 2010

We have new GDP numbers from the Department of Commerce's Bureau of Economic Analysis.

U.S. real Gross Domestic Product grew at an annual 1.6% rate in the second quarter of this year.
This is the second estimate for Q2 GDP. The first, released at the end of July, was +2.4%. This is therefore a downward revision, but we're still growing, albeit slowly.
The economy is growing more slowly than it did in Q1, when it was growing at a 3.7% annual rate. Read more...

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New Housing Figures Look Dim

e21 team | August 26, 2010

This week has seen dismal new housing numbers – an unwelcome sign to those hoping for glimmers of recovery for the housing market. The bad news began on Tuesday when existing home sales for June were released revealing a drop of 27%from the previous month’s total. Wednesday brought the new home sales numbers, which were down by 12% from last month. Read more...

Christina Romer Farewell Speech

National Press Club

September 2, 2010

The current recession has been fundamentally different from other postwar recessions. Rather than being caused by deliberate monetary policy actions, it began with interest rates at low levels. It is a recession born of regulatory failures and unsound practices that contributed to a housing bubble and eventually a full-fledged financial crisis. Precisely what has made it so terrifying and so difficult to cure is that we have been in largely uncharted territory.

Fuld Criticises Fed for Letting Lehman Fail

Financial Times

September 2, 2010

Dick Fuld, the former chief executive of Lehman Brothers, squared off against Federal Reserve officials and his former peers on Thursday as he argued that his investment bank could and should have been saved. Almost two years since the collapse of Lehman roiled markets, Mr Fuld mounted his most robust defence yet, accusing regulators in testimony to the Financial Crisis Inquiry Commission of pushing the bank into bankruptcy and failing to get a grip on the crisis early in 2008.

Reid Revives Hope for Renewable Energy Standard

Congressional Quarterly

September 1, 2010

Senate Majority Leader Harry Reid said Tuesday he may include a renewable electricity mandate in legislation that would impose new safety regulations on offshore drilling, reviving a requirement jettisoned from a broader energy bill earlier this summer. Reid said adding a renewable electricity provision to a narrow energy measure that would overhaul federal oversight of the outer continental shelf and boost production of natural gas and electric-powered vehicles could attract the support of two Republicans.

The Great Stimulus Debate

Round Up in International Economy

August 31, 2010

For some months, there has been an intense debate over the appropriate fiscal stance going forward. Does economic weakness require more fiscal stimulus? Are large budget deficits holding back growth? Is it possible for fiscal consolidation—the latest preferred term for deficit reduction—to be expansionary? What follows is a selection of analyses and commentaries underlying the debate from the White House, CBO, Mark Zandi, John Taylor, Robert Barro, Jean-Claude Trichet, Paul Krugman, and Edward Glaeser.

What Congress Might Do to Defuse Tax Time Bomb

Wall Street Journal

August 31, 2010

President George W. Bush left behind a ticking time bomb that is set for Dec. 31, 2010. If Congress does nothing, taxes on wages, capital gains and dividends will leap, the estate tax will be resurrected at a 55% rate and the pesky alternative minimum tax will hit an additional 21 million taxpayers on 2010 returns. So what happens? Political gridlock, wavering Senate Democrats, deficit angst and a gnawing sense that the tax code is due for an overhaul could combine to make a one- or two-year extension of the Bush tax cuts—perhaps all of them, perhaps only those Mr. Obama likes—likely.

Changing Our 2H U.S. Growth Outlook

Morgan Stanley

September 2, 2010

We are downgrading our outlook for 2H US real growth to 2-2.5% from 3-3.5% previously. This downgrade from above-trend to below-trend 2H growth has important implications for forecasts of the unemployment rate, inflation and monetary policy. If policy does respond to this near-term weakness, the outlook in 2011 could be better than our current 3% baseline.

Fisher: Improved Fiscal, Regulatory Policies Should Activate U.S. Economy

Real Time Economics

September 2, 2010

Federal Reserve Bank of Dallas President Richard Fisher said Wednesday the recovery of the U.S. economy “will take quite some time,” and that improved regulatory and fiscal policies are needed in order to help the process. Fisher, who isn’t a voting member of the interest-rate-setting Federal Open Market Committee this year but will be a voting member in 2011, said that an improved regulatory and fiscal environment should help to activate the economy. Business owners will accept policies they are not “happy” with because at least they will be more certain about the rules, he said.

