Thursday, May 3, 2012

Economic Events of the Week

Thursday – Jobless Claims
Friday – Employment Situation

Story of the Day
Should The Fed Do More? (Econbrowser.com)

Washington Update
Issue of Health-Care Reform Emerges In Races (Politico)
Usual Suspects Not to Blame for High Health Costs, Report Says (National Journal)
Senate Finance Lawmakers Want Help Combating Health Care Waste, Fraud (CQ)

Market Talk
Wall St Chiefs Warn Fed Over Stress Tests (Financial Times)
Fed's Tarullo Backs SEC's Money-Market Overhauls (The Wall Street Journal)
2012: Year Of The Wild Economy (Politico)

Editorials & Opinions
Bubba's History Lesson (James Freeman in The Wall Street Journal)
Our Central Bankers Are Intellectually Bankrupt (Ron Paul in Financial Times)
Short-Term Fixes (The New York Times Editorial)

Story of the Day

Should The Fed Do More? (Econbrowser.com)

Johns Hopkins University Professor Larry Ball, Princeton Professor Paul Krugman, U.C. Berkeley Professor Brad DeLong, University of Oregon Professor Tim Duy and Texas State University Professor David Beckworth are among those recently arguing that Fed Chairman Ben Bernanke is neglecting his own earlier academic insights into what the central bank should be doing in a situation such as the United States presently finds itself. Here's what I think they're overlooking.

Washington Update

Issue of Health-Care Reform Emerges In Races (Politico)

Barack Obama and Mitt Romney are the marquee names in this year’s partisan fight over health care, but the undercard is pretty compelling, too. In House and Senate races across the country, from New York to Wisconsin to Montana, the president’s health care law is re-emerging as a central issue in the fight for control in Congress. It already helped Mark Critz knock off fellow Democratic Rep. Jason Altmire in a western Pennsylvania primary last month. No matter what the Supreme Court decides, the aftermath promises only to add to the stakes.

Usual Suspects Not to Blame for High Health Costs, Report Says (National Journal)

The staggering $8,000 per person that the United States spends on health care can't be explained by our aging population, our overuse of doctors and hospitals, our wealth, or our rates of smoking, according to a new report. The study, from the left-leaning Commonwealth Fund, crunches the numbers from the Organization for Economic Cooperation and Development to evaluate the various factors that might explain our runaway health care spending. Like the OECD itself, the Commonwealth Fund concludes that high health care prices are the major culprit. U.S. patients pay more to doctors, drug companies, and hospitals than patients in other countries. Other possible factors are our high rates of obesity and a possible tendency to overuse a few particularly expensive procedures.

Senate Finance Lawmakers Want Help Combating Health Care Waste, Fraud (CQ)

A bipartisan group of six Senate Finance Committee members say they are determined to find new ways to combat waste, fraud and abuse in government health care programs and Wednesday wrote to stakeholders asking for suggestions on how best to attack this problem. “Drawing on the collective wisdom and accumulated insights of thousands of professionals and individual experiences could offer a fresh perspective and potentially identify solutions that may have been overlooked or underutilized,” the Finance members wrote in an open letter to the health care community. Those signing the letter include ranking member Orrin G. Hatch, R-Utah; Chairman Max Baucus, D-Mont.; Tom Coburn, R-Okla.; Ron Wyden, D-Ore.; Charles E. Grassley, R-Iowa, and Thomas R. Carper, D-Del.

Market Talk

Wall St Chiefs Warn Fed Over Stress Tests (Financial Times)

Wall Street chief executives warned the Federal Reserve’s top regulatory official that the central bank’s calculations for bank safety were overstating risks and could damage markets in the latest sign of resistance to new rules. According to people familiar with Wednesday’s private meeting between Daniel Tarullo, Fed governor, and executives including Lloyd Blankfein of Goldman Sachs and Brian Moynihan of Bank of America, the discussion was “open”, relatively calm and the banks came away hoping for some concessions from the Fed. That is a change from a meeting last year when Jamie Dimon of JPMorgan Chase launched a tirade against Mark Carney, governor of the Bank of Canada, in a meeting over regulations.

