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Creativity Motivation – What is motivation – Corey K Katir
Advertising From http://www.creativitymotivation.com Describes motivation process for creativity with emphasis on intrinsic motivation by Corey K Katir Bust without a boom? Really?
From feedproxy.google
SIR Mervyn King is a better speaker than he is given credit for – there’s a sly sense of humour at work and a direct use of language. His latest speech is admirably clear and his views on the banking sector show that he is not a victim of regulatory capture (much as people in the City would like him to be). Take this analysis of the problem Banks got bigger. In the UK, their balance sheets rose from around one-half to more than five times our national income in a generation. As the banks got bigger, so did the implicit subsidy a by the time of the crisis it reached many billions of pounds a year. The bigger banks became, the more they were seen as too important to fail, and the surer markets became that the taxpayer would bail them out. But there are only so many good loans and investments to be made. In order to expand, banks made increasingly risky investments. To make matters worse, they started making huge bets with each other on whether loans that had already been made would be repaid. The seeds of the eventual downfall of the financial system had been sown. As loans and investments went bad, those seeds started to sprout Amen to that, although it’s worth pointing out that Sir Mervyn was not singing this song at the time. In August 2007, as Sushil Wadhwani points out, the governor said that (see page 13 of the transcript) our banking system is much more resilient than in the past Still, let there be rejoicing when a sinner returneth to the fold etc. But given that context, what I can’t understand is his comment that this was a bust without a boom He refers specifically to low and stable inflation and unemployment in the 2003-2007 period. It is possible, as Jim Grant has argued, that mild deflation would have been quite benign 10 years ago and that the central banks were at fault for resisting it. But there was inflation, in house prices, and there was a boom. See the graph.
Both lines have been rebased to 100, by the way.
Anyone who has studied Charles Kindleberger will know that bubbles require easy credit and a belief in a paradigm shift, which in this case may have been the view that central banks would always try to underwrite markets as they had in 1987, 1998 and 2002. In the US, the bust occurred in the very sector – housing – where the boom was most obvious.
While we are on the Bank, this week’s column highlights a nice irony – low interest rates (designed to discourage saving) require prospective pensioners to save more, not less. And if you want proof, just look at the Bank’s own pension fund.
Jim Grant and the Gold Standard
From feedproxy.google
EVEN if you don’t agree with any of it, it is worth reading Jim Grant’s entertaining speech to the New York Federal Reserve about the gold standard. Some people might feel he was rude to his hosts, but he might never get the chance to tell them his views again.
The point in Grant’s speech that stuck in my mind was on deflation. Central banks were very concerned about deflation ten years ago, particularly as they had the Japanese example in front of them. But Grant argues that What deflation is not is a drop in prices caused by a technology-enhanced decline in the costs of production. That’s called progress. Between 1875 and 1896, according to Milton Friedman and Anna Schwartz, the American price level subsided at the average rate of 1.7% a year. And why not? As technology was advancing, costs were tumbling. Stephen King of HSBC has made this point before. Central banks essentially resisted what might have been a benign deflation in the late 1990s and early 2000s, and targeted 2% or so. In part, of course, this is because they were worried about the possibility of debt deflation, as defined in the 1930s by Irving Fisher. But the resulting easy monetary policy only inflated housing bubbles in several nations and led to the build up of even more debt. And that left us in the current mess.
Grant points out that in the late 19th century, deflation had relatively benign consequences (except for the indebted farmers who rallied to William Jennings Bryan’s free silver movement). But of course, overall debt levels in the economy were much lower then. To me, this line of reasoning leads me not to favour a return to the gold standard* but to reflect that central banks should never allow credit growth to be as rapid as it was then. By doing so, they severely constrained their future policy options.
It is also worth reflecting on Mr Grant’s observations about the 1920-21 episode. The same period has been cited by British austerity enthusiasts since a wave of public spending cuts (the Geddes axe) managed to shrink the state, a rare example of a setback in the long trend of higher public spending. It is an episode that is certainly worth studying although it’s worth noting a couple of things; in 1920-21 most European countries weren’t on the gold standard (so it’s not obviously an example of how the system automatically restores balance) and the big Geddes cuts were to defence, which was ripe for pruning after the First World War. There are fewer easy pickings today.
* For what it’s worth, I think that Mr Grant severely underestimates the problems that fixing the supply of money can cause. When a shock hits, everything else must adjust, notably wages and prices. As we can see in the euro zone at the moment, where they have fixed the exchange rate rather than the money supply, the process is completely wrenching. In the 1930s, governments abandoned the gold standard in the face of those problems and those that did do earliest, recovered quickest. Now it is possible to argue that if we had never gone off gold, the huge debt totals would never have been accumulated. But we did, and the debt is there now, and it is hard to see how deflation could be anything but extremely malign at the moment.
The central banker’s bogeyman
From economist.com
I ENJOY reading the Atlanta Fed’s macroblog. Most of the time what draws me is the analysisaof labour markets, macro conditions generally, that sort of thing. Lately, however, it has become useful as a source of insight into the mindset of the inflation-averse central banker, thanks to a some recent writing by the Atlanta Fed’s executive vice president and research director, David Altig. Two weeks ago, Mark Thoma wrote a piecequestioning whether the Fed’s approach to its 2% inflation target is actually symmetric (such that downside misses generate as aggressive a response as upside misses). In recent years it has certainly seemed that while the Fed is interested in avoiding deflation, it is much more comfortable with an inflation rate just below 2% than one at or above 2%. Mr Altig took to his blog to defend the central bank, using this image:
The chart shows the results of an Atlanta Fed business survey question: “Projecting ahead, to the best of your ability, please assign a percent likelihood to the following changes to unit costs per year over the next five to 10 years.” Mr Altig notes, “The obvious pattern in these survey responses is their asymmetry to the upside.” It’s very interesting to me that that is what Mr Altig sees in this chart. I’ll tell you what I see. Despite the fact that the Fed chairman is famous for his research on the dangers of deflation and despite the fact that the Fed has repeatedly intervened to fend off deflation, most respondents expect unit costs to rise at 3% or less per year, on average, over the next five to ten years, with a meaningful probability of a rate of increase of 1% or below per year. I don’t take a great deal of comfort from this image. Especially since 0% inflation seems to be much more costly than 4% inflation and since the Fed seems to much less comfortable raising the inflation rate than lowering it. A chart that suggests to me a Fed that’s dangerously complacent about deflation risks looks to a central banker like evidence of upside asymmetry. (And of course, market expectations of inflation reinforce the notion that inflation is likely to be at or below historical levels for the foreseeable future.)
