Tuesday, May 1, 2012

Economic Events of the Week

Tuesday – ISM Manufacturing Index
Wednesday – ADP Employment Report, EIA Petroleum Status Report
Thursday – Jobless Claims
Friday – Employment Situation

Story of the Day
Obama Fails to Stem Middle-Class Slide He Blamed on Bush (Bloomberg)

Washington Update
Freddie, Fannie Departures Escalate (The Wall Street Journal)
GOPers Split Over How to Reform Health Care (Politico)
U.S. Considers Notes That Float (The Wall Street Journal)
Obama Goes Round Two With Boehner, This Time Over Highway Spending Bill (The Hill)

Market Talk
Fed’s Fisher: Too Soon to Talk About Tighter Policy (The Wall Street Journal)
Fewer Americans Form Households After Recession, Hampering Economic Recovery (The Washington Post)
Fed: On Net, Domestic Banks Eased Their Lending Standards and Experienced Stronger Demand Over the Last 3 Months (Calculated Risk Blog)

Editorials & Opinions
Education Is the Key to a Healthy Economy (George Shultz & Eric Hanushek in The Wall Street Journal)
How to Get a Bigger Keynesian Multiplier (Garett Jones in The Atlantic)
My Thoughts on Technology and Government (Arnold Kling in EconLog)

e21 Reaction & Commentary

Obama Fails to Stem Middle-Class Slide He Blamed on Bush (Bloomberg)

Barack Obama campaigned four years ago assailing President George W. Bush for wage losses suffered by the middle class. More than three years into Obama’s own presidency, those declines have only deepened. The rebound from the worst recession since the 1930s has generated relatively few of the moderately skilled jobs that once supported the middle class, tightening the financial squeeze on many Americans, even those who are employed. “It started long before Obama, but he hasn’t done anything,” said John Forsyth, 58, a railroad-car inspector and political independent from Lebanon, Ohio. “He kept pushing this change, change, change, and he hasn’t done anything.” Underlying the erosion of the middle class, defined by some economists as the middle 60 percent of income earners, are trends that stretch back decades, including competition from lower-wage workers overseas and technological advances that allow factories and offices to produce more with less labor.

Washington Update

Freddie, Fannie Departures Escalate (The Wall Street Journal)

Concerns are growing about departures at mortgage-finance giants Fannie Mae and Freddie Mac, a situation that some executives argue is making it difficult to manage the companies and their $5 trillion mortgage business. The latest sign came Monday when Freddie said that Anthony Renzi—the executive who oversees the single-family mortgage business, by far the company's largest and most complex division—would leave this month to take another job in the industry. Mr. Renzi, who has spent two years at Freddie, joins a growing list of industry veterans who have departed over the past year. The chief executives of both Fannie and Freddie have said they plan to leave this year. In the past two years, dozens of senior managers, many with long tenures, have left.

GOPers Split Over How to Reform Health Care (Politico)

Ask each of the 242 House Republicans what kind of health policy they’d like to enact instead of President Barack Obama’s health care reform law and you might get 242 different answers. Even after three years of railing against Obama’s plan, Republicans have coalesced around only a few basic tenets of health policy — let alone a full replacement plan. They are even divided over whether some of the popular pieces of Obama’s health law are a good idea. For example, most Republicans support the health law’s requirement that insurance companies accept all applicants — but the replacement plan put forward by the most prominent Republican ignores that idea. “It’s a terrible idea,” Rep. Tom Price (R-Ga.), the sponsor of the plan, told POLITICO. He said Democrats only enacted the provision in order to require exactly what kinds of insurance Americans must have. He would rather expand coverage voluntarily.

U.S. Considers Notes That Float (The Wall Street Journal)

As borrowers around the U.S. rush to lock in near-record-low interest rates on everything from mortgages to corporate bonds, the Treasury Department soon might embark on a program that seemingly does just the opposite. After a series of meetings early this week, Treasury officials will decide whether to start issuing floating-rate debt for the first time ever. Instead of the interest rate being fixed throughout the life of the notes, the rate would move up and down as overall rates move higher and lower. The change would be the first new addition to the Treasury's arsenal of debt products in 15 years. Analysts are widely expecting Treasury officials to sign off on the program.

Obama Goes Round Two With Boehner, This Time Over Highway Spending Bill (The Hill)

President Obama on Monday slammed Speaker John Boehner (R-Ohio) and the House Republican leadership for the second time in a week. Obama’s latest attack on Boehner is over construction projects, which the president says have been blocked by Republicans who have refused to take up a long-term highway bill approved in a bipartisan vote by the Senate.The president said the stalled legislation is keeping millions of workers jobless, and is preventing necessary projects forward across the country, including in Boehner’s own district. "There are bridges between Kentucky and Ohio where some of the key Republican leadership come from, where folks are having to do detours an extra hour and half drive every day on their commute because these bridges don't work," Obama said in a speech to the Building and Construction Trades Department Legislative Conference in Washington. "Time after time, the Republicans have gotten together and they've said no," he said.

