Tuesday, August 10, 2010

Economic Events of the Week

Tuesday – FOMC Meeting Announcement
Wednesday – International Trade
Thursday – Jobless Claims 
Friday – Consumer Price Index, Retail Sales

Featured Story
Federal Stimulus Kicks Costs Down The Road (Papagianis and Gupta for e21)

Washington Update
House Leaders Expect State-Aid Bill to Pass (Congressional Quarterly)

Financial Markets News

Editorials and Commentaries
Where Does the Laffer Curve Bend? (Ezra Klein in Washington Post)
Unemployment: What Would Reagan Do? (Henry Olsen in Wall Street Journal)
From Google and Verizon, a Path to an Open Internet (Eric Schmidt in Washington Post)

Featured Story

Federal Stimulus Kicks Costs Down The Road (Papagianis and Gupta for e21)

While proponents of the bill have used the term “emergency spending” rather than “stimulus,” it’s important to remember that state-aid was a major part of the February 2009 Obama-led stimulus that totaled more than $787 billion. Not including disbursements for transportation-related infrastructure, approximately $174 billion of that total amount was earmarked to help states patch budget holes for Medicaid and education.

Washington Update

House Leaders Expect State-Aid Bill to Pass (Congressional Quarterly)

House Democratic leaders are confident they will have the votes Tuesday to pass a $26.1 billion bill that would keep more than 140,000 teachers on the job and help states pay for medical care for the poor, leadership aides said Monday. Speaker Nancy Pelosi last week called the House back from its planned six-week recess to deal with the measure (HR 1586) after the Senate overcame Republican objections and passed the bill on Aug. 5. To pay for the bill, cuts were proposed for several programs popular with Democrats, including food stamps and a renewable-energy loan initiative.

Financial Markets News

Future Recession Risk (Federal Reserve Bank of San Francisco)

An unstable economic environment has rekindled talk of a double-dip recession. The Conference Board's Leading Economic Index provides data for predicting the probability of a recession but is limited by the weight assigned to its indicators and the varying efficacy of those indicators over different time horizons. Statistical experiments with LEI data can mitigate these limitations and suggest that a recessionary relapse is a significant possibility sometime in the next two years.

FOMC Chatter (Macroeconomic Advisers)

The discussion by FOMC members during the intermeeting period focused on topics teed up at the June meeting: Is deflation risk rising? What are the options for easing? During the intermeeting period, there were clear differences in opinions about the risk of deflation: Some thought that deflation risk was rising and was now an important consideration in their forecasts; others did not see much risk. There was about as much discussion about exit strategy as easing options, but most of the discussion about easing focused on the view that this was not the time to do so.

US Incomes Tumbled in 2009 (Real Time Economics)

On average, personal income dropped 1.8% in 2009, following a 2.7% increase in 2007. Income declined in 223 metro areas last year, increased in 134 and was unchanged in nine regions. In areas that saw gains, most of the increases came from the government in one way or another. In 77 of the 134 regions that saw incomes increase, the growth came from transfer receipts such as unemployment benefits or Social Security payments.

Editorials and Commentaries

Where Does the Laffer Curve Bend? (Ezra Klein in Washington Post)

The idea, popularized by economist Arthur Laffer and writer Jude Wanninski in the 1970s and '80s, is simple. Tax rates of zero percent produce no revenue, for obvious reasons. Rates of 100 percent should produce no revenue either, as no one would bother making the money that falls into that bracket knowing it would all be taken away. Thus, presumably, there is some rate in between the two that maximizes revenue. I decided to ask some tax experts and political activists where, in the current personal income tax, and particularly in the top tax bracket, they think that Laffer curve peaks. Read on to hear from Emmanuel Saez, Joel Slemrod, Brad DeLong, Dean Baker, Larry Kudlow, Stephen Moore, Bruce Bartlett, Greg Mankiw, and Martin Feldstein.

Unemployment: What Would Reagan Do? (Henry Olsen in Wall Street Journal)

Friday's grim labor report is the latest confirmation that our economy is not recovering. A loss of 131,000 jobs and a stagnant 9.5% unemployment rate are bad enough. But a deeper look—at the little-known civilian employment-population ratio—shows how hard it's going to be to pull out of our crisis, and why the Obama administration's policies are unlikely to do the job. No other recession in the past 60 years saw such rapid job destruction in either absolute or percentage terms. There is only one instance since World War II of the U.S economy increasing the employment-population ratio by five percentage points in a decade: the recovery that followed Ronald Reagan's tax cuts in 1983.

From Google and Verizon, a Path to an Open Internet (Eric Schmidt in Washington Post)

We have spent much of the past year trying to resolve our differences over the thorny issue of "network neutrality." The proposal we outlined Monday as a suggested policy framework for lawmakers translates these principles into a fully enforceable broadband Internet policy. In developing this framework, we were guided by two principles: our commitment to an open Internet, and the need for continued investment in broadband infrastructure, which is critical to U.S. global competitiveness.

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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