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CBO Deficit Forecast Breathes New Life into Deficit Debate
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
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.
Government Spending Enthusiasts’ Three Sleights of Hand
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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Wavebreak Media
Economists For Keeping The Charitable Deduction
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
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
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.
Read more...January's Employment News
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
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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Wednesday, May 22, 2013
U.S. Power: Down But Still Unrivaled (Hubbard & Kane in Reuters)
Lerner To Invoke The Fifth, Former IRS Commissioner Describes 'Dismay' (CQ)
With More Clarity, White House Adds To Confusion On IRS (The Washington Post)
Bill Kristol Tells Marco Rubio To ‘Walk’ On Plan (Politico)
Obama’s Fannie Mae Pick Watt Faces Fight Imperiling Housing Deal (Bloomberg)
Bernanke To Address QE Timeline (Financial Times)
Fed’s Bullard: Adjustable Bond Buying Best Fit For Policy (The Wall Street Journal)
Philly Fed: State Coincident Indexes increased in 45 States in April (Calculated Risk Blog)
The Debt Problem Hasn't Vanished (Gramm & McMillin in The Wall Street Journal)
Where Is The Global Economy Going? (Ashley Kindergan in The Financialist)
Apple Shows Need For US Tax Reform (Financial Times Editorial) -
Tuesday, May 21, 2013
The IRS And The Drive To Stop Free Speech (Rivkin & Casey in The Wall Street Journal)
The White House’s Shifting IRS Account (Politico)
Proposed Farm Bills Would Cut Billions From Current Spending Levels (The Washington Post)
House Appropriators to Launch Bills to Boost Defense, Slash Domestic Spending (CQ)
Fed’s Evans Says Economy Has Been ‘Improving Quite A Lot’ (Bloomberg)
Chicago Fed: "Economic Activity Slower In April" (Calculated Risk Blog)
Housing Recovery Still Has Room to Run (The Wall Street Journal)
Thoughts On The Distributional Effects Of The Affordable Care Act (Reihan Salam in National Review)
The Flawed Origins Of Expansionary Austerity (Jeffrey Frankel in Project Syndicate) -
Monday, May 20, 2013
Boasting About A 4.2% Deficit? (Keith Hennessey's Blog)
Obamacare Allies Eye Ballot Initiatives (Politico)
How The IRS Seeded The Clouds In 2010 For A Political Deluge Three Years Later (The Washington Post)
House Immigration Group Decides To Punt On Guest Worker Program (CQ)
Extraordinary Measures Become Standard As US Hits Debt Limit Again (The Hill)
Treasury Yields Near 2-Month High On Bets Fed To Taper Stimulus (Bloomberg)
Bernanke Optimistic About Innovation (The Wall Street Journal)
US Wins Breathing Space On Debt Ceiling (Financial Times)
What Stock to Buy? Hey, Mom, Don’t Ask Me (Gregory Mankiw In The New York Times)
Is The Health-Care Spending Slowdown For Real? (Robert Samuelson)
Red Tape Record Breakers (The Wall Street Journal)
The Risks of Fiscal Turmoil for Monetary Policy: Some Lessons from History
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.
Monetary Policy and Economic Performance
The Federal Reserve is in an uncomfortable predicament. It has reduced interest rates to zero, pumped trillions of dollars into the financial system, and is now engaging in “operation twist”. Bond yields are low, yet the economy is not responding. Congress, financial markets and the media always turn to the central bank in times of trouble, and the Fed feels pressure to comply and ease monetary policy further. The Fed has not come to grips with the limitations of monetary policy. Complying with the pressure to ease further—to do something—may involve high risks, even if inflation remains low in the near term.
Commentary