Category: Economics

The measure of human happiness

July 2, 2011 12:42 am by Clive Crook

A theme at many sessions at this year’s AIF has been happiness–what it is, how you advance it, how you measure it. Fascinating. Justin Wolfers and Robert Frank had an interesting exchange on this earlier in the week, and I’m continuing to turn their arguments over in my mind.

Wolfers tore into the “Easterlin Paradox”, which is the claim that happiness does not rise with income beyond a certain point. That finding (see Richard Easterlin: Does Economic Growth Improve the Human Lot?) gave rise to the popular view that, for rich countries at least, economic growth is a treadmill. People are struggling to improve their status, and feel happier if they succeed, but the race for status goods is zero-sum. Growth in absolute income cannot raise everybody’s relative position. It allows higher consumption but expands desires at about the same rate. The gain in happiness, if any, is small. For a rich country, the obsession with growth in GDP is an error.

Continue reading: “The measure of human happiness”

Posted in Current Affairs, Economics |

The X Date: What happens after August 2nd?

July 1, 2011 12:36 am by Clive Crook

The Bipartisan Policy Centre crunches the debt-ceiling numbers. It finds that the the date on which the Treasury will no longer be able to pay all its bills–the X Date–will be “no earlier than August 2nd and probably no later than August 9th.”

What would happen next? There is no precedent, says the BPC. After looking carefully at the Treasury’s projected daily outflows and inflows, the presentation concludes that federal spending would have to be cut immediately by 44%. With decisions then having to be made on a day-by-day basis,  prioritizing spending would be very difficult and “the reality would be chaotic”. The government has nearly $500 billion in debt to roll over during August, at a time when a spike in uncertainty plus threatened or actual debt downgrades would be pushing up interest rates.

“The risks are real,” says the BPC. No kidding.

Update: The Committee for a Responsible Federal Budget has updated its “Realistic Baseline”:

Under its Extended Baseline Scenario, CBO bases its projections on current law, which assumes many things that are unlikely to occur, including the expiration of all the 2001/2003/2010 tax cuts and the discontinuation of the regular policy of enacting “AMT patches” and “doc fixes.”

Under its Alternative Fiscal Scenario, CBO lays out a more fiscally pessimistic path, where policymakers increase discretionary spending this decade at the rate of GDP growth, revenues stop growing as a share of GDP altogether after 2021, and the cost controls enacted under Health Carereform (PPACA) are ineffective or overridden after 2021.

CRFB’s Realistic Baseline uses a set of realistic assumptions that fall between these two scenarios and is consistent with a “current policy” path. Under this baseline, debt would rise from 69 percent of GDP today to 88 percent in 2020, 140 percent in 2035, and 437 percent by 2080.

Posted in Current Affairs, Debt, Economics, US Economy, US Politics |

Reforming US corporate taxes

July 1, 2011 12:18 am by Clive Crook

The US corporate tax code encourages US firms to retain profits abroad. Their taxes are deferred, and only payable when the money comes home. This is a tax-avoidance opportunity and an artificial inducement to firms to invest abroad rather than in the United States. Robert Pozen has a proposal: move to a modified territorial system.

To reform the current system, Congress should exempt from U.S. taxes corporate income earned in foreign countries with an effective corporate tax rate of 20 percent or higher. Such earnings could be repatriated to the U.S., subject to payment of a 5 percent administrative charge. Such a fee, applied in France and other countries, would be a simple way to account for prior deductions from U.S. taxes by American corporations to generate foreign source income — for example, on salaries of U.S. executives who helped start European operations.

At the same time, Congress should end the current deferral system for foreign source income earned by U.S. corporations in countries with effective tax rates under 20 percent. Instead, that income would be taxed every year in the U.S. at a rate equal to the difference between 20 percent and the actual rate paid by the corporation in the tax haven. For example, if an American company generated $100 million of income in Bermuda, which collected $2 million in taxes on that income, the corporation would pay $18 million in U.S. taxes. And if the company repatriated that income to the U.S., it would pay the 5 percent administrative charge.

The plan is not without its difficulties–but Pozen answers the main objections. It is a good idea.

Posted in Current Affairs, Economics, US Economy |

More on the IMF reshuffle

June 29, 2011 8:23 pm by Clive Crook

Yesterday I said I’d be surprised if the US agreed to let the number 2 job at the IMF go to a non-US candidate, as recommended by Mohamed El-Erian. Today I ran into Stephan Richter at the Aspen Ideas Festival, and he drew my attention to an interesting possibility, which he wrote up earlier for The Globalist: a co-directorate, with Agustin Carstens as deputy director.

I don’t know whether Carstens would want the job, but the idea does have big advantages both for the US (which would have to agree to it) and for the world order. The US gets a top-class Chicago-trained economist in a key role–a de facto American economist, is how Richter puts it–while retaining a veto over Fund policies through its executive director on the Fund’s board. The rest of the world gets an end to the traditional US-Europe stitch-up, and an excellent official at the top of the IMF.

In backing this notion the US could look selfless while shrewdly advancing its interests.

