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Friday, March 30, 2012

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Economic Events of the Week

Friday – Personal Income

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e21 Reaction & Commentary
Critics of the Import-Export Bank Have a New Weapon at Their Disposal: Fair-Value Accounting (Delisle and Papagianis)

Washington Update
Predicting the Health Care Decision from the Oral Arguments (The Monkey Cage)
Academic Built Case for Mandate in Health Care Law (New York Times)

Market Talk
GDI: An Alternative Measure Showing Stronger US Growth (Real Time Economics)
Fed’s Plosser: Additional Stimulus Would Be a Bad Idea (Wall Street Journal)

Editorials & Opinions
Why I Am Optimistic About Cutting the Deficit (Erskine Bowles in Wall Street Journal)
A Little Dynamic Scoring on the House Budget (John Taylor’s Blog)
Calling the Budget Roll (Wall Street Journal Editorial)
Obamacare Will Punish State Budgets (Alexander and Johanns in Wall Street Journal)

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e21 Reaction & Commentary

Critics of the Import-Export Bank Have a New Weapon at Their Disposal: Fair-Value Accounting (Delisle and Papagianis)

Congress is currently debating whether to reauthorize the charter for the Export-Import Bank of the United States. Most of the debate has focused on whether the economic and public policy rationale still exists for the federal government to involve itself in helping private firms finance their exports. Other statutory requirements also are under review, including provisions that direct the Ex-Im bank to provide export-related loans for small businesses and green technologies. Some lawmakers have questioned whether the Ex-Im bank (first created in 1934) should still be wading so heavily into private markets – effectively picking winners and losers with its loans and loan guarantees. Defenders of the bank argue that the programs simultaneously help create domestic jobs and level the playing field with international competitors (who often receive financing and subsidies from their respective governments). Another key argument for supporters is that not only does the bank serve those ends at no cost to taxpayers, but it actually earns a profit. The problem with that last claim – which lawmakers to date have not focused in on – is that the Ex-Im bank’s profits are almost surely an accounting illusion.


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Washington Update

Predicting the Health Care Decision from the Oral Arguments (The Monkey Cage)

I was curious about the relative number of words directed at the two sides in yesterday’s oral argument and thought the results would be of interest here. For those not familiar with the research on this (see below), it has shown that Justices tend to direct more questions and words at the side they eventually vote against. When we look at individual justices the Court appears sharply polarized along familiar ideological lines and Kennedy uttered just over twice as many words to Verrilli as he did to Clement/Carvin, which is a greater discrepancy than is typical for him (according to Epstein et al.). For all other justices, moreover, the discrepancy was much starker than the average discrepancy reported by Epstein et al.; and the latter also found that the number of questions and words uttered by conservatives is a fairly good predictor of Kennedy’s (and Thomas’) vote.

Academic Built Case for Mandate in Health Care Law (New York Times)

After Massachusetts, California came calling. So did Connecticut, Delaware, Kansas, Minnesota, Oregon, Wisconsin and Wyoming. They all wanted Jonathan Gruber, a numbers wizard at M.I.T., to help them figure out how to fix their health care systems, just as he had helped Mitt Romney overhaul health insurance when he was the Massachusetts governor. Then came the call in 2008 from President-elect Obama’s transition team, the one that officially turned this stay-at-home economics professor into Mr. Mandate. Mr. Gruber has spent decades modeling the intricacies of the health care ecosystem, which involves making predictions about how new laws will play out based on past experience and economic theory. It is his research that convinced the Obama administration that health care reform could not work without requiring everyone to buy insurance.


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Market Talk

GDI: An Alternative Measure Showing Stronger US Growth (Real Time Economics)

The Commerce Department has (at least) two ways to measure the growth and size of the overall U.S. economy. One is to add up all the value of all the goods and services produced in the economy in a quarter or a year. That’s the gross domestic product, or GDP. The other is to add up all the income received in the economy, wages and interest and profits and so on. That’s gross domestic income, or GDI. They should tell the same story, but because it’s so hard to accurately measure a $15-trillion economy, and because the two measures rely on different data sources, they don’t always match. The GDP gets all the attention (partly because it comes out earlier), but some economists argue that the GDI may be a more meaningful measure, particularly at turning points in the economy.

