September 16, 2014

Posts on economy

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Wednesday, November 7, 2012 - 11:01 AM

Congratulations to the Election Day winners. So what do Tuesday's results mean for the fiscal outlook?

Think of it this way.

If the country is on an unsustainable fiscal path, which it is, and if continued partisan bickering will not solve this problem, which it won’t, and if divided government has been re-elected, which it has, then the only choices are calamity or compromise.

The Concord Coalition urges compromise.

That must begin immediately as the two parties negotiate a responsible alternative to the “fiscal cliff” – a combination of tax increases and spending cuts that will hit with such suddenness that it could throw the still-fragile economy back into recession.

But they can’t just kick the can down the road -- again. The year-end fiscal cliff is bad, but eventually we will need the longer-term deficit reduction produced by the policies comprising the fiscal cliff. It just needs to be phased-in in a more rational way, as proposed by the bipartisan Simpson-Bowles and Domenici-Rivlin recommendations.

The key is to agree on a process for dealing with the serious and structural imbalance between spending and taxes that, if left on autopilot, will damage the economy, stress the social safety net, diminish our world leadership and leave future generations saddled with a debt burden...

Monday, October 1, 2012 - 11:15 PM

As part of the Strengthening of America -- Our Children's Future project that The Concord Coalition is co-sponsoring, a forum was held last week in New York on the topic of pro-growth tax reform.  The video of the full event is available here.  In the first part of the forum Martin Feldstein, a former chairman of the Council of Economic Advisors and a Romney adviser, joined Lawrence Summers, former Treasury secretary and an Obama adviser, to discuss what they considered pro-growth tax policy. 

At the event, Feldstein and Summers made it clear that when it comes to this subject, there is a lot of common ground between Republican economists and Democratic economists.  Here’s what I heard as some of the main points of agreement between Feldstein and Summers (what Summers referred to as the "structure that Marty and I have converged on"):

1.      Pro-growth tax reform means structuring the tax system to encourage longer-term expansion in the productive capacity (or "supply side") of the economy.

2.      This...

Friday, September 14, 2012 - 11:45 AM

This week The Concord Coalition and several other organizations kicked off an initiative called Strengthening of America – Our Children’s Future focused on the nation's worsening fiscal situation. Former Senators Sam Nunn (D-Ga.), Pete Domenici (R-N.M.), Warren Rudman (R-N.H.) and Evan Bayh (D-Ind.) have convened a bipartisan group of former members of Congress for a series of forums in the weeks leading up to the presidential debates. Nunn and Rudman are Concord’s co-chairs.

Speakers at the first forum emphasized that the most difficult problems are more political than economic.

The country has the strength and capacity to deal with its budget challenges, they said. It is the political will to act that is in question, with many elected officials reluctant to make difficult choices and seek bipartisan cooperation.

James A. Baker III, a former Treasury secretary, said in the forum on Wednesday that a grand bargain to put the country on a more responsible path would require “something that’s become a dirty word” in Washington: “Compromise.” He called for a “heroic effort” to achieve such a deal for the sake of the country’s future.

...
Friday, August 10, 2012 - 2:05 PM

Congressional procrastination could lead to chaotic decision-making on the federal budget after the November elections, but many economists believe this procrastination is already harming the economy.

The damage stems from widespread uncertainty over what elected officials will do, if anything, about the “fiscal cliff” – a combination of sharp “automatic” spending cuts and the scheduled expiration of tax cuts at year’s end.

The Wall Street Journal reported today on its survey of 47 economists, noting their widespread concern about the growing economic cost of congressional inaction. This “adds insult to injury to an economy already flirting with a stall rate,” said Diane Swonk of Mesirow Financial. Another analyst, Julia Coronado of BNP Paribas, said: “We are already feeling the effects in hiring and investment.”

The general expectation in Washington is that elected officials will not take action on the fiscal cliff until after the elections, despite encouragement throughout much of this year from The Concord Coalition and many other analysts and groups to work out a bipartisan action plan as soon as possible.

...
Friday, July 27, 2012 - 10:19 AM

The severe fiscal, financial and economic difficulties in Europe underscore the need for Washington to develop credible plans for comprehensive, long-term fiscal reforms -- in part because spillover problems from Europe could well aggravate U.S. budget challenges.

But Europe’s experience also cautions against excessive austerity measures that can turn a weak recovery into another recession. “These are critical times,” says Senate Budget Committee Chairman Kent Conrad, “and we’ve got to be smart about how we get back on track.”

These were among the key themes that emerged Thursday at a forum in Washington that focused on Europe’s perilous situation and its possible implications for the American economy and U.S. fiscal policy. The program was sponsored by the Committee for Economic Development (CED) and The Concord Coalition.

In addition to Conrad’s keynote speech, the forum featured Stephanie Riso, the head of the European Union's fiscal policy unit, and a panel of four American economists: Douglas Elliott, a fellow with the Brookings Institution; Simon Johnson, an MIT professor; Joseph Minarik, senior vice president and director of research with CED, and Diane Lim Rogers, Concord’s chief economist. Ed Andrews, a former New York Times economics correspondent, served as...

