StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



The Andrew Samwick Archives

Posted by Andrew Samwick

Martin Feldstein makes such a proposal in The Washington Post today in "How To Cut the Deficit Without Raising Taxes."  Here is the main idea:

Here is a practical alternative toward the same end: Congress should cap the total benefit taxpayers can receive from the combined effect of different tax expenditures. That cap could be set as a percentage of an individual's adjusted gross income and perhaps subject to an absolute dollar amount.

To be clear, the cap would not apply to the amount of any deduction but would limit the total tax savings that result from such deductions. Someone with a 25 percent marginal tax rate who pays annual mortgage interest of $4,000 would still deduct that $4,000. The cap would apply to the $1,000 tax saving that individual could expect on mortgage interest, not to his or her deduction.

Posted by Andrew Samwick

This article by Michael Flectcher in yesterday's Washington Post is well worth your time.  It follows the push for green jobs in Ocala, Florida as it has met with almost no success over the past couple of years.  In brief, there is plenty of money for retraining and there are plenty of workers to be retrained, but there is no market for the products.  Nor will there be until the price of fossil fuel emissions is much higher.  From the article:

The industry's growth has been undercut by the simple economic fact that fossil fuels remain cheaper than renewables. Both Obama administration officials and green energy executives say that the business needs not just government incentives, but also rules and regulations that force people and business to turn to renewable energy.

Without government mandates dictating how much renewable energy utilities must use to generate electricity, or placing a price on the polluting carbon emitted by fossil fuels, they say, green energy cannot begin to reach its job creation potential.

In the name of protecting low-income workers from the high price of gasoline (and other dubious reasons), we did not put a carbon tax in place.  But when they lost their jobs, we trained them for jobs that would exist only in a high-carbon-tax environment.  Brilliant!

Posted by Andrew Samwick

Stan does a fine job of analyzing how the Bowles-Simpson plan may actually set back efforts to trim long-term deficits.  Brad DeLong is correct when he describes this commission as an "unforced error" by the Obama administration.  At the level of presidential policy and the specific direction of the commission, these are failures primarily in the choice of strategy and tactics rather than failures in defining the objectives.

In a very interesting post last Thursday at Economix, "On the Deficit Commission, a Failure of Will and Not Ideas," Catherinie Rampell wrote:

So why are we still in the same mess?

Because the country’s budget woes are not a failure of wonkish ingenuity, but a failure of political willpower.

Posted by Andrew Samwick

The private deliberations of the fiscal commission must be something quite interesting to generate the early release of a blueprint like this by the panel's co-chairmen. 

The blueprint has five main elements:

  1. Reduce discretionary expenditures by $200 billion a year from the Pentagon and other federal agencies
  2. Tax reform -- broadening the base and lowering the rates (again)
  3. Cost-cutting in Medicare
  4. Reduced farm subsidies and lower benefits for civil and military retirement
  5. Social security reform -- phase in higher maximum taxable earnings, lower replacement rates at higher incomes, and higher retirement ages; add in protections for low-income workers and a hardship exemption at age 62

Here are some reactions from budget observers reported in The Washington Post:

Posted by Andrew Samwick

I should start by saying that I do not favor extending any part of the Bush-era tax cuts.  (See this post.)  So I am even less in the Republican camp on this one than the politicians Nicholas Kristof criticizes in this column, which he begins by comparing our distribution of income to those of banana republics.  But I just can't let statements like this go:

In my reporting, I regularly travel to banana republics notorious for their inequality. In some of these plutocracies, the richest 1 percent of the population gobbles up 20 percent of the national pie.

But guess what? You no longer need to travel to distant and dangerous countries to observe such rapacious inequality. We now have it right here at home — and in the aftermath of Tuesday’s election, it may get worse.

The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976.

Posted by Andrew Samwick

What I had on my mind heading into the election was this column by Paul Krugman from Sunday, "Mugged by the Debt Moralizers."  Consider this passage, in particular:

So what should we be doing? First, governments should be spending while the private sector won’t, so that debtors can pay down their debts without perpetuating a global slump. Second, governments should be promoting widespread debt relief: reducing obligations to levels the debtors can handle is the fastest way to eliminate that debt overhang.

I am in firm agreement on the first point.  In fact, it would be hard to find someone who called for more spending than I did any sooner than I did.  (Nice summary here.) 