Then yesterday, Mr Altig addressed an argument made by economist Simon Wren-Lewis: In another recent blog item (also with a pointer from Mark Thoma), Simon Wren-Lewis offers the opinion that acknowledging uncertainty about size of the output gap actually argues in favor of being “less cautious” about taking an aggressive policy course. The basic idea is familiar. It is a simple matter to raise rates should the Fed overestimate the magnitude of the output gap. But with the short-term policy rates already at zero, it is not so easy to go in the opposite direction should we underestimate the gap. Mr Altig says he has no argument with this. But he appears to have an argument with this: On the opposite side of the ledger, we know little about the conditions that would cause the Fed to lose credibility with respect to its commitment to its inflation goals, and very little about the triggers that would cause inflation expectations to become unanchored. Thus, I think it not difficult to construct a plausible argument about the risks of being wrong about the output gap that is exact opposite of the Wren-Lewis conclusion. This sort of language is quite similar to that used by Ben Bernanke in defending his choice (or the Fed’s choice) not to aim for a short period of above-target inflation. Unfortunately, Mr Altig puts no new meat on the bones of what strikes me as a very dubious position. Mr Wren-Lewis is right; we have an overwhelming body of evidence from recent decades and from across the rich world indicating that central banks can quite easily establish expectations of low and stable (with a downward bias) inflation. We have, to my knowledge, no recent examples of a major, rich-world central bank that wanted to keep expectations anchored at low levels and failed to do so. Central bankers like to say that low inflation expectations were “hard won”. That seems like an iffy claim to me. Yes, the 1981-2 recession was a deep one, but the ensuing recovery was extremely rapid; if you asked them, I imagine most Americans would clearly trade this business cycle for that one if given the choice. And the Fed would almost certainly not have to work as hard now to bring inflation down given 1) the previous example of the 1980s disinflation and 2) the fact that inflation in the two decades prior to that was extraordinarily high while inflation over the past two decades has been extraordinarily low.
All of recent history, in other words, suggests that Mr Wren-Lewis is exactly right: it’s much easier for central banks to go in one direction than in the other. Now one could, as Mr Altig says, come up with a “plausible argument” in which things don’t work like that. Given the very large and ongoing costs of labour-market weakness, I would certainly expect America’s central bankers to do better than that. I would like to see some very clear evidence that a year or two of 4% inflation poses more of a threat than at leasta year or two more of unemployment well above the natural rate. What we’re getting instead is little more than hand-waving.
Mr Altig is giving us a glimpse inside the mind of those making monetary policy. Unfortunately, the view is pretty disappointing.
Tightening (try overshooting for once, cont.)
From economist.com
SELFISHLY, my main worry about the ongoing euro-zone crisis is that it might derail America’s kinda-sorta strengthening recovery. Trade, once again, is not the main concern. Previously, financial contagion seemed a big problem, but the European Central Bank has helped insulate America against that, for now at least.
Instead, the problem appears to be that euro crisis is generating a passive tightening of monetary policy. This shows up most clearly in the form of falling inflation expectations and a rising dollar. We can also read something about growth expectations in the yields on long-term Treasury debt, which are touching 6-month lows. What we’re observing is rising money demand, and that is a contractionary force.
This shouldn’t matter; it’s well within the central bank’s power to offset this dynamic. But this is where the Fed’s apparent recovery strategy is so troublesome. There is complete confidence that the Fed will prevent deflationathe question is when. The Fed’s unwillingness to overshoot on inflation means that a preemptive intervention to buoy up demand is unacceptable; if the downside risk is less than currently perceived inflation could rise to (gasp) 2.5 or even 3%. The Fed will therefore stay its hand while disinflation occurs, until there is sufficient breathing room to step in and cut off the possibility of deflation without generating a meaningful probability of 3% wage and price growth. That sounds like an incredibly foolish way to make policy, I realise; I wouldn’t believe it was the Fed’s MO if I hadn’t watched this play out repeatedly since 2009.
The Federal Open Market Committee meets again in just over a month. If market conditions continue as they have, I would expect the Fed to either take additional easing steps or to strongly signal that such steps are likely in the immediate future if headwinds remain stiff. But the chilling effect on the economy is occurring right now. The time to build a buffer against the chill was the April meeting, if not well before.
Inflation expectations have been dropping steadily for two months. I would be surprised if this did not soon translate into deterioration in other macro variables: the blame for which falls squarely and solely on the Fed.
Try overshooting for once, cont.
From economist.com
FOLLOW the bouncing recovery:
What we have here is a chart of 10-year breakevens over time. It’s derived by subtracting the yield on the 10-year inflation-protected Treasury from the nominal 10-year yield, and it gives up an implied inflation rate. And what I’ve done here is illustrate the Fed’s reactions to big downward moves in expected inflation; the Fed has been an active deflation fighter. You’ll note, however, that in the aftermath of Fed interventions, expected inflation coasts up toward the long-term level, of about 2.3%, then inevitably slides down again.
The explanation for this dynamic, as I see it, is that the market thinks the Fed will push inflation up to 2% but no further, and the Fed has not tried to convince the market otherwise. And so what we observe is a cap on the rate of recovery. Will America get QE3? If inflation looks like falling to 2% and below. But it won’t get a faster pace of employment growth unless the Fed signals that inflation at 3% or more for a year or two would be acceptable.