Currency Trading Soars

Wall Street Journal

September 1, 2010

Currency trading volume around the world has hit $4 trillion a day, fueled by investors in the wealthiest nations looking to diversify beyond their home markets in a time of economic turmoil. The $4 trillion mark represents a 20% gain from $3.3 trillion in 2007, the last time the global foreign-exchange markets were surveyed, according to the Bank for International Settlements. The debt crisis likely boosted trading volumes in the euro in the latest survey. But the continued rise in trading reflects the increased globalization of investing.

JPMorgan to Close "Prop" Trading Division

Financial Times

September 1, 2010

JPMorgan Chase is to close the commodity unit that trades with the bank’s own money as Wall Street moves to comply with new US financial services rules banning proprietary trading. A person familiar with the matter said that the traders in the unit were told on Friday their jobs were on the line because of the bank’s decision to stop trading commodities on its own account.

No Chance of a V-Shaped Recovery

Roubini Global Economics

September 1, 2010

All the tailwinds of H1 will become headwinds in H2. As state and local governments keep retrenching and even the federal stimulus diminishes, the fiscal stimulus will turn into a fiscal drag that will be much more pronounced in 2011 and after some of the 2001-03 tax cuts expire. The base effects from the lousy economic activity figures of 2009 are gone, temporary census hiring is finished and tax incentives—cash for clunkers, the investment tax credit, the first-time homebuyer tax credit and cash for green appliances—have all expired after “stealing” demand and growth from the future.

http://cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

The Long-Term Budget Outlook

Congressional Budget Office | CBO | August 6, 2010

This Congressional Budget Office (CBO) report examines the pressures on the federal budget by presenting the agency’s projections of federal spending and revenues over the coming decades. Under current laws and policies, an aging population and rapidly rising health care costs will sharply increase federal spending for health care programs and Social Security. Unless revenues increase at a similar pace, such spending will cause federal debt to grow to unsustainable levels. If policymakers are to put the nation on a sustainable budgetary path, they will need to let revenues increase substantially as a percentage of gross domestic product, decrease spending significantly from projected levels, or adopt some combination of those two approaches.

http://cbo.gov/ftpdocs/116xx/doc11659/07-27_Debt_FiscalCrisis_Brief.pdf

Federal Debt and the Risk of a Fiscal Crisis

Economic and Budget Issue Brief | CBO | July 27, 2010

Over the past few years, U.S. government debt held by the public has grown rapidly—to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II. The recent increase in debt has been the result of three sets of factors: an imbalance between federal revenues and spending that predates the recession and the recent turmoil in financial markets, sharply lower revenues and elevated spending that derive directly from those economic conditions, and the costs of various federal policies implemented in response to the conditions.

How the Great Recession Was Brought to an End

Alan S Blinder and Mark Zandi | Princeton | July 27, 2010

The U.S. government’s response to the financial crisis and ensuing Great Recession included some of the most aggressive fiscal and monetary policies in history. The response was multifaceted and bipartisan, involving the Federal Reserve, Congress, and two administrations. Yet almost every one of these policy initiatives remain controversial to this day, with critics calling them misguided, ineffective or both. The debate over these policies is crucial because, with the economy still weak, more government support may be needed, as seen recently in both the extension of unemployment benefits and the Fed’s consideration of further easing.

http://www.frbsf.org/publications/economics/letter/2010/el2010-20.pdf

Fiscal Crises of the States: Causes and Consequences

Jeremy Gerst and Daniel Wilson | FRBSF | July 6, 2010

The recession that began in late 2007 severely reduced state tax revenue and increased demand for many public services. In the near term, institutional and political factors limit the options states have for cutting spending and raising taxes. Aid to states in the federal economic program is winding down next year and the situation is likely to get worse before it gets better. Painful budgetary choices lie ahead for many states, though the drag on the national economy should be modest.