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Tuesday, April 10, 2012

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Economic Events of the Week

Tuesday – President Obama Gives a Speech on the Economy at Florida International University, NFIB Small Business Optimism Index
Wednesday – Import and Export Prices
Thursday – International Trade
Friday – Consumer Price Index

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e21 Reaction & Commentary
e21 Commentary: The Fiscal Consequences of the Affordable Care Act (Charles Blahous)
e21/MI Event: Income Inequality in the US: How Much Should We Be Concerned? (New York)

Washington Update
Health-care Law Will Add $340 Billion to Deficit, New Study Finds (Washington Post)
Bernanke Calls on Regulators to Curb Shadow Banking Risks (Bloomberg)

Market Talk
US March Employment Trends Index Dips - Conference Board (Real Time Economics)
Profit Growth Stalls as European Slump Hampers Recovery (Bloomberg)
The Structure of the Structural Unemployment Question (Macroblog)

Editorials & Opinions
Obama’s Revenue Soup (Wall Street Journal Editorial)
4 Politically Controversial Issues Where All Economists Agree (Adam Ozimek the Atlantic)
How Big Are Tax Preferences? (Donald Marron in Tax Vox)

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e21 Reaction & Commentary

e21 Commentary: The Fiscal Consequences of the Affordable Care Act (Charles Blahous)

This morning the Mercatus Center is publishing my study, “The Fiscal Consequences of the Affordable Care Act,” which evaluates the comprehensive health care reform law (the ACA) enacted in 2010. In this study, I project that the ACA will add over $1.15 trillion to net federal spending and more than $340 billion to federal deficits over the next ten years, and far more thereafter. That this law on which so many high hopes were placed will significantly worsen federal finances is an unfortunate but unambiguous result. The finding is based upon analyses published by the Congressional Budget Office (CBO) and CMS Medicare Actuary, and it reflects an optimistic fiscal scenario in which all of the law’s cost-saving provisions work as currently envisioned.

e21 Event: Income Inequality in the US: How Much Should We Be Concerned?

There is income inequality in the United States—that is beyond debate and has always been the case. Whether inequality is increasing, however, is a hotly contested question. So, too, is the question of the relationship between inequality and the American Dream of upward economic mobility. On the Left, themes sounded by the Occupy Wall Street movement have been taken up by such leading lights as New York Times columnist Paul Krugman, who asserts that the "rungs" on the income ladder "are moving ever farther apart." Others see fatal flaws in such analysis. For the Hoover Institution's Thomas Sowell measures of inequality "are simply transient snapshots" and do not imply that there "are enduring classes of people" stuck at the bottom. Has inequality become a problem? Does it undermine the American Dream? e21’s Reihan Salam will moderate this event in New York City.


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Washington Update

Health-care Law Will Add $340 Billion to Deficit, New Study Finds (Washington Post)

President Obama’s landmark health-care initiative, long touted as a means to control costs, will actually add more than $340 billion to the nation’s budget woes over the next decade, according to a new study by a Republican member of the board that oversees Medicare financing. The study is set to be released Tuesday by Charles Blahous, a conservative policy analyst whom Obama approved in 2010 as the GOP trustee for Medicare and Social Security. His analysis challenges the conventional wisdom that the health-care law, which calls for an expensive expansion of coverage for the uninsured beginning in 2014, will nonetheless reduce deficits by raising taxes and cutting payments to Medicare providers. The 2010 law does generate both savings and revenue. But much of that money will flow into the Medicare hospitalization trust fund — and, under law, the money must be used to pay years of additional benefits to those who are already insured. That means those savings would not be available to pay for expanding coverage for the uninsured.

Bernanke Calls on Regulators to Curb Shadow Banking Risks (Bloomberg)

Federal Reserve Chairman Ben S. Bernanke called for new steps to curb “shadow banking” operating beyond standard oversight while saying the economy has far to go before fully recovering from the credit crisis. Bernanke supported efforts to increase the “resiliency” of money market funds, referring to Securities and Exchange Commission proposals to require firms to maintain capital buffers or to redeem shares at the market value of underlying assets rather than at a fixed price of $1. He also called for efforts to monitor financial innovation and backed curbs on intraday credit in tri-party repo markets. An average of more than $2.8 trillion in securities was financed during the market peak in 2008 through tri-party transactions, many of which had short-term maturities. During the first quarter of 2010, the value of securities financed by tri-party repo had fallen to an average of $1.7 trillion, according to New York Fed calculations based on Bank of New York and JPMorgan Chase & Co. data and cited in a May 2010 Fed paper.