Crowding out, brought to you by the Fed
From economist.com
JUSTIN LAHART has written an interesting post today looking at government job losses over the course of the recession and recovery. He runs some numbers and determines that had American managed to hold government employment constant from December of 2008 then, all else equal, its unemployment rate would now be 7.1%, rather than the current 8.1%. Mr Lahart is careful to note that “ceteris is rarely paribus”. Rightly so; I am increasingly convinced that an effort to support government employment would not have led to a meaningful drop in unemployment. To conclude otherwise one would have to accept one of the following conjectures:
Neither looks right to me. And Mr Lahart’s exercise gives us a nice framework through which to see how the Fed is principally responsible for the level of unemployment.
In other words, because the Fed appears to be overwhelmingly focused on keeping inflation at or just below 2%, efforts to boost employment on the public side may simply crowd out private employment growth.
We can imagine a similar dynamic playing out last year. By last summer, the gap between the two series grows quite large; where the actual series hovers around 9% for most of the year, the but-for rate sinks to 8.5% and below. At that lower level, the Fed would probably have worried that energy-driven inflation would not quickly subside. It’s much harder to imagine the Fed making the current long-term low-rate commitment. With the end-series plummet to 7.1%, it’s almost impossible to imagine them sticking with it.The result, again, would be greater scope for private job loss, due to less activity in construction, less commercial investment, and less of a contribution to net exports from downward pressure on the dollar. Based on the way the Fed has behaved, it seems probable that less government job loss would translate directly into more private job loss. The unemployment rate could not now be 7.1%, because the economic path to that rate at this moment is inconsistent with the Fed’s primary goals.
Now there is an alternative story. One could argue that the Fed is primarily focused on deflation prevention and is unwilling to pushinflation above 2%, but that if other factors drove and kept it there, it would not immediately act to slow growth. In this story, fiscal stimulus is a critical ingredient in recovery, accomplishing an important task that should fall to the Fed but which the Fed has determined not to complete. I am sceptical of this story. If the recovery continues to chug along, however, we may soon find out which is closer to the mark.
Wonkbook: The economics of gay marriage
From feeds.washingtonpost
Don’t think of gay marriage as a cultural issue. Don’t think of it even as an equality issue. Don’t even think of it as a political issue. Think of it, just for a moment, as an economic issue.
But in recent decades, the marriage-as-firm view has crumbled — and not just because social mores have changed. “Washing machines, dishwashers and microwave ovens have reduced the value to the family ‘firm’ of employing a domestic specialist,” say Stevenson and Wolfers, who are, themselves, married. “Cheap clothes can be imported from China, rather than sewn at home. Healthy meals can be purchased from the freezer at Trader Joeas. Whatas more, legal and social changes have broken down many of the barriers keeping women out of the labor market…All these developments have increased the opportunity cost of having a spouse stay home, because that spouse now has greater value in the marketplace.”
One possibility was that, as the traditional economic case for marriage fell apart, marriage itself would decline as an institution. But that didn’t happen. Rather, we developed a new kind of marriage. “Modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage,” continue Stevenson and Wolfers. “Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian. We have called this new model of sharing lives ‘hedonic marriage.’ These are marriages of equality in which the rule aopposites attracta no longer applies in the same way, because couples with more similar interests and values can derive greater benefits. So likes are now more likely to marry each other.”
And it’s into this institution that gay couples are being admitted, because the nature of this institution doesn’t provide a good argument for their exclusion.
Gay couples couldn’t credibly promise to provide each other with the separate and specialized skills — separate for reasons of legal discrimination, and social beliefs about what men and women could do — that were the basis of the older conception of marriage. But gay couples can certainly share the joy of things and experiences, they can certainly improve each other’s lives, they can certainly co-parent, they can certainly bring increased economic stability to a household by combining two incomes — they can do all the things that form the basis of what Stevenson and Wolfers call “hedonic marriages.”
In other words, one story here is that our attitudes have changed towards homosexuality, and that’s certainly true. But another is that our attitudes have changed towards marriage — even heterosexual marriage — in ways that opened the institution for gays. And that’s true, too.
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Top stories
1) Greece’s coalition talks remain deadlocked. “Greeceas president is set to resume coalition talks on Tuesday with the countryas political leaders in another attempt to avoid a fresh general election after a meeting on Monday evening ended without agreement. Antonis Samaras and Evangelos Venizelos, the conservative and socialist leaders, and Fotis Kouvelis, head of a leftwing splinter group, held a fruitless one-hour discussion on how to escape the crisis but agreed to meet again, along with other party heads. President Karolos Papoulias has another 48 hours to persuade politicians to join a national unity government according to the constitution or face having to call another election…Alexis Tsipras, the leader of Syriza, the radical leftwing coalition that rejects the terms of Greeceas international bailout, refused to participate in Mondayas talks. ‘Weare not going to join in selective meetings of political leaders … The circle of contacts provided for by the constitution has been completed,’ he said.” Kerin Hope and Peter Spiegel in The Financial Times.
The standoff is raising worries of a European economic crisis. “Political deadlock in Greece rattled world markets Monday, reviving fears that the fractious Mediterranean country could spurn an international bailout, abandon the common European currency and risk a fresh round of world economic turmoil. European stock indexes fell, with Greeceas market now at a 20-year low, while the euro currency continued a recent decline against the dollar. U.S. stocks also fell. Coming only days before the leaders of the worldas Group of Eight industrialized nations meet at Camp David, the standoff in Greece over its political direction has thrust Europeas troubles to the top of the agenda. A downturn in Europe could stagger a fragile recovery in the United States and undermine growth around the world. Fighting a new downturn would be a challenge for the major economies, many of which have not fully stabilized since the last big economic crisis.” Howard Schneider and Anthony Faiola in The Washington Post.
FAQ: Why is Greece in such trouble? And can it be fixed?
@ezraklein: “Syriza” is a rather evil-sounding name for a political party. Pretty sure it means Hydra in Greek.
