Thursday, March 4, 2010

Economic Events of the Week

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

e21 Exclusive
Needed: Tax Rhetorical Reform

Front Page News
President Launches Last Push on Health Care Overhaul (Wall Street Journal)

Washington Update
Obama Sends 'Volcker Rule' to Congress (Financial Times)

Financial Markets News
Beige Book: Economy Is Improving, but Snow Hit Some Areas Hard (Wall Street Journal)
Employment Prospects and Policies to Improve Them (Morgan Stanley)

Editorials and Commentaries
The Entitlements No One Is Talking About (Andrews in Fiscal Times)
The Democrats' Choice (New York Times Editorial)
Dissecting the Real Cost of ObamaCare (Ryan in Wall Street Journal)
Dodd's Dilemma (Financial Times)

e21 Exclusive

Needed: Tax Rhetorical Reform

Comprehensive tax reform is, along with meaningful health care reform and Social Security reform, one of the federal economic policy Holy Grails; ideals long-sought by crusaders of both parties, but seemingly fated never to be secured. Occasionally there is a significant policy breakthrough, as with the 1983 Social Security Amendments and the 1986 Tax Reform Act. But after these strenuous bipartisan exertions, the political process resumes its inexorable erosion of the ideals that had been advanced with such difficulty.

Front Page News

President Launches Last Push on Health Care Overhaul (Wall Street Journal)

President Barack Obama opened the final act of a year-long drama over health-care legislation Wednesday, calling on Democrats in Congress to approve the sweeping bill despite political risks and Republican opposition. With polls showing that the legislation is unpopular and congressional Democrats bracing for big losses in this fall's elections, the president urged them to ignore the politics. "I do not know how this plays politically, but I know it's right," he said. Passing the health overhaul would fulfill a decades-old Democratic dream, bringing insurance to some 30 million Americans, and represent the greatest expansion of coverage since Medicare was created in 1965. But if the public judges the overhaul harshly, it is likely to cost some Democrats their seats, and the party's majority in the House could be at risk.

Washington Update

Obama Sends 'Volcker Rule' to Congress (Financial Times)

The Obama administration produced its controversial “Volcker rule” on Wednesday, sending legislative language to Congress that would ban banks from trading for their own account and curb acquisitions in the industry. The proposed language, which could be inserted wholesale into a financial regulatory reform bill but is likely to be heavily revised, grants an exemption to trading done for market making, on behalf of customers or for hedging. One element that is likely to survive the congressional process is a 10 per cent cap on an individual bank’s share of the system’s liabilities, mirroring a similar limit on share of retail deposits.

Financial Markets News

Beige Book: Economy Is Improving, but Snow Hit Some Areas Hard (Wall Street Journal)

In its latest beige book report, the Fed said nine out of its 12 regional districts reported that economic activity improved, but in most cases the increases were modest, with activity held back by the Feb. 4-7 and Feb. 9-11 snowstorms. Consumer spending, a key growth engine for the U.S. economy, improved slightly in many districts since the last Fed beige book was released Jan. 13. But it was hampered in several regions by the severe weather of early February, the latest survey showed. For details, see the full Beige Book at the Federal Reserve.

Employment Prospects and Policies to Improve Them (Morgan Stanley)

In our view, the recovery won't be jobless, but gains will be tepid.  We expect annual job growth to average 1% (110,000 monthly) over 2010-11, excluding hires for the decennial census.  Even those modest gains are not a foregone conclusion.  Job losses have abated, and some labor-market indicators have improved, but employment has yet to turn up. Our unemployment problem has become increasingly chronic.  Two statistics document that fact: The median duration of unemployment has reached 20 weeks, more than twice the peak in the deep 1981-82 recession, and a record 41% of the unemployed have been jobless for six months or longer.  This note outlines where job gains are likely to be over the next two years and why; we also identify four specific obstacles to hiring.

Editorials and Commentaries

The Entitlements No One Is Talking About (Andrews in Fiscal Times)

Pop quiz: what is the biggest and most out-of-control part of the federal budget, costing $1 trillion per year and growing several times the rate of inflation? The correct answer is “tax expenditures,” budget jargon for the vast web of tax breaks that permeates and subsidizes almost every corner of American life: home mortgages, health insurance, retirement savings, domestic manufacturing, oil drilling and green energy. But analysts say that automatic cost escalation, which is similar to the formula-driven growth of Medicare and Social Security, could add almost $3 trillion to the public debt over the next ten years. 

Dissecting the Real Cost of ObamaCare (Ryan in Wall Street Journal)

Mr. President, you said health-care reform is budget reform. You're right. We agree with that. But if you take a look at the CBO analysis—analysis from your chief actuary—I think it's very revealing. This bill does not control costs. This bill does not reduce deficits. Instead, this bill adds a new health-care entitlement at a time when we have no idea how to pay for the entitlements we already have. And are we bending the cost curve down or are we bending the cost curve up? Well, if you look at your own chief actuary at Medicare, we're bending it up. He's claiming that we're going up $222 billion, adding more to the unsustainable fiscal situation we have.

The Democrats' Choice (New York Times Editorial)

It’s up to Congressional Democrats to move legislation forward — or throw away a once-in-a-generation opportunity to fix this country’s broken health care system. The most straightforward way to enact reform would be for the House — which only needs a majority — to approve the bill passed by the Senate and send it straight to the president for his signature. Unfortunately, House Democrats appear unwilling to do that. The two most important points Americans need to remember is that the Senate and House bills are fully paid for by tax revenues and budget savings, and both would reduce future deficits.

Dodd's Dilemma (Financial Times)

It is not much good winning over opponents if you lose corresponding numbers of your own side in the process. That is the problem for Chris Dodd, Democratic chairman of the Senate banking committee. Fellow Democrats have been scathing about the result of his efforts to devise a consumer protection measure popular enough to allow financial regulatory reform to make progress. After talking to Bob Corker, his Republican negotiating partner, Mr Dodd proposed giving the Federal Reserve additional consumer protection powers. This would be a weaker form of consumer protection than the Democrats’ earlier plan for a freestanding and independent agency, which was opposed by Republicans on the slender grounds it would create too much bureaucracy. Yet now the Democrat backlash puts the watered-down version in jeopardy.

e21 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.

Please visit http://www.economics21.org

2010, e21 - An initiative for 21st Century Economic Policies