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CBO Deficit Forecast Breathes New Life into Deficit Debate

e21 Staff Editorial | 05/16/2013

Did you notice how the U.S. economy was suddenly thrown into recession this year when tax increases and spending cuts took effect? If you didn’t, that’s no surprise because the economy actually accelerated to 2.5% growth in the first quarter of 2013 from just 0.6% growth in the fourth quarter of 2012. Preliminary estimates for growth in the second quarter suggest that growth will remain close to 2%, about the same trend rate achieved since the recovery began in 2009. Read more...


Principles For Regulatory Rationality

Stephen Goldsmith | 05/15/2013

Each new exposé on bad behavior by some business produces a rash of new enforcement procedures against all, including those entities that operate with the highest standards. For every aspiring entrepreneur hoping to capture an opportunity in a regulated trade the enforcement procedures can translate into another obstacle. As time goes on new regulation often ceases to serve its original purpose and suffocates citizens and law-abiding businesses without producing the intended benefits.

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Government Spending Enthusiasts’ Three Sleights of Hand

e21 Staff | 05/06/2013

Those who believe more government spending is the antidote to the current economic malaise generally rely on one or more assumptions to defend their nonsensical position: (1) the future costs of servicing debt issued to finance larger deficits don’t matter or are trivially small; (2) the central bank can control future interest rates, so we need not worry about a spike in future borrowing costs; and (3) the only channel through which government borrowing can negatively impact economic activity is through higher interest rates at full employment. Let us take each in turn.

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Economists For Keeping The Charitable Deduction

e21 Team | April 25, 2013

The federal income tax code is saddled with inefficient exemptions, deductions and credits. Streamlining them is an important policy goal, and Senator Max Baucus and Congressman Dave Camp, the respective Chairmen of the two tax writing committees in Congress, are in the process of working through an overhaul of the tax code to lower rates and remove distortionary deductions. Tax simplification is a universal goal, but it has thus far been elusive because what seems a special interest carve-out to many can seem to others the promotion of a valid public policy goal. One example is the deduction for charitable contributions. A group of over two hundred economists published an open letter to Congress as a full page ad in Politico on Thursday, April 25, arguing for the uniqueness of the charitable deduction, which is pasted below. Read more...

March Job Trends

e21 Team | April 5, 2013

Today's employment situation report is a dismal one, coming in far below expectations. Every month, Matt McDonald at Hamilton Place Strategies produces a cheat sheet summarizing the key statistics and trends. Click on the image for a larger version. Read more...

2013 CBO Baseline Shows Areas Of Concern

e21 Team | February 6, 2013

The Congressional Budget Office released their 2013 outlook of the federal budget for the next decade, which projects that today's historically huge deficits will slowly shrink to merely being very large deficits in the next decade. In the Budget and Economic Outlook: Fiscal Years 2013 to 2023, the CBO sets the baseline for Congress to use when analyzing how their policy changes will affect the government’s fiscal picture. Here are a few of the main points of interest.

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January's Employment News

e21 Team | February 1, 2013

Today we received the first jobs report of 2013, pending any future revisions. Every month, Matt McDonald at Hamilton Place Strategies produces a cheat sheet summarizing the key statistics and trends. Click through for the graphic. Read more...

Ingram Publishing

Approaching the Debt Limit

e21 Team | January 17, 2013

Advocates of responsible fiscal consolidation consistent with economic growth find themselves in a bind. By late February or early March, the federal government is expected to hit its debt limit. Breaching the debt limit is likely to cause considerable anxiety among investors, and there is a nontrivial chance that it could trigger yet another downgrade of U.S. debt. Though many analysts observe that breaching the debt need not lead to default, as debt service payments can be prioritized over other expenditures, federal revenues are not entirely predictable. Read more...

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  • Friday, May 17, 2013
    Friday, May 17, 2013

    Why Title II of Dodd-Frank Has Not Reduced the Likelihood of Bailouts (John Taylor's Blog)
    This Time, Obamacare Repeal Is About The IRS (Politico)
    Lawmakers To Focus On Whether IRS Misled Congress On Screening Practices (The Washington Post)
    House Appropriators Set 'Austere' Allocations On $967 Billion Budget Cap (CQ)
    House Immigration Group Announces 'Agreement In Principle' (The Hill)
    Stocks Fall As Dollar Reverses Drop On Bets Fed to Taper (Bloomberg)
    Data Quirks May Ease Fed’s Mind On Inflation Slowdown (The Wall Street Journal)
    Philly Fed Manufacturing Survey Shows Contraction in May (Calculated Risk Blog)
    The $642 Billion Excuse (Robert J. Samuelson in The Washington Post)
    The IRS Scandal Started At The Top (Kimberley Strassel in The Wall Street Journal)