Posted by Andrew Samwick

At his blog today, Ezra Klein takes issue with a suggestion by Andrew Biggs that we improve government finances by raising the early eligibility age (EEA) for receiving Social Security benefits.  The EEA has remained at 62 despite the ongoing increases in the full benefit age (FBA, usually called the normal retirement age) from its historic level of 65 to 66 today and 67 within a decade.  Both Ezra's and Andrew's contributions are worthwhile.  I can add the following six points to the discussion:

1) Social Security exists to prevent people from outliving their means of supporting themselves. 

The core program is for Old Age and Survivors Insurance.  None of the ages being discussed -- 62, 65, 67, even 70 when all age-related aspects of the program max out -- constitute old age.  What matters for the effectiveness of Social Security as an insurance program is whether it keeps the truly old -- think age 85 and almost certainly unable to work -- out of poverty. 

PRESIDENT Obama

31 Oct 2010
Posted by Andrew Samwick

I thought this was one of President Obama's best moments at the podium in a long time.  (Ignore the spin in the framing from the media outlet.)

More on the story here.

Posted by Andrew Samwick

This abstract made me sit up and take notice:

 

How Much Did Banks Pay to Become Too-Big-To-Fail and to Become Systemically Important?

 

Posted by Andrew Samwick

I'm in the time machine again this morning as I read this article by David Hilzenrath in The Washington Post about the federal government's new antitrust suit against Blue Cross Blue Shield of Michigan, that state's largest health insurer.  Here are two key excerpts from the article, which illustrate the issues:

In some cases, Blue Cross's contracts required hospitals to charge other insurers significantly more than they charged Blue Cross, the federal antitrust suit said. In other cases, Blue Cross agreed to increase the prices it pays hospitals - boosting costs for its own customers - in return for commitments that other insurers would be charged no less, the lawsuit said.

[...]

The nonprofit Blue Cross plan in Michigan covers more than nine times as many Michigan residents as its next-largest commercial competitor and more than 60 percent of the state's commercially insured population, the government said.

Posted by Andrew Samwick

A year ago, we learned that the price index on which the Social Security cost of living adjustment is based did not increase over the year, and thus there would be no cost of living adjustment that year.  In our low-inflation environment, we learned last week that the price index has still not eclipsed its previous high for the purpose of calculating the adjustment, and so once again there will be no adjustment.

Unsurprisingly, President Obama is calling once again for a one-time payment in lieu of an adjustment.  From the White House press office on Friday:

Posted by Andrew Samwick

Ah, my work here is done.  From the White House today:

The President on Infrastructure Investment: "This is Work That Needs to Be Done. There Are Workers Who Are Ready to Do It."

I was glad to hear that the definition of infrastructure was broad enough to include more than just transportation networks.  Read the transcript or watch the video at the link above.  Read the Treasury/CEA analysis of infrastructure investment here.  From its executive summary:

Posted by Andrew Samwick

From The New York Times this morning:

The 2010 Nobel Memorial Prize in Economic Science was awarded on Monday to Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides for their work on markets where buyers and sellers have difficulty finding each other, in particular in labor markets.

For decades, the researchers have studied what happens when a market is not made up of identical, cookie-cutter units — as is the case with the job market, where workers have different skills and weaknesses, and where all companies have different types of jobs they need to fill. In many cases, there are significant search costs to finding the ideal match between a buyer and a seller of a good, like the job to a job-seeker.

Well deserved all around.  This is the takeaway from the article (emphasis added):

Posted by Andrew Samwick

Through the work of the excellent Miller Center for Public Affairs at the University of Virginia, C-SPAN will be airing a conference full of experts on the role of central banks in the most recent (and the next) financial crisis.  Here is a link to the page where the event will be broadcast from noon to 3 p.m. today.  The conference description is as follows, and the whole agenda can be found here.

Posted by Andrew Samwick

On his way out the door, Larry Summers joins the Build While It's Cheap Chorus.  Writing in The Financial Times, Alan Rappeport reports:

Larry Summers, the outgoing director of the White House National Economic Council, said the US must ramp up spending on domestic infrastructure to drive the economic recovery.

Speaking at the Financial Times’s View from the Top conference in New York, Mr Summers called it a “short-term imperative and a long-term macroeconomic imperative” that the US government increase infrastructure investment. He said that a combination of low borrowing costs, cheap building costs and high levels of unemployment in the construction sector made this the ideal time to rebuild roads, bridges and airports.

 I presume that Summers did not come to this view just as he thought about leaving.  But it is worth pointing out that he was one of the chief proponents of "timely, targeted, and temporary" as the recession was beginning. 