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Market Talk

US March Employment Trends Index Dips - Conference Board (Real Time Economics)

U.S. companies modestly scaled back on their hiring efforts in March, the Conference Board’s Employment Trends Index reported Monday, figures that dovetailed with recent figures suggesting the upward trend in jobs creation may not be sustainable. The index fell 0.18% in March to 107.28, dipping from February’s revised figure of 107.47 yet still 5.2% higher than the same period last year. March’s reading was the first decline in six months, and follows Friday’s Labor Department data showing the U.S. economy added 120,00 jobs last month–far less than most market observers had expected.

Profit Growth Stalls as European Slump Hampers Recovery (Bloomberg)

Earnings at Standard & Poor’s 500 Index companies, excluding financials, are seen gaining 0.6 percent in the first and the second quarter from a year earlier, according to analysts’ estimates compiled by Bloomberg, the slowest growth rate since 2009. The European debt crisis and a slowdown in China are hurting S&P 500 companies, which derive about 40 percent of profits from abroad. At home, where the S&P 500 Index had its biggest first-quarter rally since 1998, consumer confidence is improving along with the job market -- boosting demand for construction companies and retailers. The U.S. economy will accelerate 2.2 percent this year, up from 1.7 percent in 2011, according to the average of 72 estimates compiled by Bloomberg.

The Structure of the Structural Unemployment Question (Macroblog)

In the middle of its thorough analysis of U.S. labor markets, the New York Fed tucked in a direct look at whether persistently high unemployment can be plausibly ascribed to mismatches between the skill sets of unemployed workers and those skill sets required by available jobs. The operating hypothesis goes something like this: structural unemployment arises when the skills that are appropriate for declining sectors are not easily transferable to the jobs available in expanding sectors. In the current context, we can think, for example, about the challenge of turning construction workers into nurses (a metaphor offered a while back by Philadelphia Fed President Charles Plosser). If skill mismatch is an important source of postcrisis unemployment, it stands to reason that we would find its markers in the construction sector. In fact, the authors of a New York Fed study find no evidence that construction workers are "experiencing relatively worse labor market outcomes."


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Editorials & Opinions

Obama’s Revenue Soup (Wall Street Journal Editorial)

Mr. Obama's plan would raise the capital-gains rate on January 1 to 20% on those who earn more than $200,000 ($250,000 for couples), plus a 3.8% investment surtax to finance ObamaCare. That 23.8% rate amounts to a nearly 60% increase from the 15% rate in effect since 2003. And that's without his new "Buffett rule," which would take the rate to 30% for many taxpayers. This and other rate hikes aimed at higher-income earners are supposed to raise about $700 billion in tax revenues over the next decade. Fat chance. Ever since the famous 1978 bipartisan capital-gains tax cut sponsored by the late William Steiger of Wisconsin, the same pattern has repeated itself: raising the capital-gains rate reduces revenues, and lowering it leads to revenue increases.

4 Politically Controversial Issues Where All Economists Agree (Adam Ozimek in The Atlantic)

In reading the sometimes polarized debate in the economics blogosphere, the discipline often appears to suffer from an excess of disagreement and uncertainty. But this is more about the incentives economists face when writing and speaking in the public sphere than the actual state of knowledge in the field. In reality economists agree about a lot of things, and in many cases they do so with a high degree of certainty. This fact is on display frequently at the IGM Economic Experts Panel from the University of Chicago. This is a panel of 41 of the worlds top economists who are offered statements about economic policy to which they can indicate whether they agree, disagree, or are uncertain. In addition they rate the certainty of their answer on a scale of 1 to 10, which allows the answers to be weighted. Over the past few months there have been several issues where this ideologically diverse group of economists have shown resounding unanimity. Some of these may surprise people, as it's fairly obvious that public opinion would not side with economists with the same amount of unanimity. So here are a few things economists strongly agree on.

How Big Are Tax Preferences? (Donald Marron in Tax Vox)

The tax code is chock full of credits, deductions, deferrals, exclusions, exemptions, and preferential rates. Taken together, such tax preferences will total almost $1.3 trillion this year. That’s a lot of money. But it doesn’t necessarily mean that $1.3 trillion is there for the picking in any upcoming deficit reduction or tax reform.  In fact, even if Congress miraculously repealed all of these tax preferences, it would likely generate much less than $1.3 trillion in new resources.  Where did I come up with that number? I simply added together all the specific tax expenditures identified by the Department of Treasury; these were reported in the Analytical Perspectives volume of the president’s recent budget. Treasury doesn’t report this total for a good, technical reason: some provisions interact with one another to make their combined effect either larger or smaller than the sum of their individual effects. As a result, simple addition won’t give an exact answer. That’s an important issue. In the absence of a fully integrated figure, however, I think it’s useful to ballpark the overall magnitude using basic addition.


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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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