2) Senate leaders reached a deal to move the Export-Import Bank bill forward. “Legislation to extend the Export-Import Bankas charter advanced in the Senate Monday evening after agreement was reached on addressing tea party demands to reopen a bipartisan deal approved only days ago by the House. Five GOP amendments will be permitted Tuesday — some re-litigating specific agreements reached by House leaders. But in each case, a supermajority of 60 votes would be required, leaving Senate Majority Leader Harry Reid (D-Nev.) hopeful that the House package will survive intact and go quickly to President Barack Obama for his signature this week…Mondayas agreement, as announced by Reid, came only minutes before a scheduled procedural vote in which he would have needed 60 votes himself to move on to the bill. By coming to terms on the amendments, Reid avoided that challenge, but as part of the same deal, he will need 60 votes for passage of the bill.” David Rogers in Politico.
3) JPMorgan Chase’s loss has the banking industry scared. “A Congressional committee announced plans on Monday to hold a hearing on the financial regulatory overhaul that will look at the JPMorgan loss. Wall Streetas representatives, fearing that the entire banking industry might pay for JPMorganas sins, are trying to contain the fallout in Washington, people close to the matter said…JPMorgan, however, is stepping away from another public panel on the Volcker Rule. The Commodity Futures Trading Commission, one of the regulators writing the Volcker Rule, will host a public roundtable this month about the new regulation and has invited JPMorgan to speak. Last week, JPMorgan suggested that one of its top Volcker Rule experts would attend. But then the bank said that this person had a scheduling conflict. Rather than dispatch another executive to Washington, the banks recommended an employee at another bank..” Ben Protess and Ed Wyatt in The New York Times.
The fiasco claimed its first casualty. “JPMorgan Chase on Monday announced the abrupt retirement of the executive who oversaw the unit that lost $2 billion trading exotic securities, the latest twist in a story that has exposed the gulf between how Wall Street views itself and how the public sees the financial sector. To the bank, its actions — which included appointing an executive to investigate what went wrong — were an example of how it could take the initiative in cleaning up its own shop. But to many lawmakers and analysts, the question remains how a bank with a sterling reputation could get into such trouble two years after Congress passed laws to prevent dangerous financial gambling…On Monday, the bank announced that Chief Investment Officer Ina Drew, who oversaw the London unit, would leave the firm, which she has served for 30 years…The bank also announced that Mike Cavanagh, a top executive, would lead a team of officials to investigate the losses.” Zachary Goldfarb and Steven Mufson in The Washington Post.
FAQ: What happened at JP Morgan? And should you care?
@lizzieohreally: Carl Levin just waved highlighted parts of Dodd-Frank at me. Which was awesome.
@SuzyKhimm: Part of Obama’s problem in selling Dodd-Frank: many new regs aren’t written yet, much less implemented. Similar to Obamacare conundrum.
4) Businesses are bracing for taxmageddon. “Defense contractors have slowed hiring. Tax advisers are warning firms not to count on favorite breaks. And hospitals are scouring their books for ways to cut costs. Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending. The halls of the U.S. Capitol are already teeming with people warning of disaster if lawmakers fail to defuse a New Yearas budget bomb scheduled to raise taxes for every American taxpayer and slash spending at the Pentagon and most other federal agencies…The uncertainty is already prompting some firms to take action. Many more say they will be forced to contemplate layoffs and other cost-cutting measures long before the end of the year unless the Republican House and the Democratic Senate come up with an alternative path to tame deficits.” Lori Montgomery and Rosalind Helderman in The Washington Post.
5) The House GOP may link tax cut extensions with a tax reform vote this summer. “House GOP leadership is considering linking a short-term extension of the expiring Bush-era tax cuts to an overhaul of the tax system this summer, aiming to give its party a campaign talking point and to pressure Senate Democrats to act. While the details of the plan are very much up in the air, one option being considered is passing a bill extending the 2001 and 2003 tax rates for one year along with a resolution affirming GOP principles for tax reform. The measures could also include some form of fast-track authority, much like the power granted to the Joint Committee on Deficit Reduction, to expedite floor consideration of a tax reform plan in 2013, when the Bush-era tax cuts would again expire…Boehner is expected to address this and other financial issues at a speech before the Peter G. Peterson Foundation Fiscal Summit today.” Daniel Newhauser and John Stanton in Roll Call.
Top op-eds
1) KLEIN: The filibuster may be unconstitutional. “According to Best Lawyers — ‘the oldest and most respected peer-review publication in the legal profession’ — Emmet Bondurant ‘is the go-to lawyer when a business person just canat afford to lose a lawsuit.’ He was its 2010 Lawyer of the Year for Antitrust and Bet-the-Company Litigation. But now, heas bitten off something even bigger: bet-the-country litigation. Bondurant thinks the filibuster is unconstitutional. And, alongside Common Cause, where he serves on the board of directors, heas suing to have the Supreme Court abolish it…At the core of Bondurantas argument is a very simple claim: This isnat what the Founders intended. The historical record is clear on that fact. The framers debated requiring a supermajority in Congress to pass anything. But they rejected that idea.” Ezra Klein in The Washington Post.
2) SALAM: The U.S. economy shouldn’t follow China’s model. “Americans have always looked abroad for inspiration. Alexander Hamilton drew on the experience of Britain and France to shape the economic institutions of the early republic. In the early 19th century, Henry Clay championed tariffs, a national bank, and internal improvements in an effort to match Britainas economic might. As the 19th century gave way to the 20th, Germany emerged as an industrial colossus, and American intellectuals had a new model. During the 1950s, at least some Americans, mainly but not exclusively on the political left, saw the breakneck modernization of the Soviet Union as a clear indication that the old-fashioned market economy was on its last legs…But the belief that we had much to learn from the Soviets was both dangerous and stupid. And much the same can be said for the current enthusiasm over Chinaas economic model.” Reihan Salam in National Review.
