Subject: Spotlight on regulator pay (AEI Economics Ledger) If you have trouble reading this message, click here to view it as a web page.

Income inequality between regulators and the regulated NEW RESEARCH — Comparing salaries of bank and bank regulatory employees. Paul Kupiec: “Outside of executive salaries at the largest institutions, perhaps the highest-paying and most-secure jobs in banking can be found at the federal bank regulatory agencies, where average employee compensation is more than 2.7 times that of private-sector bank employees. The easiest-to-fill jobs earn the largest premiums over private-sector salaries.” Guess who makes more money than bankers? Their regulators. Paul Kupiec: “The runaway labor costs of these regulatory agencies are not subject to congressional control, and they add up. Employee compensation accounts for about 80% of the operating costs of bank regulatory agencies. If the average regulatory employee's compensation were equalized between bankers and regulators, the direct cost of bank regulation would fall by more than 50%.” More reactions to Thomas Piketty’s new book How to respond to Piketty’s income-inequality alarmism. Jim Pethokoukis: “The good news here is that many of the most realistic responses — even Piketty thinks his own end-game policy agenda is utopian — are intrinsically good ones. Since slow economic growth worsens inequality, we should want to pursue policies that might boost birthrates (tax relief for parents) and innovation (remove regulatory barriers to entry).” Piketty admits the power of marginal tax rates. Edward Conard: “The strongly held belief that higher tax rates do not create significant disincentive for risk-taking is central to the liberal argument. Imagine the shock, then, when two pillars of liberal economics-Paul Krugman and Paris School of Economics professor Thomas Piketty-conceded that a lower U.S. marginal tax rates had a profound effect on the economy precisely through its motivational effects on the most productive workers.” In case you missed it last week --

• Kevin Hassett’s response to Piketty’s new book • An alternative to Piketty’s terrifying future

Seven years after the crisis, where is housing reform? A new housing bubble forms. Edward Pinto and Stephen Oliner: “Risk is starting to build once again in both the U.S. mortgage and housing markets. Contrary to the prevailing view that only borrowers with pristine credit records can get a mortgage these days, many risky loans are still being made. A new index published by AEI’s International Center on Housing Risk measures this risk month by month, based on about three-quarters of all home-purchase loans extended across the country. And the index clearly shows that many of today's mortgages would not perform well under stressful conditions.”

The prescription for Fannie Mae and Freddie Mac is worse than the disease. Peter Wallison and Phil Gramm: “By politicizing the allocation of mortgage credit beyond the level that was possible with Freddie and Fannie — and using a new Federal Mortgage Insurance Corporation to force borrowers with good

credit to subsidize those with bad credit — the bill proposed by Sen. Tim Johnson (D., S.D.) and Sen. Mike Crapo (R., Idaho) manages to make the affordable-housing provisions of current policy worse.” Feds hide the true SIFIs. Alex Pollock: “We have a new post-crisis financial category: systemically important financial institutions, meaning anybody big enough and leveraged enough to possibly create ‘systemic risk’ for everybody else. If you are a super-big and super-leveraged financial firm, the Financial Stability Oversight Council can designate you as a SIFI. But it has not so designated Fannie Mae and Freddie Mac. To all impartial observers, this makes FSOC look incompetent.” Earth Day recap Five inconvenient questions for Earth Day 2014. Benjamin Zycher: “There has been no temperature trend over the last 15 years; the actual record has belied the predictions of the models. The past two years have set a record for the fewest tornadoes ever for a similar period, and there has been no trend in the frequency of strong (F3 to F5) tornadoes in the United States since 1950. What systematic evidence supports the assertion that increasing atmospheric concentrations of greenhouse gases (GHG) are causing significant adverse effects?” Give fracking a seat at the Earth Day table. Mark Perry: “To further appreciate the Earth’s natural environment on Earth Day, we should celebrate the revolutionary technologies of hydraulic fracturing and horizontal drilling that have allowed us to access previously inaccessible, natural energy treasures trapped in tight shale rock miles below the Earth’s surface.” Fracking for bigger budgets. Benjamin Zycher: “Springtime has arrived in the nation’s capital, and it is not only the cherry trees that are blossoming. It is budget time as well, and no federal agency can make do without more dollars, even in terms of ongoing projects and responsibilities; and like flowers opening in the morning sun, the ideas for expanded responsibilities, and budgets, are myriad and inventive.” In other news Should America’s middle class envy Canada’s? Jim Pethokoukis: “The American middle-class certainly has reason to be bummed. The worst downturn since the Great Depression has been followed by an unusually weak recovery. Unemployment remains high. Median wages are still below their prerecession peak. And if all of that weren’t bad enough, the New York Times’ new Upshot site offers this additional bit of discouraging news: ‘The American Middle Class Is No Longer the World’s Richest.’” VIDEO — Say goodbye to corporate taxes? Mark your calendar 4.25 TODAY! AEI Event: Obamacare’s rocky start and uncertain future 4.30 GDP numbers released — first estimate for Q1 2014 4.30 FOMC meeting announcement 5.1 Weekly jobs numbers released 5.2 Employment situation for April Keep up with AEIecon Get up-to-the-minute updates on Twitter @AEIecon. Read more from the American Enterprise Institute economic policy team at www.aei.org/economics. Contact Abby at abby.mccloskey@aei.org if you have questions for the economics team. Sign up for a weekly copy of the LEDGER here. If you were forwarded this message, click here to subscribe to AEI newsletters. Click here to unsubscribe or manage your subscriptions.

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