Market Talk

Fed’s Fisher: Too Soon to Talk About Tighter Policy (The Wall Street Journal)

Although he believes the Federal Reserve has already provided too much stimulus to the economy, a veteran central banker said Monday now isn’t the time to start calling for a tightening in monetary policy. Looking at the various programs the Fed has run to expand its balance sheet by buying bonds to stimulate growth, “it’s not clear to me [the programs have] been fully productive, or even counterproductive,” Federal Reserve Bank of Dallas PresidentRichard Fisher said in an interview with Dow Jones Newswires, held on the sidelines of the Milken Institute Global Conference in Beverly Hills, Calif. Fisher said “I wasn’t in favor of these programs,” but he acknowledged that they exist and that their impact needs to be evaluated. He said he hopes what is currently being done will stop as planned, but at the same time, “it’s too early to talk about exiting” the current stance and moving toward tighter monetary policy.

Fewer Americans Form Households After Recession, Hampering Economic Recovery (The Washington Post)

More than one in five adults between ages 25 and 34 live with their parents or in other “multi-generational” living arrangements, the highest level since the 1950s, according to the Pew Research Center. Analysts estimate that there are more than 2 million fewer occupied homes than there would have been had Americans continued moving into new homes and apartments at the rate they did before the recession. Not only are young people returning to the nest in numbers not seen in generations, but also the weak job market and increased border enforcement have caused a marked decline in immigration, hobbling another major source of new households. The slowdown has broad implications for the economy. It has trimmed demand for housing, even as the economy struggles to absorb the oversupply of new homes that came with the housing bubble and the millions of foreclosures that continue to weigh on the market.

Fed: On Net, Domestic Banks Eased Their Lending Standards and Experienced Stronger Demand Over the Last 3 Months (Calculated Risk Blog)

From the Federal Reserve: The April 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices: “Overall, in the April survey, modest net fractions of domestic banks generally reported having eased their lending standards and having experienced stronger demand over the past three months. ... However, moderate to large net fractions of domestic banks eased many terms on C&I loans to firms of all sizes, with most indicating that they had done so in response to more aggressive competition from other banks or nonbank lenders. Domestic banks also reported an increase in demand from firms of all sizes.” 

Editorials & Opinions

Education Is the Key to a Healthy Economy (George Shultz & Eric Hanushek in The Wall Street Journal)

In addressing our current fiscal and economic woes, too often we neglect a key ingredient of our nation's economic future—the human capital produced by our K-12 school system. An improved education system would lead to a dramatically different future for the U.S., because educational outcomes strongly affect economic growth and the distribution of income. Over the past half century, countries with higher math and science skills have grown faster than those with lower-skilled populations. In the chart nearby, we compare GDP-per-capita growth rates between 1960 and 2000 with achievement results on international math assessment tests. The countries include almost all of the Organization for Economic Cooperation and Development (OECD) countries plus a number of developing countries. What stands out is that all the countries follow a nearly straight line that slopes upward—as scores rise, so does economic growth. Peru, South Africa and the Philippines are at the bottom; Singapore and Taiwan, the top.

How to Get a Bigger Keynesian Multiplier (Garett Jones in The Atlantic)

In a normal economy, 40% of new hires are people who switched right over from another job: Friday at Walmart, Monday at Target. The other 60% come from some mix of the unemployment lines and the ether. In this normal economy, a slowly-growing pool of workers play a high-speed game of musical chairs with a slowly-growing number of jobs: Workers are constantly switching in and out of employment, sometimes voluntarily, sometimes not. Yes, workers who switch jobs often get replaced, eventually, but those new hires are rarely net hires: This is the world of churn, John Haltiwanger's world of endless job creation and destruction.

My Thoughts on Technology and Government (Arnold Kling in EconLog)

For a long time, I've thought that the technologies of the industrial revolution favored centralization, while the technologies of the information revolution shift the balance somewhat more toward decentralization. I think of industrialization as mass production. Lots of labor per factory. Lots of consumers per product. Lots of soldiers per army. Lots of residents per city. Lots of citizens per governmental unit. I think that the information revolution reverses some of these trends, as we shift somewhat away from mass production and more toward innovation and niche market production. I think that urbanization increases the demand for government. When people are crowded together, many more externalities are created. Water and sewage management become a huge deal. So does planning a road and transportation system. Technology for long-distance trade also increases the demand for standardization and enforcement of standards. That is likely to raise the demand for government.

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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