3) BERWICK: Cheaper healthcare can mean better healthcare. “Reducing costs wonat just rescue health care; it will also help rescue our schools, our roads, our museums, our wages, and the competitiveness of our corporations…The route is simple: improve care. In a study in the Journal of the American Medical Association, my colleague Andy Hackbarth and I estimated the amount of pure waste in American health care — overtreatment that helps no patient at all (like treating viral infections with antibiotics), errors and injuries from unsafe care, failures in coordination (such as sending people home from hospitals without supports), needless administrative complexity, failures of price competition, and fraud. The lowest estimate of total waste in these six categories was 21 percent of health care costs; the highest was 47 percent; and the midpoint was 34 percent. When we are wasting $1 in of every $3, it makes no sense to say we cannot afford to make health care a human right without rationing. Donat cut care. Cut waste.” Donald Berwick in The Boston Globe.
4) SCHMITT: Link worker pay to corporate taxes to fight inequality. “The tax code can be part of the solution. The first step is to end the preferential treatment of income from capital gains, which economists like Princetonas Alan Blinder have shown to have no lasting effect on total investment or the economy. But we can and should go further, actively using the corporate tax code to create a real incentive to pay CEOs less, and workers more, by linking the head honchoas compensation to both employee salaries and tax rates. Hereas how the idea could work. The current corporate tax rate is a flat 35 percent. In an equity-based corporate tax system, companies with a pay ratio at the historic norm of 40:1, or even up to 60:1, would pay the existing rate and be able to deduct executive pay. But companies that pay their top executives more than 60 times the average worker (including employees in overseas subsidiaries) would pay a higher rate, 40 percent, and those with extreme pay differentials, 80:1 or higher, would pay 45 percent.” Mark Schmitt in GOOD.
5) STEVENSON AND WOLFERS: An economic mode of marriage equality. For our grandparentsa generation, marriage was about separate roles, separate spheres and specialization. Gary Becker, an economist at the University of Chicago, won the Nobel Prize partly for describing the family as an economic institution — a bit like a small firm that employs people with different skills to produce both income and a well-run household. In Beckeras view, the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace…Modern marriage offers different benefits. Today, we search for a soul mate rather than a good homemaker or provider. We are more likely to regard marriage as a forum for shared experiences and passions. Viewed through an economic frame, modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage. Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian.” Betsey Stevenson and Justin Wolfers at Bloomberg View.
Anti-folk interlude: Kimya Dawson plays “I like Giants” live.
Got tips, additions, or comments? E-mail me.
Still to come: A fall in commodities prices sparks worries of deflation; a turf war over primary care; colleges begin to confront costs; regulators worry about solar flares; and a harbor seal pup explores the water for the first time.
Economy
New data suggests the eurozone has returned to recession. “Industrial production in the 17 countries that use the euro fell unexpectedly in March, leaving little doubt the region contracted for a second straight quarter in the first three months of the year and returned to recession, data by Eurostat showed Monday. The European Union’s statistical agency will publish the first estimate of first-quarter gross domestic product Tuesday. Economists are forecasting a 0.2% quarterly decline, according to a Dow Jones Newswires poll. Industrial production fell 0.3% on the month in March and by 2.2% on the year. The latter was the steepest drop since a 3.7% decline in December 2009, while the monthly decline was because of a sharp 8.5% decrease in energy production as the weather in March was warmer than usual for the time of year, a Eurostat statistician said…The data were weaker than expected. Economists had forecast a 0.5% monthly increase and a 1.2% year-on-year fall.” Ilona Billington in The Wall Street Journal.
Commodities prices fell to a new yearly low. “The prices of key commodities fell to their lowest level of the year on Monday, dragged down by worries about Europeas debt crisis and the possibility of a slowdown in China, the worldas second-largest economy. An emerging concern among some economists and investors is that the declining prices of materials such as gold and crude oil could be an early signal of deflation — a decline of prices that is economically corrosive because it makes it more difficult for businesses to make a profit. The downturn in prices is reflected in broad measures of commodity prices. The Standard & Pooras GSCI, an index tracking prices for crude oil, gold, copper and several other commodities, has dropped more than 6 percent this month so far. Even the price of gold, which usually rises when investors have concerns about the economy, has fallen.” Jia Lynn Yang in The Washington Post.
Smile for the camera interlude: Videos of people who think they are posing for a picture.
Health Care
Romney and Obama differ sharply on Medicare. “President Obama and Mitt Romney agree on one thing about Medicare: the differences between them are huge…Mr. Romney, who would limit the governmentas current open-ended financial commitment to Medicare, contends that Mr. Obama has no workable plan to prevent Medicare from going bankrupt. Under the Romney proposal, the government would contribute a fixed amount of money on behalf of each beneficiary, and future beneficiaries could use the money to buy private insurance or to help pay for traditional Medicare…Mr. Obama assails the Romney proposal for the same reason he denounced a similar plan devised by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee: the government contribution, he says, would not keep up with the rising cost of health care, so Medicare beneficiaries — older Americans and people with disabilities — would have to pay more of the cost.” Robert Pear in The New York Times.
A primary care turf war is heating up. “Nurse practitioners are rolling out a campaign this week to explain what, exactly, nurse practitioners do — and why patients should trust them with their medical needs…The AANP will follow up on the public relations blitz with state-level lobbying efforts, looking to pass bills that will expand the range of medical procedures that their membership can perform…All states have ‘scope of practice’ laws, which regulate what medical procedures each profession can, and cannot, perform, given their level of education…In 16 states, nurse practitioners can practice without the supervision of another professional such as a doctor. Other states, however, require a physician to sign off on a nurse practitioneras prescriptions, for example, or diagnostic tests. As the health insurance expansion looms, expanding those rules to other states has become a crucial priority for nurse practitioners.” Sarah Kliff in The Washington Post.