Posted in Current Affairs, Economics, Financial markets, Foreign policy |

Lagarde and the IMF

June 29, 2011 2:02 am by Clive Crook

Disappointing but unsurprising that Christine Lagarde has got the top job at the IMF. I don’t say this because I thought she was a weak candidate or won’t do a good job, By all accounts she is very capable. The sad thing is that even under these extraordinary circumstances, it is business as usual when it comes to running such a critical institution.

If this was not the moment to make a break with the old arrangements, and to declare that these positions are no longer filled according to a system of entitlement, one wonders what it will take — especially when such outstanding alternative candidates (Agustín Carstens, Stan Fischer) were in the running.

Continue reading: “Lagarde and the IMF”

Posted in Current Affairs, Economics, Financial markets |

Comparing budget plans

June 24, 2011 11:47 am by Clive Crook

The Committee for a Responsible Federal Budget has created a useful tool for comparing the various budget-reform plans.

A recent CRFB blog post on the long-term budget outlook also has helpful explanations of the differences between the CBO’s “extended” and “alternative” baselines. I agree with CRFB that the most plausible starting-point probably lies between the two. (The extended baseline isn’t going to happen. The more pessimistic alternative fiscal scenario is probably too pessimistic.) The CRFB’s own “realistic” baseline essentially splits the difference. They intend to update it shortly.

Posted in Current Affairs, Debt, Economics, US Economy |

The long-term budget outlook

June 22, 2011 7:32 pm by Clive Crook

The CBO’s new report on the long-term budget outlook is gloomy reading. Something has to give, is the message. CBO director Douglas Elmendorf summed it up this way in a recent presentation at the NY Fed:

Given the aging of the population and the rising cost of healthcare, the United States cannot achieve all of the following objectives in the future:

  • Keep federal revenues at their average share of GDP during the past 40 years.
  • Provide the same sorts of benefits for older Americans that we have provided in the past 40 years.
  • Operate the rest of the federal government in line with its role in the economy and society during the past 40 years.

Continue reading: “The long-term budget outlook”

Posted in Current Affairs, Debt, Economics, US Economy, US Politics |
From FT.com June 19, 2011

The stalling of the US recovery raises big, scary questions. After a recession, this economy usually gets people back to work quickly. Not this time. Progress is so slow, the issue is not so much when America will return to full employment but what “full employment” will mean by the time it does.

Posted in Economics, Obama, US Economy, US Politics |

Tim Pawlenty’s ingenious economic plan

June 9, 2011 2:55 pm by Clive Crook

I want to take Republicans seriously, but they do make it hard. The moment I say something kind about Mitt Romney (“He is in many ways a capable and effective candidate”) he criticises Obama for throwing Israel under the bus by uttering the phrase “1967 borders” in the course of reaffirming long-standing US policy. That learned me. Now Tim Pawlenty soars to far greater heights of nonsense with his proposals on the economy.

Let’s start with a big, positive goal. Let’s grow the economy by 5%, instead of the anemic 2% currently envisioned. Such a national economic growth target will set our sights on a positive future. And inspire the actions needed to reach it. By the way, 5% growth is not some pie-in-the-sky number. We’ve done it before. And with the right policies, we can do it again.

Between 1983 and 1987, the Reagan recovery grew at 4.9%. Between 1996 and 1999, under President Bill Clinton and a Republican Congress the economy grew at more than 4.7%. In each case millions of new jobs were created, incomes rose and unemployment fell to historic lows. The same can happen again.

Growing at 5% a year, rather than the current level of 1.8%, would net us millions of new jobs. Trillions of dollars in new wealth. Put us on a path to saving our entitlement programs. And balance the federal budget…

5% economic growth over 10 years would generate 3.8 trillion dollars in new tax revenues.

I’m wondering why nobody thought of this before. Just grow at 5% a year. Job done.

Continue reading: “Tim Pawlenty’s ingenious economic plan”

Posted in Current Affairs, Economics, US Politics |

The Peter Diamond scandal

June 7, 2011 4:51 pm by Clive Crook

Peter Diamond’s decision to withdraw from contention for a seat on the Fed board is a very low moment in US politics. Diamond is an indisputably brilliant economist with no ideological baggage and highly relevant expertise–contrary to what his GOP critics say, and as he explains in his NYT article.  It ought to be shocking, but it no longer is, that a man of his distinction could not get confirmed to the position. At times the US seems a country hell-bent on its own failure.

It’s enough to make Paul Krugman regret the “polarisation of our politics”. Not something you see every day. Or am I misreading him?

The thing is, the Fed was supposed to be above and aside from the partisan brawl. It never was, completely — but that was an ideal to be striven for. No more.

Was that really an ideal to be striven for until just now? On the view that one side in US politics is irredeemably evil and the other basically right about everything–on Krugman’s view, I mean–why would one want the Fed to avoid taking sides? That’s the kind of thing you’d expect a feeble centrist to say. You know the type.

I expect Paul is expressing nostalgia for a long-vanished past. In that case, though, he can hardly criticise the GOP for today’s partisan brawling. That’s what Washington is for nowadays, is it not–a fight to the finish by any means necessary? It is the one thing the two tribes seem to agree about.

God help the country.

 

Posted in Current Affairs, Economics, Financial markets, US Politics |
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Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

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