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Subject: What Washington can (or cannot) do about 0.1% GDP growth (AEI Economics Ledger) If you have trouble reading this message, click here to view it as a web page.
US economic growth slows in the first quarter of 2014 NEW PAPER — America’s limp economic recovery, five years on. John Makin: “The November midterm elections may provide some relief insofar as a sharp repudiation of the bad economic policy emanating from the White House may manifest itself in Republican control of both the House and the Senate. That outcome would be a strong signal to leadership in Washington that a different tack is required to produce a sustainable recovery. A substandard recovery lasting more than five years surely needs some extra help in the form of more inspiration and less drag from Washington.” No, the US economy is not about to slip into a recession. Jim Pethokoukis: “Real gross domestic product expanded at just a 0.1% annual rate, according to the Commerce Department. That’s the slowest pace since the fourth quarter of 2012, and markedly slower than the 1.2% consensus forecast. The new consensus: blame Mother Nature and look forward to a much better second quarter.” The limits to growth have not been reached. Desmond Lachman: “It would seem presumptuous to say that in the future the human quest for knowledge will not produce major technological breakthroughs in much the same way as it did over the past 250 years. Never before in human history have so many people been devoted to pure scientific research and engineering endeavors as there are today.” Is China’s economy surpassing that of the US? Derek Scissors: “You shouldn't believe in effective Chinese reform until you see it, and possibly not then. Most of the grand plans from last fall's Communist Party plenary meetings — e.g. having private capital cooperate more with the state, rather than compete more — won't work on paper, much less survive the perils of implementation.”
Get smart on income inequality and mobility MUST-SEE DISCUSSION— Ed Conard and Robert Doar on income inequality and mobility NEW PAPER — Measuring inequality: One size does not fit all. Sita Slavov and Benjamin Ho: “From the perspective of fairness, an ideal measure of inequality should be based on lifetime individual opportunities for well-being, but we often observe only annual household-level realized income. Looking to other measures of well-being like health and self-reported happiness can help make up for the biases in income-based measures. Additionally, it would be valuable to refine existing measures of inequality of opportunity and to emphasize those measures in the public debate.” Minimum wage, maximum harm. Sita Slavov and Aspen Gorry: “A new study by one of us suggests that most of the job losses from a minimum wage increase will occur among younger workers. Such job losses harm these workers’ ability to gain valuable experience at a critical time in their careers and permanently damage their future employment prospects.” Low-income borrowers are the most hurt by federal housing policy. Edward Pinto: “Congress should end its decades long policy whereby the lowest income borrowers with high income volatility are put into the loans with the highest leverage used to buy homes in areas with the most volatile house prices. And then we wonder why they are not able to accumulate wealth through home ownership?”
Update on Fed activities No press conference, no FOMC action. Stephen Oliner: “The FOMC tends to act at meetings with press conferences for a good reason: the chair has an opportunity to provide a more complete explanation for the policy change than is possible in the written statement that follows every meeting. If handled well by the chair, the press conferences can be a constructive part of the Fed's ongoing conversation with the financial markets and the public about monetary policy.” Worried about leverage? Look at the Fed. Alex Pollock: “Fed Chairwoman Janet Yellen has suggested the possibility of ‘even higher capital requirements’ for banks. That would be higher than the minimum 5% capital ratio, which equals a maximum 20:1 leverage limit, now required for large bank-holding companies. . . . What are the capital ratio and the leverage of the Federal Reserve itself, with its new, much riskier balance sheet? The answer is that with $4.2 trillion in assets and $56 billion in capital, the consolidated capital ratio of the Fed is a mere 1.3%, and its leverage is 75:1.”
Around the world Europeans should worry more about unemployment. Desmond Lachman: “There is every prospect that the high rates of unemployment that have been a principal factor underlying the recent crumbling of European politics are all too likely to persist. Indeed, the European Central Bank itself is forecasting that overall European unemployment will only decline from 12 per cent today to 11.5 per cent in 2016 despite the economic recovery it anticipates.” No movement on trade talks. Derek Scissors: “TPP talks now look like they could drag on indefinitely, with no real deadline to push the parties forward. TPP is a microcosm of a larger failure: lack of political courage in Tokyo has long contributed to economic stagnation, and now the same thing is starting to occur in Washington.”
In other news
California’s tough trade-off on prison reform. Stan Veuger: “California is now running surpluses even without raiding public school coffers and special funds. . . . One of the measures taken as a part of this reform effort was Assembly Bill 109, a law shifting responsibility for low-level criminals from the state prison system to county jails, where individuals convicted of nonserious, nonviolent or nonsex offenses will now serve their time.”
Net-neutrality arguments do not line up with facts. Richard Bennett: “The FCC’s net neutrality rules are based on the false premise that American broadband services are sub-standard compared to those in other countries.”
NEW DATA — Mortgage risk ticks up around the nation
Special notice Attention student leaders! As part of AEI on Campus’s leadership program, scholars AEI’s economic studies department are talking to hundreds of students every semester about the importance of free enterprise. If you know any exceptional student leaders, connect them to Scott Fyall at [email protected], who will them more about AEI on Campus Executive Council positions. Executive Council members travel to Washington, DC, for leadership conferences, network with business leaders and scholars, and host influential thinkers on campus. Learn more here! The priority application deadline for 2014–15 is June 8, 2014.
Mark your calendar 5.2 April employment numbers released 5.8 Jobless claims 5.13 AEI event: A foundation for prosperity: An address by Sen. Rob Portman 5.20 AEI event: The fourth revolution: The global race to reinvent the state
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