A senator is floating a plan to make HIV drugs cheaper. “Why do American patients pay tens of thousands of dollars each year for HIV drugs that cost just hundreds in Africa? Drugmakers wave their patent rights in developing countries as part of the Presidentas Emergency Fund for AIDS Relief. But the higher cost of brand-name drugs in the United States makes it difficult for many HIV patients to stay on drug regimens that can cost as much as $30,000 a year. Thatas the challenge a Senate subcommittee will explore on Tuesday at a hearing on how to narrow the gap. Itas mainly a vehicle one proposed solution — a proposal by Sen. Bernie Sanders (I-Vt.) that would award prize money rather than grant patent rights to manufacturers that develop new HIV drugs, allowing the medication to go straight to the generic market. But the hearing will also look at the root causes of a dilemma that has had some HIV patients and drugmakers at odds for years.” J. Lester Feder in Politico.
@petersuderman: This new issue of Health Affairs looks so, so awesome. All coverage expansion all the time!
Domestic Policy
Broadcasters are pushing back on recent FCC moves. “TV broadcasters look at the Federal Communications Commissionas recent drive to move them off frequencies and put their political advertising rates on the Internet and draw one conclusion: The FCC has it in for television. And broadcasters are fighting back by publicly airing that charge in the midst of the ongoing policy debate on freeing up airwaves for wireless broadband…For decades, televisionas use of the airwaves was virtually unchallenged. Under Chairman Julius Genachowski, the FCC has focused on fostering mobile broadband as the essential communications platform of the future. As broadcasters see it, television has become a much less important medium to the agency…In the wrangling over spectrum, broadcasters see the wireless industry — which is clamoring for access to more airwaves to satisfy the exploding amount of broadband data traffic — as their main foe. As the wireless industry sees it, the best use of finite spectrum resources is mobile broadband.” Brooks Boliek in Politico.
A federal judge struck down a NLRB rule on union elections. “A federal judge ruled Monday that a contentious union election rule proposed by the National Labor Relations Board (NLRB) is ‘invalid.’ In an 18-page memorandum opinion, U.S. District Judge James Boasberg struck the regulation down, saying the labor board only had two members when it voted on the final rule in December 2011. Boasberg said the agency needed at least three members to have a quorum for action on the rule…Two NLRB members — Chairman Mark Pearce and then-Member Craig Becker, both Democrats — participated in adopting the rule. The labor boardas third member at the time, Republican Brian Hayes, did not participate…The judge said the decision by the U.S. District Court for the District of Columbia ‘may seem unduly technical,’ but cited a 2010 Supreme Court ruling that the NLRB needs a quorum of three members to issue regulations and make rulings. Boasberg said his ruling was not made on the merits of the union election rule and noted the NLRB could vote again to pass it.” Kevin Bogardus in The Hill.
@AlecMacGillis: Dems’ failure to pass labor law reform in ’09-’10 haunts once again–a judge just threw out NLRB’s incremental new rule to ease organizing.
Colleges are beginning to confront costs. “College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families. Increasingly, they are looking for other ways to pay for education, stepping up private fund-raising, privatizing services, cutting staff, eliminating departments — even saving millions of dollars by standardizing things like expense forms…The problems arenat confined to public colleges. Administrators at some nonprofit private institutions said they too had come to realize they could not keep raising tuition and fees.” Andrew Martin in The New York Times.
Adorable animals exploring the world interlude: The firsts of a harbor seal pup.
Energy
A transmission line for offshore wind is moving forward. “A pioneering proposal to build a wind power transmission line on the ocean floor from southern Virginia to northern New Jersey cleared a hurdle on Monday when the Interior Department opened the way for the projectas sponsors to start work on an environmental impact statement. The Bureau of Ocean Energy Management, part of the Interior Department, said that no competitor had emerged for the right-of-way for the proposed transmission line, known as the Atlantic Wind Connection, allowing the bureau to issue a ‘determination of no competitive interest.’ By linking wind farms 15 to 20 miles off the coast, the backbone would greatly reduce the number of individual radial lines needed to bring the energy to shore…Construction of the full project would take about 10 years, according to the company. The right-of-way corridor, including branches to reach the shore at intermediate points, would run about 790 miles, the Interior Department said.” Matthew Wald in The New York Times.
Regulators are considering options to protect the grid from solar flares. “With a peak in the cycle of solar flares approaching, U.S. electricity regulators are weighing their options for protecting the nation’s grid from the sun’s eruptions–including new equipment standards and retrofits–while keeping a lid on the cost. They are studying the impact of historic sunstorms as far back as 1859 to see if the system needs an upgrade, and encountering a clash of views on how serious the threat is and what should be done about it…The sun is expected to hit a peak eruption period in 2013, and while superstorms don’t always occur in peak periods, some warn of a disaster. John Kappenman, a consultant and former power engineer who has spent decades researching the storms, says the modern power grid isn’t hardened for the worst nature has to offer. He says an extreme storm could cause blackouts lasting weeks or months, leaving major cities temporarily uninhabitable and taking a massive economic toll.” Ryan Tracy in The Wall Street Journal.
Highway crashes are the leading cause of fatalities for oil and gas workers. “Over the past decade, more than 300 oil and gas workers like Mr. Roth were killed in highway crashes, the largest cause of fatalities in the industry. Many of these deaths were due in part to oil field exemptions from highway safety rules that allow truckers to work longer hours than drivers in most other industries, according to safety and health experts. Many oil field truckers say that while these exemptions help them earn more money, they are routinely used to pressure workers into driving after shifts that are 20 hours or longer…Last year, the National Transportation Safety Board said it ‘strongly opposed’ the oil field exemptions because they raise the risk of crashes. This threat will grow substantially in coming years, safety advocates warn. According to federal officials, more than 200,000 new oil and gas wells will be drilled nationwide over the next decade.” Ian Urbina in The New York Times.
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.
Wonkbook: The economics of gay marriage
From feeds.washingtonpost
Don’t think of gay marriage as a cultural issue. Don’t think of it even as an equality issue. Don’t even think of it as a political issue. Think of it, just for a moment, as an economic issue.
