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March 22, 2012

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Economic Events of the Week

Thursday President Obama Delivers Remarks On Infrastructure in Oklahoma, Jobless Claims
Friday – New Home Sales

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e21 Reaction & Commentary
e21 Commentary: How to Think about Inequality (Peter Wehner and Robert Beschel Jr.)

Washington Update
House Dems Defend Health Reform Law (Politico)
Will Obama’s 2013 Budget Raise or Lower Taxes? Yes. (TaxVox)

Market Talk
Explaining America’s Macro Puzzles (Free Exchange)
Housing is Still Shadowed by Excess Supply (Wall Street Journal)
Fed’s Tarullo: Regulators Need to Mull International Impact of Volcker Rule (Real Time Economics)

Editorials & Opinions
The Supreme Court Weighs ObamaCare (Rivkin and Casey in Wall Street Journal)
Privatizing Fannie and Freddie: It’s Not a Matter of If, But When (Suzy Khimm in Washington Post)
Ryan’s Hat is In the Ring (Daniel Henninger in Wall Street Journal)

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e21 Reaction & Commentary

e21 Commentary: How to Think about Inequality (Peter Wehner and Robert Beschel Jr.)

The issue of income inequality has never before been central to American politics. Though concern for the poor, disputes over welfare programs, and complaints about "the rich" have of course featured prominently in our public debates, Americans have generally avoided open class warfare, to the nation's great credit and benefit. But in the 2012 presidential election — one of the most consequential contests in decades — the divide between rich and poor in America promises to be a focal point. This unusual emphasis on inequality is partly the doing of President Obama, who seems to believe that stoking class resentments is his best ticket to re-election. In a much-discussed speech in Osawatomie, Kansas, in December 2011, Obama argued that income inequality "distorts our democracy." He said that "breathtaking greed" had contributed to America's economic troubles and that this was a "make-or-break moment for the middle class." The president insisted that the kind of "gaping inequality" we are experiencing "gives lie to the promise that's at the very heart of America: that this is a place where you can make it if you try."


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Washington Update

House Dems Defend Health Reform Law (Politico)

House Democrats are going all out to defend their health care reform law as the Supreme Court takes the case next week. President Barack Obama is talking about energy and jobs. Next week, he’s going to Korea. And not too many Senate Democrats plan on blowing out birthday candles for the law’s second anniversary this week. The law is divisive, and in swing states it’s an albatross for Democrats including the president and some of his Senate allies. So that leaves the House Democrats, many hailing from safe liberal districts where the health care law is popular, to soldier on like a lonely battalion defending the law and reminding the public of its benefits.

Will Obama’s 2013 Budget Raise or Lower Taxes? Yes. (TaxVox)

Republicans like to say President Obama is a chronic, unrepentant tax-raiser. Obama himself used to say he was a tax-cutter but now touts himself as a fiscally responsible steward of the budget who would raise taxes—but only on the rich. Who is right? The Tax Policy Center has just completed its analysis of tax proposals in Obama’s 2013 budget and found they both are. This is no surprise to budget geeks, but important for ordinary people to keep in mind, especially as we head into a season of both budget and campaign madness. When Obama quietly sent his budget to Congress last month, he started off like the proverbial economist: He assumed the core of his plan was already going to happen. Almost all of the 2001-2010 tax cuts would be made permanent, the alternative minimum tax would be indexed from its 2011 level, and the estate tax would remain at its 2009 level. By itself, that baseline would add $4.5 trillion to the deficit over the next ten years, a pretty deep hole to dig if you want to show your deficit-cutting chops.


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Market Talk

Explaining America’s Macro Puzzles (Free Exchange)

America’s economy is a mosaic of puzzles and contradictions that has economists and bloggers scrambling for explanations and scrutinizing the data for quirks and flaws. Lately, I’ve been thinking dark thoughts: what if all it takes is a single explanation that assumes all the data are correct? The first puzzle: why is GDP growing so slowly? Since the recession ended, growth has averaged 2.5%, roughly around its pre-recession trend-rate, which means no progress closing the massive gap between actual and potential output that opened over the course of the recession. We know recoveries are weaker after financial crises but they are still supposed to be recoveries, i.e. the output gap should close, albeit slowly. The second puzzle: unemployment is falling more quickly than the GDP data can explain.

