Monday, August 23, 2010

Economic Events of the Week

Tuesday – Existing Home Sales
Wednesday – Durable Goods Orders, New Home Sales
Thursday – Jobless Claims
Friday – Q2 GDP

Featured Story
Financial Reform: Wrong Diagnosis, Wrong Cure (John O'Leary e21 Exclusive)

Washington Update
South Korea Trade Pact Back on Agenda (Washington Post)
Notes from the Treasury GSE Conference (Phillip Swagel in Greg Mankiw's Blog)

Financial Markets News
Can Bernanke Quell the Cacophony? (Bank of America)

Editorials and Commentaries
Healthcare Competition Saves Lives (Marty Gaynor in voxEU)
The Problem of Early Retirement (Bruce Bartlett in Capital Gains and Games)
Will The Next Generation Be Better Than Their Parents' Generation? (Gary Becker's Blog)
Now That's Rich (Paul Krugman in New York Times)

Featured Story

Financial Reform: Wrong Diagnosis, Wrong Cure (John O'Leary e21 Exclusive)

Will the recently enacted financial reform law fix the problems that caused the economic crisis? That’s hard to say, since nobody agrees what caused the crisis in the first place. In May 2009, President Obama created the Financial Crisis Inquiry Commission to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." The Commission is due to release its findings in December 2010. By not waiting for the Financial Crisis Inquiry Commission to do its work, our political leaders have committed an act of economic malpractice. Someday, economic historians may look back at this moment and wonder how on earth we ever expected to prevent the next financial crisis without understanding what caused the last one.

Washington Update

South Korea Trade Pact Back on Agenda (Washington Post)

The agreement would eventually eliminate tariffs between the two countries. Because those levies are typically higher on the South Korean side, administration officials estimate the deal could mean more than $10 billion annually in increased U.S. exports to Seoul and tens of thousands of new U.S. jobs. The fundamental dispute is over free trade itself. Presidents Bill Clinton and George W. Bush had aggressively promoted it. Yet the appeal of free trade has waned amid large U.S. trade deficits and concerns that more American manufacturing jobs will disappear overseas at a time when unemployment remains stuck near 10 percent.

Notes from the Treasury GSE Conference (Phillip Swagel in Greg Mankiw's Blog)

I took away four main points from Tuesday's Treasury-HUD GSE conference. First, Treasury Secretary Timothy Geithner said that the administration supported fundamental GSE reform but with still a government guarantee for housing finance in some form. The GSE portfolios, however, would disappear. Second, industry participants love government guarantees. Third, the White House is terrified of blowback from the left. And finally, this is going to be a long process; the wheels of GSE reform are turning, but the vehicle is moving forward at a crawl.

Financial Markets News

Can Bernanke Quell the Cacophony? (Bank of America)

We have long noted that the Fed faces a huge challenge communicating its unconventional policy actions. We believe that this communication problem is getting worse. The Fed failed to prepare the markets for its shift to maintaining the size of its balance sheet in August. More important, Chairman Bernanke has said very little about monetary policy in recent months, leaving the market with a cacophony of comments from hawkish regional Fed presidents. As always, we recommend that investors give low weight to these remarks given our belief that they do not represent the majority view.

Editorials and Commentaries

Healthcare Competition Saves Lives (Marty Gaynor in voxEU)

Governments faced with rising costs and growing demand are constantly searching for methods of delivering higher productivity in healthcare. This column suggests that the introduction of competition among UK hospitals – yet with a fixed price – has increased quality, as measured by lower death rates, and this without a commensurate increase in costs.

The Problem of Early Retirement (Bruce Bartlett in Capital Gains and Games)

Raising the normal retirement age is no panacea for Social Security's financial problems. In fact, it really makes no difference when people retire because benefits are actuarially adjusted so that theoretically everyone gets the same lifetime benefits. Indeed, benefits continue to rise 8% per year past the normal retirement age because of something called the delayed retirement credit. Therefore, if the goal is to improve Social Security's finances, raising the normal retirement age won't do much good because 62 has become the de facto normal retirement age. We will have to raise the early retirement age if we want to save money this way.

Will The Next Generation Be Better Than Their Parents' Generation? (Gary Becker's Blog)

The great majority of parents would like to see their children become better off economically than they are, and that hope would be even more common among the children. Yet, polls for a while have suggested that neither the majority of children nor parents in the United States are confident that this progress will happen. Despite frequent recent commentary on these polls, little systematic analysis has been presented of what determines whether the average child will be better off than the average parent, and why pessimism about such progress has apparently grown in the US.

Now That's Rich (Paul Krugman in New York Times)

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.

2010, e21 - An initiative for 21st Century Economic Policies