But in recent decades, the marriage-as-firm view has crumbled — and not just because social mores have changed. “Washing machines, dishwashers and microwave ovens have reduced the value to the family ‘firm’ of employing a domestic specialist,” say Stevenson and Wolfers, who are, themselves, married. “Cheap clothes can be imported from China, rather than sewn at home. Healthy meals can be purchased from the freezer at Trader Joeas. Whatas more, legal and social changes have broken down many of the barriers keeping women out of the labor market…All these developments have increased the opportunity cost of having a spouse stay home, because that spouse now has greater value in the marketplace.”
One possibility was that, as the traditional economic case for marriage fell apart, marriage itself would decline as an institution. But that didn’t happen. Rather, we developed a new kind of marriage. “Modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage,” continue Stevenson and Wolfers. “Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian. We have called this new model of sharing lives ‘hedonic marriage.’ These are marriages of equality in which the rule aopposites attracta no longer applies in the same way, because couples with more similar interests and values can derive greater benefits. So likes are now more likely to marry each other.”
And it’s into this institution that gay couples are being admitted, because the nature of this institution doesn’t provide a good argument for their exclusion.
Gay couples couldn’t credibly promise to provide each other with the separate and specialized skills — separate for reasons of legal discrimination, and social beliefs about what men and women could do — that were the basis of the older conception of marriage. But gay couples can certainly share the joy of things and experiences, they can certainly improve each other’s lives, they can certainly co-parent, they can certainly bring increased economic stability to a household by combining two incomes — they can do all the things that form the basis of what Stevenson and Wolfers call “hedonic marriages.”
In other words, one story here is that our attitudes have changed towards homosexuality, and that’s certainly true. But another is that our attitudes have changed towards marriage — even heterosexual marriage — in ways that opened the institution for gays. And that’s true, too.
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Top stories
1) Greece’s coalition talks remain deadlocked. “Greeceas president is set to resume coalition talks on Tuesday with the countryas political leaders in another attempt to avoid a fresh general election after a meeting on Monday evening ended without agreement. Antonis Samaras and Evangelos Venizelos, the conservative and socialist leaders, and Fotis Kouvelis, head of a leftwing splinter group, held a fruitless one-hour discussion on how to escape the crisis but agreed to meet again, along with other party heads. President Karolos Papoulias has another 48 hours to persuade politicians to join a national unity government according to the constitution or face having to call another election…Alexis Tsipras, the leader of Syriza, the radical leftwing coalition that rejects the terms of Greeceas international bailout, refused to participate in Mondayas talks. ‘Weare not going to join in selective meetings of political leaders … The circle of contacts provided for by the constitution has been completed,’ he said.” Kerin Hope and Peter Spiegel in The Financial Times.
The standoff is raising worries of a European economic crisis. “Political deadlock in Greece rattled world markets Monday, reviving fears that the fractious Mediterranean country could spurn an international bailout, abandon the common European currency and risk a fresh round of world economic turmoil. European stock indexes fell, with Greeceas market now at a 20-year low, while the euro currency continued a recent decline against the dollar. U.S. stocks also fell. Coming only days before the leaders of the worldas Group of Eight industrialized nations meet at Camp David, the standoff in Greece over its political direction has thrust Europeas troubles to the top of the agenda. A downturn in Europe could stagger a fragile recovery in the United States and undermine growth around the world. Fighting a new downturn would be a challenge for the major economies, many of which have not fully stabilized since the last big economic crisis.” Howard Schneider and Anthony Faiola in The Washington Post.
FAQ: Why is Greece in such trouble? And can it be fixed?
@ezraklein: “Syriza” is a rather evil-sounding name for a political party. Pretty sure it means Hydra in Greek.
2) Senate leaders reached a deal to move the Export-Import Bank bill forward. “Legislation to extend the Export-Import Bankas charter advanced in the Senate Monday evening after agreement was reached on addressing tea party demands to reopen a bipartisan deal approved only days ago by the House. Five GOP amendments will be permitted Tuesday — some re-litigating specific agreements reached by House leaders. But in each case, a supermajority of 60 votes would be required, leaving Senate Majority Leader Harry Reid (D-Nev.) hopeful that the House package will survive intact and go quickly to President Barack Obama for his signature this week…Mondayas agreement, as announced by Reid, came only minutes before a scheduled procedural vote in which he would have needed 60 votes himself to move on to the bill. By coming to terms on the amendments, Reid avoided that challenge, but as part of the same deal, he will need 60 votes for passage of the bill.” David Rogers in Politico.
3) JPMorgan Chase’s loss has the banking industry scared. “A Congressional committee announced plans on Monday to hold a hearing on the financial regulatory overhaul that will look at the JPMorgan loss. Wall Streetas representatives, fearing that the entire banking industry might pay for JPMorganas sins, are trying to contain the fallout in Washington, people close to the matter said…JPMorgan, however, is stepping away from another public panel on the Volcker Rule. The Commodity Futures Trading Commission, one of the regulators writing the Volcker Rule, will host a public roundtable this month about the new regulation and has invited JPMorgan to speak. Last week, JPMorgan suggested that one of its top Volcker Rule experts would attend. But then the bank said that this person had a scheduling conflict. Rather than dispatch another executive to Washington, the banks recommended an employee at another bank..” Ben Protess and Ed Wyatt in The New York Times.
The fiasco claimed its first casualty. “JPMorgan Chase on Monday announced the abrupt retirement of the executive who oversaw the unit that lost $2 billion trading exotic securities, the latest twist in a story that has exposed the gulf between how Wall Street views itself and how the public sees the financial sector. To the bank, its actions — which included appointing an executive to investigate what went wrong — were an example of how it could take the initiative in cleaning up its own shop. But to many lawmakers and analysts, the question remains how a bank with a sterling reputation could get into such trouble two years after Congress passed laws to prevent dangerous financial gambling…On Monday, the bank announced that Chief Investment Officer Ina Drew, who oversaw the London unit, would leave the firm, which she has served for 30 years…The bank also announced that Mike Cavanagh, a top executive, would lead a team of officials to investigate the losses.” Zachary Goldfarb and Steven Mufson in The Washington Post.