Housing is Still Shadowed by Excess Supply (Wall Street Journal)

Home demand took a step forward in February. But oversupply remains a problem. Sales of existing homes dipped in February to an annualized rate of 4.59 million. But the drop reflected an upward revision to January sales, rather than a sign of weakness. Compared to a year ago, resales were up 8.8%. The uptrend in sales over time has whittled down the number of homes for sale. According to the National Association of Realtors, the inventory of homes for sale is equal to a 6.4 months’ supply at the current sales pace, an improvement from 8.6 months a year ago. But that doesn’t mean housing has overcome its oversupply problem. The market still faces a shadow inventory of millions of homes whose owners will put them on the market once conditions look more stable.

Fed’s Tarullo: Regulators Need to Mull International Impact of Volcker Rule (Real Time Economics)

U.S. regulators need to “carefully consider” complaints about new rules limiting banks’ ability to bet with their own money, a top Federal Reserve official is set to tell lawmakers Thursday, as international and domestic pressure grows against the so-called Volcker Rule. Fed governor Daniel Tarullo, in testimony prepared for a Senate hearing Thursday, noted that there has been increasing attention on what effect the new rules could have on liquidity in sovereign-debt markets, as well as on foreign banks operating with the U.S. “In each of these areas, U.S. regulators will need to carefully consider the concerns that have been raised and the broader international implications of the Volcker Rule,” Tarullo said.


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Editorials & Opinions

The Supreme Court Weighs ObamaCare (Rivkin and Casey in Wall Street Journal)

On Monday, the Supreme Court will begin an extraordinary three-day hearing on the constitutionality of ObamaCare. At stake are the Constitution's structural guarantees of individual liberty, which limit governmental power and ensure political accountability by dividing that power between federal and state authorities. Upholding ObamaCare would destroy this dual-sovereignty system, the most distinctive feature of American constitutionalism. ObamaCare mandates that every American, with a few narrow exceptions, have a congressionally defined minimum level of health-insurance coverage. Noncompliance brings a substantial monetary penalty. The ultimate purpose of this "individual mandate" is to force young and healthy middle-class workers to subsidize those who need more coverage. Congress could have achieved this wealth transfer in perfectly constitutional ways. It could simply have imposed new taxes to pay for a national health system. But that would have come with a huge political price tag that neither Congress nor the president was prepared to pay.

Privatizing Fannie and Freddie: It’s Not a Matter of If, But When (Suzy Khimm in Washington Post)

There’s pretty broad agreement in Washington that government support for Fannie Mae and Freddie Mac should ultimately be wound down, or at least rolled back in scope, given their role in the housing crisis and the resulting cost to taxpayers. But there are major differences over how quickly we should get there. Paul Ryan wants to accelerate the process, pushing for the government to slash subsidies and reduce its loan portfolio in the next budget. Others warn, however, that such steps are premature and threaten to upend a still-fragile housing market. The Ryan budget promises an end to “corporate welfare and taxpayer bailouts” of Fannie and Freddie, promising to privatize both housing giants.

Ryan’s Hat is In the Ring (Daniel Henninger in Wall Street Journal)

Paul Ryan threw his hat into the presidential political ring this week. It's a big hat—the House Republican budget resolution. A House budget isn't your father's idea of a presidential candidacy. Instead, it's an "ideas candidacy," and it just might put a Republican back in the White House. Mr. Ryan chose last year not to undergo the U.S.'s presidential trial by ordeal. Instead, he is using the institutional authority of his office, chairman of the House Budget Committee, to shape the debate between the incumbent president, a New Deal Democrat, and the Republican reform movement that Mr. Ryan and his allies in Congress represent. (That, by the way, includes the Speaker of the House, John Boehner, who had to sign off on this document.)


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