Fed's Tarullo Backs SEC's Money-Market Overhauls (The Wall Street Journal)

A top Federal Reserve official on Wednesday endorsed a Securities and Exchange Commission plan to tighten regulations on the U.S. money-market-fund industry, citing it as a key vulnerability of the U.S. financial system. The remarks by Federal Reserve governor Daniel Tarullo, given in a speech in New York, come a day after nearly three dozen lawmakers delivered a letter to SEC Chairman Mary Schapiro urging her to back off her plan to shore up the $2.6 trillion money-market industry. Mr. Tarullo, who is overseeing the central bank's financial-regulation efforts, endorsed Ms. Schapiro's plan, which is aimed at avoiding a repeat of the panic that struck the industry during the financial crisis. During the crisis, the Treasury Department and Federal Reserve vowed to backstop all money funds after a large fund with exposure to Lehman Brothers Holding Inc.'s debt "broke the buck," which happens when a fund's net asset value falls below $1.

2012: Year Of The Wild Economy (Politico)

Don’t like the economy we have? Just wait a day and you’ll get a new one. One day, gross domestic product is a growing at a dismal 2.2 percent rate. The next day, manufacturing is at a 10-month high. Jobless claims are up again. That’s not good. But maybe it’s just a quirk of the warm winter? Another bad sign: The S&P 500 just posted its first monthly drop since last year. But wait. The Dow is at a four-year high. Welcome to the 2012 economy, a frustrating maze of conflicting — even confounding — data highly subject to partisan spin and defiant of all attempts to fit into a clean narrative. Over the next six months, some clear direction may still emerge and tilt the needle of the presidential election in one direction or the other. But it’s just as likely that the discordant notes of an uneven recovery will provide the background music for a campaign that is equally hard to call and subject to almost daily shifts in conventional wisdom.

Editorials & Opinions

Bubba's History Lesson (James Freeman in The Wall Street Journal)

At a recent Democratic fundraising event, former President Bill Clinton did his level best to explain away the slow growth and high unemployment of the Obama era. "If you go back 500 years," said Mr. Clinton, "whenever a country's financial system collapses, it takes between 5 and 10 years to get back to full employment. If you go back for the last 200 years, when buildings had been widely owned by individuals and companies, if there's a mortgage collapse it almost always takes 10 years." Therefore, Barack Obama is "beating the clock," argued Mr. Clinton. "Don't listen to those Republicans. We are beating the clock." Mr. Clinton may have trouble getting voters to accept the idea that they are destined to suffer for years and that things would be much worse if not for Mr. Obama. After all, Americans well remember the White House promise that Mr. Obama's stimulus would prevent unemployment from rising above 8%. They also may remember that, even after the crisis, the economy was growing more rapidly in late 2009 and early 2010 than it is now.

Our Central Bankers Are Intellectually Bankrupt (Ron Paul in Financial Times)

The financial crisis has fully exposed the intellectual bankruptcy of the world’s central bankers. Why? Central bankers neglect the fact that interest rates are prices. Manipulating those prices through credit expansion or contraction has real and deleterious effects on the economy. Yet while socialism and centralised economic planning have largely been rejected by free-market economists, the myth persists that central banks are a necessary component of market economies. These economists understand that having wages or commodity prices established by government fiat would cause shortages, misallocations of capital and hardship. Yet they accept at face value the notion that central banks must determine not only the supply of one particular commodity – money – but also the cost of that commodity via the setting of interest rates.

Short-Term Fixes (The New York Times Editorial)

Federally subsidized student loan rates were bound to become an election-year fight, since Congress provided only enough money for five years of low-interest rates in 2007. Now that the rates are about to double, both Democrats and Republicans are failing to do the right thing again. Members of Congress from both parties say they want to prevent interest rates on subsidized Stafford student loans from going up in July, but they are fighting over how to pay for a solution. And by proposing quick-fix methods to pay for only a year’s worth of loan subsidies, both parties suggest they are not really serious about helping students afford college.

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.

2011, e21: Economic Policies for the 21st Century