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Thursday, February 2, 2012

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Economic Events of the Week

Thursday House Budget Committee Hearing on "The State of the US Economy" Featuring Ben Bernanke, Jobless Claims
Friday – Employment Situation

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e21 Reaction & Commentary
e21 Event Video: If You Like What You Have, Can You Keep It?

Washington Update
Payroll Panel Tackles Easy Issues First (CQ)
House Votes to Freeze Federal Pay (Washington Post)
Democrats Push ‘Buffett Rule’ Bill (Wall Street Journal)

Market Talk
Jobless Claims Decline (Wall Street Journal)
Productivity Increased at Slower Annual Pace in Fourth Quarter (Bloomberg)

Editorials & Opinions
Our Ignorance Will Yield More Crises in Capitalism (Kenneth Rogoff in Financial Times)
The ‘Financial Recession’ Excuse (Phil Gramm in Wall Street Journal)
Longer-Term Forecasts are a Step Backward (Charles Goodhart in Financial Times)

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e21 Reaction & Commentary

e21 Event: If You Like What You Have, Can You Keep It?

On Tuesday, January 31st, e21 held an event exploring the implications of the Patient Protection and Affordable Care Act (ObamaCare), which was sold to the American people with the promise that “If you like what you have, you can keep it.” New academic research is clearly disproving this claim. The health law provides strong incentives for employers to move their sick and low-wage workers out of job-based plans and into publicly subsidized coverage. The result will be soaring costs for taxpayers, and millions of people losing the coverage they have today. The event featured a presentation by Professor Daniel Schwarcz of the University of Minnesota Law School, a speech by Sen. John Barrasso (R-WY), and commentary from James C. Capretta. Click through for Prof. Schwarcz's paper, "Will Employers Undermine Health Care Reform by Dumping Sick Employees?"


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Washington Update

Payroll Panel Tackles Easy Issues First (CQ)

Lawmakers trying to extend a payroll tax cut and other expiring programs are picking up the pace of negotiations as they begin to feel the pinch of their approaching deadline. After waiting a week to hold their second public meeting, members of a House-Senate conference committee on a yearlong extensions bill will convene for a second consecutive day on Thursday, hoping to reach agreement on at least some of the less-controversial items before them. In one of the first signs that the panel is making progress, a senior Senate Democrat said Wednesday that his party is interested in some Republican ideas about how to improve the federal unemployment benefits program. Senate Finance Chairman Max Baucus, D-Mont., said senators on the conference committee are prepared to make an offer on these issues and discuss the proposal at the panel’s next meeting.

House Votes to Freeze Federal Pay (Washington Post)

House lawmakers voted Wednesday night to freeze their pay and the salaries of congressional staffers and civilian federal employees, scoring a symbolic victory for congressional Republicans who have targeted government compensation as an example of excessive federal spending. On a vote of 309 to 117, GOP supporters scored the two-thirds majority needed to approve the measure under a suspension of normal procedural roles. The bill, introduced by Rep. Sean Duffy (R-Wis.), would extend the current two-year freeze on federal cost-of-living raises for an additional year starting next January. Lawmakers haven’t raised congressional pay in four of the last six years. The bill would need to be approved by the Senate before becoming law.

Democrats Push ‘Buffett Rule’ Bill (Wall Street Journal)

Democratic senators introduced a bill Wednesday based on President Barack Obama's proposed "Buffett rule" that would require the wealthiest Americans to pay at least 30% in taxes. As part of the Democrats' push to raise taxes on the most affluent citizens, Mr. Obama proposed the new minimum tax on the highest income levels in his State of the Union speech last week. The "Buffett rule" is named after billionaire and Berkshire Hathaway Inc. Chairman Warren Buffett, who has complained that he pays a lower tax rate than his secretary. The measure is sure to meet intense resistance from Republicans, who argue that raising taxes on higher-income citizens could curb business owners' ability to hire more workers and imperil the economic recovery. The legislation introduced Wednesday by Sen. Sheldon Whitehouse (D., R.I.) would ensure that anyone earning more than $2 million in income each year, including from capital gains, would pay a minimum 30% federal tax rate.