Posted by Andrew Samwick

I know, I know, I am supposed to blog about the employment release -- how nonfarm payrolls "edged down" by 95,000 jobs in September, how private sector employment was up slightly but not enough to offset the decline in government employment by Census workers, and how U-6 rose by 0.4 percentage points to a ridiculously high 17.1 percent of the labor force.  But you already know what I would say about that. 

So let's do something different.  Let's point to efforts underway to make a difference by taking responsibility for way more than anyone could expect.  Today's subject is Michael Crow, the president of Arizona State University.  I attended a fascinating conference on Monday, sponsored by the New England Board of Higher Education and hosted by the Federal Reserve Bank of Boston in its capacity as a facilitator of regional economic activity, "Reinventing the University: New Models & Innovations for 21st Century Realities."  Here's the conference page.  All of the sessions that I attended were interesting, but the best of the day was the keynote speech by Michael Crow.  What he's doing at ASU is truly remarkable -- it put the rest of us in the auditorium to shame.  Find some time today or over the long weekend to listen to what he had to say.  Here's the podcast.

Posted by Andrew Samwick

Picking up on this thread, The Economist Free Exchange blog notes some critical infrastructure needs in the New York metro area and their relevance to the ongoing debate about fiscal stimulus:

Connections to New York City—the country's largest metropolitan economy—are economically crucial to the state of New Jersey. At present, New Jersey commuter trains share a bottleneck of a tunnel under the Hudson River with Amtrak, the national rail carrier, running on just two tracks that were originally built in 1910. The new tunnel, it is estimated, would double the number of New Jersey residents with a 50 minute or less commute to Manhattan. But the bigger picture is that traffic demand will only rise, and new capacity must ultimately be added, one way or another. If it isn't built now, when things are cheap, it will be built later, when things are expensive.

Posted by Andrew Samwick

Some interesting work by four economists at Berkeley contains the results of on experiment designed to figure out if relative pay affects job satisfaction.  The results are as you might expect, and it is good to see them documented:

Economists have long speculated that individuals care about both their absolute income and their income relative to others. We use a simple theoretical framework and a randomized manipulation of access to information on peers' wages to provide new evidence on the effects of relative pay on individual utility. A randomly chosen subset of employees of the University of California was informed about a new website listing the pay of all University employees. All employees were then surveyed about their job satisfaction and job search intentions. Our information treatment doubles the fraction of employees using the website, with the vast majority of new users accessing data on the pay of colleagues in their own department. We find an asymmetric response to the information treatment: workers with salaries below the median for their pay unit and occupation report lower pay and job satisfaction, while those earning above the median report no higher satisfaction. Likewise, below-median earners report a significant increase in the likelihood of looking for a new job, while above-median earners are unaffected. Our findings indicate that utility depends directly on relative pay comparisons, and that this relationship is non-linear.

Posted by Andrew Samwick

Writing in The Washington Post, Ezra Klein correctly notes that the case for infrastructure spending during an economic downturn is compelling and that the most recent proposals for infrastructure spending are too small.  He writes:

People say that the government should be run more like a business. So imagine you are CEO of the government. Your bridges are crumbling. Your schools are falling apart. Your air traffic control system doesn't even use GPS. The Society of Civil Engineers gave your infrastructure a D grade and estimated that you need to make more than $2 trillion in repairs and upgrades.

Sorry, chief. No one said being CEO was easy.

But there's good news, too. Because of the recession, construction materials are cheap. So, too, is the labor. And your borrowing costs? They've never been lower. That means a dollar of investment today will go much further than it would have five years ago -- or is likely to go five years from now. So what do you do?

Posted by Andrew Samwick

I think that it is well past time for my friends on the Left (and plenty to my Right) to take the Tea Party movmement more seriously.  Stanley Fish makes the point very well yesterday in "Antaeus and the Tea Party:"

These developments have led Time magazine to conclude (in its Sept. 27 cover story) that we are seeing a “shaking up [of] the Republican party,” and columnist Mark Halperin follows suit in the same issue when he says that the Tea Party success “spells danger for [the Republican party’s] long term future.”

But this, I think, is the wrong conclusion and shows how far progressives will go to avoid looking directly at a phenomenon they have trouble believing in. It would be more accurate to say that the Republican party now sees where its future lies, and it will cozy up to the new kids on the block (as it has already done in the case of O’Donnell) and ride their coattails to a victory even larger than the one they have been looking forward to.



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