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November 3, 2011

Latest Posts from Economist's View

Latest Posts from Economist's View

"The Case for Rebuilding our Transportation Infrastructure"

Posted: 03 Nov 2011 12:33 AM PDT

Infrastructure needs are high, costs are unusually low, and people need jobs. In addition infrastructure spending, which enhances future economic growth, can be viewed as a supply-side policy.

If our financial infrastructure was crumbling we'd do something about it, so why not do the same for our physical infrastructure, especially since the benefit to cost ratio is unusually high? I suppose we all know the answer, but it's still worth making members of Congress show their votes:

Creating Jobs and Boosting the Economy: The Case for Rebuilding our Transportation Infrastructure, by Aaron Klein, Treasury Notes: Today, the Senate begins its consideration of the Rebuild America Jobs Act, which would put hundreds of thousands of construction workers back on the job and modernize America's crumbling infrastructure. The President proposed this measure to Congress as part of the American Jobs Act as a way to create jobs and improve the Nation's long-term economic competitiveness by allowing goods and services to more efficiently reach domestic and global markets. The White House also released a report today that provides examples of recent infrastructure projects which have produced significant economic benefits.
Our economy is as interconnected as our infrastructure, and well-targeted infrastructure investments create immediate and long-term economic benefits to both local communities and those further away. ... As Secretary Geithner said when he visited the UPS Worldport Facility in Louisville, Kentucky recently, "If you do a better job of repairing roads and bridges, highways, airports, railways, it makes companies more competitive. It lowers their costs. It's like a tax cut."  Simply put, wise investments in infrastructure save companies and consumers both time and money.
In addition to laying the foundation for stronger economic growth, we must also work to address a crucial problem facing our economy today - unemployment. Investments in infrastructure today will put Americans back to work. And with over 1 million construction workers currently unemployed, now is the right time to invest in infrastructure. Eighty percent of jobs created by investing in infrastructure will likely be created in three occupations - construction, manufacturing, and retail trade - which are among the hardest hit from the recession. Treasury Department analysis shows that these sectors pay middle-class wages, so employment in these sectors bolsters middle-class jobs. ...

I am a bit worried about the privatization of infrastructure in some of these proposals, but that's about how the programs are structured, not about whether they are needed.

"Were the Bush Tax Cuts Worse for Progressivity or for Revenues?"

Posted: 03 Nov 2011 12:24 AM PDT

Lane Kenworthy:

Were the Bush tax cuts worse for progressivity or for revenues?, by Lane Kenworthy: The Bush tax cuts of the early 2000s reduced the progressivity of federal taxes, but not that much. The chart below shows the effective federal tax rate for each quintile of households and for the top 1% in the business-cycle peak years of 2000 and 2007. The tax rate dropped by a similar amount for each quintile, and only slightly more for the top 1%. (For more discussion and analysis, see pages 24-31 of this CBO report .)

What should we make of this? On the one hand, it's good that there was little reduction in progressivity. The progressivity of federal taxes helps to offset the regressivity of state and local sales taxes.
On the other hand, there was a compelling case in the early 2000s (and still today) for increasing the progressivity of federal taxes. One of the chief rationales for progressive taxation is that those with high income can afford to contribute a larger share of that income. In the 1980s and 1990s, the top 1% of Americans enjoyed whopping income gains. ... For households in the bottom 20%, average income barely budged... Given these developments, it would have been sensible to increase the effective tax rate a bit for those at the top and perhaps reduce it a little for those at the bottom. President Bush and the Congress instead chose to reduce rates for everyone.
The chief harm inflicted by the Bush tax cuts wasn't to progressivity. It was to government revenues. The average effective federal tax rate for all households dropped from 23% in 2000 to 20.4% in 2007. Judging from the CBO's data on income, that two-and-a-half percentage point decline subtracted roughly $300 billion from federal tax revenues in 2007. Proponents of the tax cuts hoped the economy would grow faster, mitigating the revenue loss caused by the lower rates, but that didn't happen.
$300 billion a year wouldn't address all of our revenue needs, but it could do a lot of good.

links for 2011-11-03

Posted: 03 Nov 2011 12:06 AM PDT

The Fed Leaves Monetary Policy Unchanged

Posted: 02 Nov 2011 10:17 AM PDT

A few comments on the FOMC meeting:

The Fed Leaves Monetary Policy Unchanged

It's disappoinnting that the fed didn't do more to help th eeconomy, but not unexpected.

Update: Here is a response to Bernanke's Press Conference. "I don't think Bernanke explained adequately why the Fed is reluctant to do more to help the economy."

Video: Paul Krugman's "Vision for a Decent Society"

Posted: 02 Nov 2011 09:27 AM PDT

"Consumer Spending is Much More Fragile Than Commonly Believed"

Posted: 02 Nov 2011 08:37 AM PDT

One more from Tim Duy:

Meanwhile, Back on This Side of the Pond..., by Tim Duy: The break down in the relationship between consumer confidence and actual spending is something that has been nagging at me for awhile. This picture:

While confidence is at recession levels, real personal consumption expenditures continue to grow at a reasonable clip. Should confidence numbers be totally dismissed, or do they signal an underlying fragility among households that should not be ignored? Some hints at an answer may be found in the September income and spending report. Notably, real personal disposable income looks to have rolled over:


So where is the spending power coming from? A plunge in the saving rate:


It looks like households are struggling to hold onto the even meager spending gains achieved since the recession ended, and that struggle may be what is reflected in the consumer confidence numbers. Overall, this suggests to me that consumer spending is much more fragile than commonly believed.  

Manufacturing activity also looks shaky. To be sure, it is reasonable to expect some momentum from the surge in equipment spending in the third quarter. But it is also reasonable to believe that some of this demand was pulled forward as firms try to get ahead of the expiration of the accelerated depreciation benefit. And even with that surge, note the ISM report surprised on the downside Tuesday morning. On the positive side, the new orders measure climbed back above 50, while on the negative, both the export and import components fell. The latter point is a troubling indication of spillover from slowing manufacturing activity in China and Europe. A contraction in global activity isn't exactly what we need at this juncture, especially as it will first bleed through to what has been one of the bright spots in the US recovery.

Bottom Line: With all attention focused on the Greek drama, plus the well-received Q3 GDP report, it has been easy to overlook the underlying fragility in the US economy. This was especially the case when US equities looked to be on a nonstop trip to the moon. Perhaps the US economy can squeak through the next few quarters, and perhaps, in contrast to my expectations, Europe is able to bring an end to the crisis with limited collateral damage to the economy. But I can't shake the feeling that the US economy closer to running on fumes than is commonly believed, and will run out of gas in a very hostile global environment.

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