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Monday, April 9, 2012

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Economic Events of the Week

Tuesday – President Obama Gives a Speech on the Economy at Florida International University, NFIB Small Business Optimism Index
Wednesday – Import and Export Prices
Thursday – International Trade
Friday – Consumer Price Index

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e21 Reaction & Commentary
e21 Commentary: Measured Inequality: Fallacies and Overstatements (Christopher Papagianis)

Washington Update
A Conflict of Visions (Reihan Salam in The Daily)

Market Talk
Current Economic Conditions (Econbrowser)
Where Do People Go When They Drop Out of the Labor Force? (Washington Post)

Editorials & Opinions
America Reassembles Industrial Policy (Edward Luce in Financial Times)
Would Roosevelt Recognize Today’s Social Security (Robert Samuelson in Washington Post)
Who Deserves Credit for an Improving Economy? (Kevin Warsh in Wall Street Journal)
Democratize Wall Street, for Social Good (Robert Shiller in New York Times)

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e21 Reaction & Commentary

e21 Commentary: Measured Inequality: Fallacies and Overstatements (Christopher Papagianis)

2012 is an election year, so it shouldn’t be surprising that opinion-editorial pages are increasingly publishing pieces about the rise of income inequality in America. The baton that John Edwards carried with his “two Americas” theme in 2004 has been passed on to others, who, like Steven Rattner in the New York Times, are arguing that “new statistics show an ever-more-startling divergence between the fortunes of the wealthy and everybody else.” Just as it was back in 2004, many of today’s commentators are overstating the conclusions that can be drawn from the underlying data. The central problem facing the economy is that income growth over the past few years has been modest to nonexistent, as a result of the financial crisis, the subsequent recession, and an extremely modest recovery. Moreover, policies that aim only to redistribute wealth—rather than generate real economic growth and opportunity—are unlikely to solve, or even meaningfully address, the slow growth trajectory for wages. Specifically, you should consider six complicating factors when you next find yourself reading an op-ed on inequality trends.


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Washington Update

A Conflict of Visions (Reihan Salam in The Daily)

At a gathering of journalists in Washington earlier this week, President Obama referred to Rep. Paul Ryan’s House-passed budget proposal as “an attempt to impose a radical vision on this country.” Yet on the central issue of Medicare, the health entitlement program that is almost universally regarded as the driver of future deficits and debt, Ryan’s plan shares a lot of similarities with the president’s. Both Ryan and the president call for growing expenditures at the gross domestic product plus 0.5 percent a year. If the overall economy grows at 4 percent, Medicare expenditures would grow at 4.5 percent, whether the president’s vision or Ryan’s prevails. So if Ryan’s Medicare proposal represents a “radical vision,” Obama’s does as well.


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Market Talk

Current Economic Conditions (Econbrowser)

Friday's jobs report was unquestionably a disappointment. But other recent U.S. economic indicators are more encouraging. One of the big concerns of many analysts was that rising oil prices of the last 5 months might significantly slow down economic growth. My view is that the main mechanism by which oil prices can sometimes have a disproportionately disruptive effect on the economy is if they result in sudden shifts in the patterns of spending. One typical channel is a plunge in sales of the larger vehicles manufactured in the U.S., which then leads to further losses of income and jobs in the auto sector. But the evidence suggests that an oil price increase that just reverses a previous oil price decrease-- and that is basically what we've experienced so far in 2012-- is not nearly as disruptive as if the price were rocketing into uncharted territory. One reason for this is that recent consumers' vehicle purchase plans were already taking into account the possibility that $4 gas could soon return.

Where Do People Go When They Drop Out of the Labor Force? (Washington Post)

In March, the unemployment rate dropped from 8.3 percent from 8.2 percent. But that wasn’t because the economy added an enormous number of jobs. Rather, as Sarah Kliff pointed out, it was largely due to the fact that 164,000 fewer people were actively looking for work — and they don’t count in the unemployment tallies. That raises the perennial question: Where did all these people go? The Atlantic’s Matthew O’Brien passes along some handy survey data from Barclays that sheds a little light on this mystery. About 35 percent of the people who have dropped out of the labor force since the recession began in 2007 do want a job, but they’ve become too discouraged to fire off resumes. That’s not good. The other 65 percent are people who have left the labor force and don’t want a job. Some of them are young and perhaps decided to go back to school. But the biggest chunk, by far, seems to be composed of Baby Boomers who have decided to retire early.


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Editorials & Opinions

America Reassembles Industrial Policy (Edward Luce in Financial Times)

What if Gene Sperling, director of the White House’s national economic council, declared that a manufacturing renaissance would be strongly in America’s interest? Imagine he added that the US’s manufacturing decline was an aberration that should be reversed. Suppose he came close to breaking a real taboo by saying industrial policy may now make sense. Since Mr Sperling is President Barack Obama’s chief economic adviser – and thus speaking on his behalf – people would take notice, wouldn’t they? That is precisely what Mr Sperling said in a carefully researched speech in Washington 10 days ago. Almost no-one paid attention. Mr Sperling’s words offered evidence of what is starting to sound like a change of world view in the White House.

Would Roosevelt Recognize Today’s Social Security (Robert Samuelson in Washington Post)

Would Franklin Roosevelt approve of Social Security? The question seems absurd. After all, Social Security is considered the New Deal’s signature achievement. It distributes nearly$800 billion a year to 56 million retirees, survivors and disabled beneficiaries. On average, retired workers and spouses receive $1,839 a month — money vital to the well-being of millions. Roosevelt would surely be proud of this, and yet he might also have reservations. Social Security has evolved into something he never intended and actively opposed. It has become what was then called “the dole” and is now known as “welfare.” This forgotten history clarifies why America’s budget problems are so intractable.

Who Deserves Credit for an Improving Economy? (Kevin Warsh in Wall Street Journal)

Three years after a severe recession, the economy remains stuck in a modest recovery. More than 12 million Americans actively seek work. Many citizens, particularly the younger and less-educated, find themselves detached, demoralized and defeated. And still, a growing Washington consensus credits any improvement in economic performance to Washington's doing. Private markets are incapable of generating self-sustaining, rising living standards, so businesses and households should be grateful for the government's continued largess. This consensus seems to believe that the strength of our country rests with its political leaders. My views are decidedly less fashionable: The strength of our country is our economy. The strength of our economy is our citizenry. And the strength of our citizens is their character and good judgment.

Democratize Wall Street, for Social Good (Robert Shiller in New York Times)

Many finance students and members of the Occupy Wall Street movement have a great deal in common: a deep interest in democratizing Wall Street. At Yale, where I have been teaching for 25 years, I’ve been hearing a great deal lately from my students about financial innovations linked to social media. One such innovation, called crowdfunding, is embedded in the jobs bill signed into law by President Obama on Thursday. The idea involves Web sites that help many investors contribute small amounts of capital to projects that they read about online, and that might otherwise be starved for money. Though the concept is being tried, in different ways, on sites like Kickstarter.com and Kiva.org, it is still very much an experiment, and its real-world benefits for small investors are still uncertain.


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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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