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June 24, 2014

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Posted: 24 Jun 2014 12:06 AM PDT

'Political Polarization and Income Inequality in the United States'

Posted: 23 Jun 2014 01:35 PM PDT

From the Liberty Street Economics blog at the NY Fed:

The Capitol Since the Nineteenth Century: Political Polarization and Income Inequality in the United States, by Rajashri Chakrabarti and Matt Mazewski, Liberty Street Economics: Even the most casual observer of American politics knows that today's Republican and Democratic parties seem to disagree with one another on just about every issue under the sun. Some assume that this divide is merely an inevitable feature of a two-party system, while others reminisce about a golden era of bipartisan cooperation and hold out hope that a spirit of compromise might one day return to Washington. In this post, we present evidence that political polarization—or the trend toward more ideologically distinct and internally homogeneous parties—is not a recent development in the United States, although it has reached unprecedented levels in the last several years. We also show that polarization is strongly correlated with the extent of income inequality, but only weakly associated with the rate of economic growth. We offer several tentative explanations for these relationships, and discuss whether all forms of polarization are created equal. ...

Bank Failure, Relationship Lending, and Local Economic Performance

Posted: 23 Jun 2014 01:17 PM PDT

John Kandrac (a former Ph.D. student):

Bank Failure, Relationship Lending, and Local Economic Performance, by John Kandrac, Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series: Abstract Whether bank failures have adverse effects on local economies is an important question for which there is conflicting and relatively scarce evidence. In this study, I use county-level data to examine the effect of bank failures and resolutions on local economies. Using quasi-experimental techniques as well as cross-sectional variation in bank failures, I show that recent bank failures lead to lower income and compensation growth, higher poverty rates, and lower employment. Additionally, I find that the structure of bank resolution appears to be important. Resolutions that include loss-sharing agreements tend to be less deleterious to local economies, supporting the notion that the importance of bank failure to local economies stems from banking and credit relationships. Finally, I show that markets with more inter-bank competition are more strongly affected by bank failure. [Download Full text]

How Much Do We Care About Future Generations?

Posted: 23 Jun 2014 08:28 AM PDT

At MoneyWatch:

How much do we care about future generations?, by Mark Thoma: Former U.S. Treasure Secretary Henry Paulson's recent warning that "We're staring down a climate bubble that poses enormous risks to both our environment and economy" and his call for a carbon tax brings up an important question. How do we assess the benefits to future generations from taking action on climate change now, especially benefits that may be decades or even centuries away?
To answer this question, it's necessary to consider what's known as the "discount rate" on such policies. ...

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