Wednesday, March 3, 2010

Economic Events of the Week

Wednesday March 3 - ADP National Employment
Thursday March 4 - Productivity and Costs, Pending Home Sales Index
Friday March 5 - Employment Situation and Consumer Credit

e21 Exclusive
Monopsony and Social Innovation - Predictably Bad Outcomes from Bad Processes (Goldsmith)

Front Page News
Greece to Detail $6.5 Billion in Budget Cuts to Avoid 'Catastrophe' (Bloomberg)

Washington Update
As Democrats Seek to Push Through Health Bill, Obama Reaches Out to Republicans (Washington Post)

Financial Markets News
Britain Grapples with Debt of Greek Proportions (New York Times)
Fed Stays on Message (Morgan Stanley)

Editorials and Commentaries
Blue Dog Democrats Need to Act Now on Health Care (Washington Post Editorial)
Abuse of Power (Wall Street Journal Editorial)
Time for a Spending Cap with Teeth (Hensarling and Pence in Wall Street Journal)

e21 Exclusive

Monopsony and Social Innovation - Predictably Bad Outcomes from Bad Processes (Goldsmith)

As I write this column I am listening to my iPod and typing on my new Dell computer. Both of these products impressed me from a range of competing choices, so I utilized my resources and purchased them. As a consumer, I benefited from the forces of competition that pressed these technology companies to create better, faster, cheaper products and introduce them quickly into the marketplace. Contrast that with the way we deliver and consume social services—from education to homeless services, from welfare to job training. Government dominates the sector, sometimes monopolizing the delivery system and other times functioning as a monopsonist, acting as the sole purchaser. A person in need of services rarely has any choice about where they get help, and the established government and nonprofit providers fight furiously to preserve their incumbency.

Front Page News

Greece to Detail $6.5 Billion in Budget Cuts to Avoid 'Catastrophe' (Bloomberg)

Greek Prime Minister George Papandreou said his government is discovering “new holes” in the budget on a daily basis as it prepares to announce as much as 4.8 billion euros ($6.5 billion) in extra deficit cuts. Greece is signing up to even greater austerity measures two days before Papandreou meets Germany’s Angela Merkel, and the effort may help the chancellor justify aiding Greece to her taxpayers and political allies who say the country shouldn’t be bailed out after years of excess. Greek bonds advanced for a third day yesterday on the prospect that the deficit measures might ease the way for EU assistance.

Washington Update

As Democrats Seek to Push Through Health Bill, Obama Reaches Out to Republicans (Washington Post)

As Democrats on Capitol Hill prepared a risky effort to muscle sweeping health-care legislation to final passage, President Obama on Tuesday made a last gambit to split Republicans on the issue, proposing to incorporate a handful of GOP ideas into his signature domestic initiative. On Wednesday, Obama plans to call on Congress to bring the year-long debate to a swift close, and congressional leaders expect him to signal support for a strategy that includes a special budget maneuver known as reconciliation. Under that strategy, the House would adopt the bill the Senate passed on Christmas Eve and approve a separate package of fixes to reflect a compromise worked out between Democrats in the two chambers.

Financial Markets News

Britain Grapples with Debt of Greek Proportions (New York Times)

Suddenly, investors are asking if Britain may soon face its own sovereign debt crisis if the government fails to slash its growing budget deficits quickly enough to escape the contagious fears of financial markets. The recent plunge in the value of the pound below $1.50 and the gradual move upward of Britain’s benchmark 10-year borrowing rate on gilts to above 4 percent suggest that investors are now getting ready to reassess the country’s fiscal condition. Despite its borrowing and spending excesses, Britain still maintains a triple-A credit rating and much of its debt is long term. But with 29 percent of British bonds held by foreigners, Britain, like Greece, remains highly vulnerable to the vicissitudes of outside investors.

Fed Stays on Message (Morgan Stanley)

We continue to believe that a sustained economic recovery will lead to a rise in market-based measures of inflation expectations, and this will push the FOMC toward the exit door during the second half of the year.  Also, the more dovish the Fed's message, the more the market will want to test the Fed's inflation-fighting credibility.  For now, though, the message is that improved financial market conditions are leading to Fed to unwind the special liquidity support facilities that had been put in place, but that these actions do not necessarily carry a broader policy signal.

Editorials and Commentaries

Blue Dog Democrats Need to Act Now on Health Care (Washington Post Editorial)

If the Blue Dogs stuck together, they could insist that health-care reform be made more responsible than the version recently endorsed by President Obama. In particular, the tax on expensive employer-provided health-care plans, which senators weakened from its initial form and whose effective date Mr. Obama then chose to postpone, could be strengthened and made to bite as soon as the spending begins. This tax has twin virtues. It raises money and it "bends the curve" on costs -- more than any other single provision. In other words, it would begin to affect the growth in health-care costs for everyone. While they're at it, moderate Democrats also could strengthen a Medicare commission designed to promote cost-effective medicine.

Abuse of Power (Wall Street Journal Editorial)

A string of electoral defeats and the great unpopularity of ObamaCare can't stop Democrats from their self-appointed rendezvous with liberal destiny—ramming a bill through Congress on a narrow partisan vote. What we are about to witness is an extraordinary abuse of traditional Senate rules to pass a bill merely because they think it's good for the rest of us, and because they fear their chance to build a European welfare state may never come again. The goal is to permanently expand the American entitlement state with a vast apparatus of subsidies and regulations while the political window is still (barely) open, regardless of the consequences or the overwhelming popular condemnation.

Time for a Spending Cap with Teeth (Hensarling and Pence in Wall Street Journal)

In five years, federal spending has skyrocketed to 24.7% from 19.9% of our economy. That's the highest level since World War II. Borrowing has ballooned the national debt to $11.9 trillion from $7.3 trillion, a five-year increase equal to the accumulation of debt between President George Washington and President Bill Clinton. Unfortunately, the long-term fiscal picture is worse. That is why we are proposing a Spending Limit Amendment to the Constitution. This amendment would limit spending to one-fifth of the economy (our historical spending average since World War II). The limit could only be waived by a declaration of war or by a two-thirds congressional vote.

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