  • Thursday, May 16, 2013
    Thursday, May 16, 2013

    e21 Commentary: CBO Deficit Forecast Breathes New Life into Deficit Debate
    Jack Lew's Big Test (Politico)
    Acting Director Of IRS Resigns Amid Furor Over Targeting of Conservative Groups (The Washington Post)
    House GOP Still Struggling For Consensus On Debt Limit (Roll Call)
    Immigration Group In The House Facing Make-Or-Break Moment (The Hill)
    Volcker Says Jobless Rate To Remain Above 6% For Two Years (Bloomberg)
    Snags Await Favourite For Federal Reserve Job (Financial Times)
    Sorry, World, U.S. Consumers Can’t Save You (The Wall Street Journal)
    Fed: Industrial Production Decreased 0.5% In April (Calculated Risk Blog)
    CBO’s New Deficit Estimate (Keith Hennessey's Blog)
    European Union Economic Crisis Grinds On (The Washington Post)
    Take Politics Away From The I.R.S. (The New York Times Editorial)

  • Wednesday, May 15, 2013
    Wednesday, May 15, 2013

    e21 Commentary: Principles For Regulatory Rationality (Stephen Goldsmith)
    Farm Bill Clears Senate Agriculture Committee (Politico)
    Hoyer: Dems Fear ObamaCare Glitches (The Hill)
    Inspector General Cites "Ineffective Management" in IRS Investigation (CQ)
    Pimco Pares Risk On Bet Monetary Easing Distorts Markets (Bloomberg)
    US Deficit Falls Faster Than Expected (Financial Times)
    Hedge Funds Bet on Freddie, Fannie Rise (The Wall Street Journal)
    NY Fed: Consumer Debt Declines In Q1, Deleveraging Continues (Calculated Risk Blog)
    Don't Get Too Excited About the New, Smaller Deficit (Josh Barro in Bloomberg)
    The 'Independent' Revenue Service (The Wall Street Journal Editorial)
    IRS Has Been Too Lax On Tax-Exempt Status (Ruth Marcus in The Washington Post)

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http://www.economics21.org/files/pdfs/in-depth-research/goodfriend-fall-2011.pdf

Fiscal Dimensions of Inflationist Monetary Policy

Marvin Goodfriend | Shadow Open Market Committee | October 21, 2011

The broad-based support for price stability is at risk today in the United States and in Europe. Prominent voices in academia, the media, the International Monetary Fund, and inside the Federal Reserve have proposed that the commitment to price stability should be relaxed in one way or another to concentrate on achieving more pressing objectives. The inflationist policy proposals are varied with respect to their objectives and operating guides. For instance, the objectives range from reducing unemployment, to depreciating the real public debt, to facilitating international adjustment within the Euro area. In the paper, I compare and contrast various inflationist proposals and consider their overall advisability in light of lessons from the Great Inflation.

http://www.economics21.org/files/pdfs/in-depth-research/ireland-fall-2011.pdf

What the Political System Can Do to Help the Fed

Peter Ireland | Shadow Open Market Committee | October 21, 2011
The Federal Reserve faces mounting political pressures. Their intensity levels have reached -- and may even exceed -- those last felt during the days of the Volcker disinflation, three decades ago. Critics of the Fed have raised their voices, using colorful language that has taken many listeners aback. Recent examples have been so striking that they need not be mentioned specifically -- their sound still rings in our ears.
http://www.economics21.org/files/pdfs/in-depth-research/calomiris-fall-2011.pdf

Bank Capital Requirement Reform: Long-Term Size and Structure, the Transition, and Cycles

Charles W. Calomiris | Shadow Open Market Committee | October 21, 2011
There is general agreement that the minimum bank capital ratio requirements (hereafter MCRR) set by regulators in the US and elsewhere were inadequate leading up to the financial crisis, and that this substantially contributed to the financial crisis. Inadequate MCRR contributed to the crisis ex ante by encouraging excessive risk taking (the so-called moral-hazard problem of limited liability, which is exacerbated by the possibility of taxpayer-financed bailouts); ex post, inadequate capital meant that intermediaries’ net worth was too low to absorb losses without jeopardizing banks’ solvency, substantially raising counterparty risk among banks, and thereby producing a funding liquidity crisis for banks that led to massive credit contraction, selloffs of risky assets, and widespread financial distress.
http://www.economics21.org/files/pdfs/in-depth-research/bordo-fall-2011.pdf

The Risks of Fiscal Turmoil for Monetary Policy: Some Lessons from History

Michael D. Bordo | Shadow Open Market Committee | October 21, 2011
The recent financial crisis and recession in the U.S. and the massive fiscal stimulus package that followed it has led to a fiscal deficit close to 9% and a ratio of debt to GDP close to 90%. In addition, demographics point to ever rising Social Security and Medicare entitlement expenditures and the possibility of even larger deficits and debt ratios in the not too distant future. These facts raise the specter of a disconnect between a relatively stable monetary policy and a relatively unstable fiscal policy and raises the question whether the Fed can insulate itself from the fiscal turmoil.
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