Monday, July 2, 2012 - 10:59 AM

This post was co-authored with Louise Mackey, intern from the Washington Ireland Program 

Interest rates are at historically low levels, making borrowing very affordable for consumers -- and the United States government. When it issues debt, the federal government, like any other borrower, pays interest. This is how the government finances its annual budget deficits.

Why are interest rates so low now?

There are two primary reasons. First, during the recession there was less demand for credit. And to combat this, the Federal Reserve brought interest rates down to spur borrowing. Second, in response to the global economic slowdown, investors around the world have been desperate to place their money in a safe haven -- and U.S. Treasuries are still considered the safest investment in the world.

Interest rates are projected to stay at or near historic lows over the next two years as the economy continues to recover. Eventually, though, interest rates will begin to return to normal levels as economic growth puts inflationary pressure on the economy. This normalization of rates will increase the government’s borrowing costs. Those costs will also be going up simply because the government is borrowing...

Monday, June 25, 2012 - 11:45 AM

Lately it seems impossible to talk about the U.S. economy’s ailments and challenges without mentioning the rest of the world. Recent research by International Monetary Fund economists (reported in a Reuters story here and detailed in this IMF white paper) shows that advanced and emerging economies have become increasingly interlinked over the past decade, particularly through financial markets, with good and bad implications for individual countries. On one hand, cross-border financial linkages diversify risk, reducing an individual country’s exposure to localized shocks. On the other hand, the IMF warns that such interconnectedness can mean that financial risks can be transmitted quickly when they affect a major economic player (they use the term “core node”), possibly leading to a breakdown of the entire, global system.

 Moreover, it’s clear that the world’s economies are in many cases fighting off our own individual but similar economic ailments. The U.S. is watching Europe with keen interest, not just because we are afraid of the negative...

Wednesday, June 13, 2012 - 3:36 PM

The Medicare actuaries have just updated their projections for National Health Expenditures (NHE) and the overall picture they illustrate is a welcome one, but likely reflects temporary factors and cannot serve as an excuse for politicans to rest on their laurels.

On the plus side, health care cost inflation has slowed pretty dramatically over the last three years (2009-2011) and is also projected to be slower than normal for 2012 and 2013 -- with those costs staying nearly constant as a percent of GDP throughout the entire time period (around 17.9 percent). Furthermore, while spending is projected to jump in 2014, as the major health insurance provisions of the Affordable Care Act (ACA) extend coverage to approximately 22 million people, over the period 2011-2021 spending is projected to grow at an annual average of 0.9 percent above GDP growth. This is good news because most budget experts consider health care cost growth of 1 percent over GDP the "gold standard" for a tough, but theoretically obtainable, spending target. (Historically, health care costs have risen 2 percentage points faster than GDP.)

The actuaries suggest most of the recent slowdown in health care spending can be attributed to the recession and...

Friday, May 25, 2012 - 10:06 AM

The Congressional Budget Office (CBO) has released an excellent analysis on the "Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013."  The CBO term “fiscal restraint” has been more popularly referred to as “the fiscal cliff.” That is because there are so many large, sudden fiscal policy changes awaiting us at the turn of the year that if we think of the U.S. economy as a train, it is heading straight for a dramatic fall-off in consumer demand (and hence in overall activity in an economy still constrained by inadequate demand) as these policy changes all happen at once.

Some of the main changes we will face are the expiration of the 2001 and 2003 tax cuts, the expiration of the payroll tax cut, and the beginning of automatic spending cuts required by the debt limit law passed last August. The concern is that taking so much money out of the economy at one time, through either tax increases or a reduction in government spending on goods and services, would slow consumer spending. That would reduce businesses’ desire to increase hiring, which would lead to continued high unemployment. 

And yes, the worry is that the rapid deficit reduction will be harmful. As I explained...

Tuesday, May 15, 2012 - 8:34 AM

Throughout this painfully prolonged economic recovery, economic developments as they are reported have often been confusing. They seem to send mixed messages about the best courses of action for fiscal policy.

Sometimes we are told that more personal spending (consumption) would be good, and sometimes we are told we need to save more. Sometimes we are told that we need to reduce the government budget deficit, and sometimes we are told that continued deficit spending is needed to avoid a double-dip recession.

So what should we be doing with fiscal policy right now -- consolidating or stimulating?

The most recent economic news is that the economy’s overall growth rate has slowed and is falling short of expectations (2.2 percent annual growth rate of GDP for first quarter of 2012 compared with 3 percent in the prior quarter and 2.5 percent expected). Personal spending has slowed as well (0.3 percent monthly growth in March, down from 0.9 percent the prior month and below the 0.5 percent expected). Job gains have also weakened and are not keeping pace with the natural growth in the working-age population.

This news suggests that more private consumption spending, encouraged by continued stimulative, deficit-financed government spending and tax cuts, is needed to further expand...