Fed’s Plosser: Additional Stimulus Would Be a Bad Idea (Wall Street Journal)

The current and likely future path of the economy means the Federal Reserveshouldn’t provide any fresh stimulus to the economy, and monetary policy may even have to be tightened earlier than many expect, a central bank official said Thursday. “We should not anticipate additional accommodation” from the central bank, Federal Reserve Bank of Philadelphia President Charles Plosser said. “Further accommodation at this stage of the business cycle could lead us down a very treacherous path–one that would be ever more difficult for us to navigate and one that would increase the already substantial risk of higher inflation,” he said.


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Editorials & Opinions

Why I Am Optimistic About Cutting the Deficit (Erskine Bowles in Wall Street Journal)

With Washington mired in partisan gridlock, presidential candidates promising tax cuts with no specific revenue offsets, and no agreement on reforms and reductions in entitlement spending, Americans are understandably worried about the nation's rising debt. Yet I'm still hopeful we'll address the nation's long-term fiscal problems. I base my optimism on three promising developments: First, the American economy is coming back. While there are some enormous potential obstacles to continued economic growth, the steady stream of positive reports on the economy and employment is good news for deficit hawks. Second, we shouldn't let the near-term disappointments of last summer's ugly debt-ceiling debate cloud the more enduring silver lining: Deficit reduction now has the upper hand. Finally, the terms of the fiscal debate have fundamentally changed in ways that make lasting progress on the debt far more likely.

A Little Dynamic Scoring on the House Budget (John Taylor’s Blog)

In a recently released report the Congressional Budget Office calculated how debt reduction with the House Budget Resolution (which just passed the House today), would affect GNP in the United States. The CBO took the spending and tax parameters from the House Budget Committee staff and computed the resulting deficit and debt. They then compared the debt path under the House budget with the debt path under their "extended alternative fiscal scenario, which is their description of current law and its most likely extensions. They then estimated the effect of the different debt levels on economic output.  This is a "little" dynamic scoring in the sense that other positive effects of lower marginal tax rates and other incentives in the House budget plan are ignored. Nevertheless, CBO reports that the reduced level of debt has large positive economic effects. I created the following "fan charts" to illustrate this.

Calling the Budget Roll (Wall Street Journal Editorial)

Who says bipartisanship is dead in Washington? House Republicans played the dastardly trick of putting President Obama's budget proposal to a floor vote on Wednesday, and the verdict was a unanimous defeat—414-0. Fifteen Democrats did the White House the favor of not voting on the measure that would raise taxes by $1.9 trillion. The repudiation of Mr. Obama's budget was one of several votes this week that revealed the state of fiscal politics in this election year. Most notably, Wisconsin Congressman Paul Ryan's budget passed 228-191 on Thursday, amid Democratic chortling for the second straight year that this will cost Republicans their majority because it dares to reform Medicare. Most Republicans apparently disagree. Mr. Ryan lost only 10 Republicans, including three conservatives who wanted to make a statement that the proposal didn't balance the budget fast enough. That's one way to get publicity, if not much else.

Obamacare Will Punish State Budgets (Alexander and Johanns in Wall Street Journal)

Two years after ObamaCare was signed into law the American people are more opposed to it than ever. It is now clear that the law will impose heavy burdens on state and family budgets and increasingly possible that its mandate that all Americans purchase health insurance or face penalties will be ruled unconstitutional. As lawmakers, we need to repeal the law and do what we should have done in the first place: go step by step to reduce costs so that more people can afford insurance. When the Senate was voting on the health-care bill in 2010, we suggested anyone who voted for it ought to serve as a governor and actually try to implement its new mandates and costs. That's the real trick—implementing a more than $2.5 trillion bill that increases costs in a health-care system that is already too expensive, and doing so when state budgets have been roiled by recession.


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