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Market Talk

Jobless Claims Decline (Wall Street Journal)

The number of U.S. workers filing new claims for unemployment benefits declined last week, continuing the mostly improving trend seen in the labor market since last fall. Separately, U.S. workers' productivity rose at a slower pace in the final three months of 2011 while labor costs edged up as the employment outlook improved somewhat. Initial unemployment claims decreased by 12,000 to 367,000 in the week ended Jan. 28, the Labor Department said Thursday in its weekly report. The previous week's figures were revised up, to 379,000 from 377,000. Economists surveyed by Dow Jones Newswires had expected claims to fall by 7,000 to 370,000. The four-week moving average of new jobless claims, a closely watched number that smooths out volatile weekly figures, decreased last week by 2,000 to 375,750.

Productivity Increased at Slower Annual Pace in Fourth Quarter (Bloomberg)

The productivity of U.S. workers rose in the fourth quarter at a slower pace than in the prior three months, showing companies are reaching the limits of how much efficiency they can squeeze from existing workforces. The measure of worker output per hour increased at a 0.7 percent annual rate following a 1.9 percent gain in the prior three months, figures from the Labor Department showed today in Washington. Expenses per employee climbed at a 1.2 percent rate after dropping 2.1 percent in the third quarter. Businesses in the U.S. that are growing more confident about the economy may be hiring more workers after the recession and its aftermath led them to search for ways to lift efficiency without creating new jobs. Payrolls grew by 145,000 in January, a Labor Department report is forecast to show tomorrow.


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Editorials & Opinions

Our Ignorance Will Yield More Crises in Capitalism (Kenneth Rogoff in Financial Times)

Virtually everyone defends the market system, albeit some with more unvarnished enthusiasm than others. Failures in financial regulation, environmental and consumer protection, and particularly in regulating income distribution, are all emphasised. Bill Clinton, former US President rightly argues that markets can be made to work better for charity as well as production. Economist Jeffrey Sachs points to addictive consumer behaviour as a central flaw in today’s growth dynamic, a point with which I strongly agree. Occupy London argues that regardless of overall income level, higher levels of inequality breed social ills, a very plausible conjecture. But no one is seriously arguing against markets; only for regulating them more effectively and more fairly. The general enthusiasm for economic markets does not extend to political markets. It is striking that both George Osborne, UK chancellor, and Ed Miliband, leader of the Labour party, highlight short-termism in politics as a key flaw.

The ‘Financial Recession’ Excuse (Phil Gramm in Wall Street Journal)

Why did the U.S. recover faster from the Panic of 1907 than from the 2008 recession and the Great Depression? Commerce Department data released last Friday show that four years after the recession began, real gross domestic product per person is down $1,112, while 5.8 million fewer Americans are working than when the recession started. Never before in postwar America has either real per capita GDP or employment still been lower four years after a recession began. If in this "recovery" our economy had grown and generated jobs at the average rate achieved following the 10 previous postwar recessions, GDP per person would be $4,528 higher and 13.7 million more Americans would be working today.

Longer-Term Forecasts are a Step Backward (Charles Goodhart in Financial Times)

Forecasting is done adequately when everything is stable and the future turns out to be like the past; indeed, standard models used by central banks virtually force forecasts to revert to past trends. But when a break comes, central banks are as clueless to foresee it as anyone else. Forecasts for 2008 made as late as the middle of the same year are a case in point. Neither central bankers, nor anyone else, have a good way of predicting future fluctuations in either output, inflation or interest rates more than a few quarters ahead. In order to express a view about the likely level of official interest rates two years hence, the respondent would have to try to work out what might be the expected growth rate of output three years hence and the probable inflation rate four years from now. If you believe that there are strong forces returning the economy to equilibrium, such medium-term forecasts are perfectly do-able, but, if such strong centripetal forces exist, monetary policy becomes easier all around, with or without the benefit of official forecasts.


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e21: Economic Policies for the 21st Century is a nonprofit, nonpartisan organization dedicated to economic research and innovative public policies for the 21st century. Drawing on the expertise of practitioners, policymakers, and academics, we aim to advance free enterprise, fiscal discipline, economic growth, and the rule of law.

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