FAQ: What happened at JP Morgan? And should you care?
@lizzieohreally: Carl Levin just waved highlighted parts of Dodd-Frank at me. Which was awesome.
@SuzyKhimm: Part of Obama’s problem in selling Dodd-Frank: many new regs aren’t written yet, much less implemented. Similar to Obamacare conundrum.
4) Businesses are bracing for taxmageddon. “Defense contractors have slowed hiring. Tax advisers are warning firms not to count on favorite breaks. And hospitals are scouring their books for ways to cut costs. Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending. The halls of the U.S. Capitol are already teeming with people warning of disaster if lawmakers fail to defuse a New Yearas budget bomb scheduled to raise taxes for every American taxpayer and slash spending at the Pentagon and most other federal agencies…The uncertainty is already prompting some firms to take action. Many more say they will be forced to contemplate layoffs and other cost-cutting measures long before the end of the year unless the Republican House and the Democratic Senate come up with an alternative path to tame deficits.” Lori Montgomery and Rosalind Helderman in The Washington Post.
5) The House GOP may link tax cut extensions with a tax reform vote this summer. “House GOP leadership is considering linking a short-term extension of the expiring Bush-era tax cuts to an overhaul of the tax system this summer, aiming to give its party a campaign talking point and to pressure Senate Democrats to act. While the details of the plan are very much up in the air, one option being considered is passing a bill extending the 2001 and 2003 tax rates for one year along with a resolution affirming GOP principles for tax reform. The measures could also include some form of fast-track authority, much like the power granted to the Joint Committee on Deficit Reduction, to expedite floor consideration of a tax reform plan in 2013, when the Bush-era tax cuts would again expire…Boehner is expected to address this and other financial issues at a speech before the Peter G. Peterson Foundation Fiscal Summit today.” Daniel Newhauser and John Stanton in Roll Call.
Top op-eds
1) KLEIN: The filibuster may be unconstitutional. “According to Best Lawyers — ‘the oldest and most respected peer-review publication in the legal profession’ — Emmet Bondurant ‘is the go-to lawyer when a business person just canat afford to lose a lawsuit.’ He was its 2010 Lawyer of the Year for Antitrust and Bet-the-Company Litigation. But now, heas bitten off something even bigger: bet-the-country litigation. Bondurant thinks the filibuster is unconstitutional. And, alongside Common Cause, where he serves on the board of directors, heas suing to have the Supreme Court abolish it…At the core of Bondurantas argument is a very simple claim: This isnat what the Founders intended. The historical record is clear on that fact. The framers debated requiring a supermajority in Congress to pass anything. But they rejected that idea.” Ezra Klein in The Washington Post.
2) SALAM: The U.S. economy shouldn’t follow China’s model. “Americans have always looked abroad for inspiration. Alexander Hamilton drew on the experience of Britain and France to shape the economic institutions of the early republic. In the early 19th century, Henry Clay championed tariffs, a national bank, and internal improvements in an effort to match Britainas economic might. As the 19th century gave way to the 20th, Germany emerged as an industrial colossus, and American intellectuals had a new model. During the 1950s, at least some Americans, mainly but not exclusively on the political left, saw the breakneck modernization of the Soviet Union as a clear indication that the old-fashioned market economy was on its last legs…But the belief that we had much to learn from the Soviets was both dangerous and stupid. And much the same can be said for the current enthusiasm over Chinaas economic model.” Reihan Salam in National Review.
3) BERWICK: Cheaper healthcare can mean better healthcare. “Reducing costs wonat just rescue health care; it will also help rescue our schools, our roads, our museums, our wages, and the competitiveness of our corporations…The route is simple: improve care. In a study in the Journal of the American Medical Association, my colleague Andy Hackbarth and I estimated the amount of pure waste in American health care — overtreatment that helps no patient at all (like treating viral infections with antibiotics), errors and injuries from unsafe care, failures in coordination (such as sending people home from hospitals without supports), needless administrative complexity, failures of price competition, and fraud. The lowest estimate of total waste in these six categories was 21 percent of health care costs; the highest was 47 percent; and the midpoint was 34 percent. When we are wasting $1 in of every $3, it makes no sense to say we cannot afford to make health care a human right without rationing. Donat cut care. Cut waste.” Donald Berwick in The Boston Globe.
4) SCHMITT: Link worker pay to corporate taxes to fight inequality. “The tax code can be part of the solution. The first step is to end the preferential treatment of income from capital gains, which economists like Princetonas Alan Blinder have shown to have no lasting effect on total investment or the economy. But we can and should go further, actively using the corporate tax code to create a real incentive to pay CEOs less, and workers more, by linking the head honchoas compensation to both employee salaries and tax rates. Hereas how the idea could work. The current corporate tax rate is a flat 35 percent. In an equity-based corporate tax system, companies with a pay ratio at the historic norm of 40:1, or even up to 60:1, would pay the existing rate and be able to deduct executive pay. But companies that pay their top executives more than 60 times the average worker (including employees in overseas subsidiaries) would pay a higher rate, 40 percent, and those with extreme pay differentials, 80:1 or higher, would pay 45 percent.” Mark Schmitt in GOOD.
5) STEVENSON AND WOLFERS: An economic mode of marriage equality. For our grandparentsa generation, marriage was about separate roles, separate spheres and specialization. Gary Becker, an economist at the University of Chicago, won the Nobel Prize partly for describing the family as an economic institution — a bit like a small firm that employs people with different skills to produce both income and a well-run household. In Beckeras view, the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace…Modern marriage offers different benefits. Today, we search for a soul mate rather than a good homemaker or provider. We are more likely to regard marriage as a forum for shared experiences and passions. Viewed through an economic frame, modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage. Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian.” Betsey Stevenson and Justin Wolfers at Bloomberg View.
Anti-folk interlude: Kimya Dawson plays “I like Giants” live.
Got tips, additions, or comments? E-mail me.
Still to come: A fall in commodities prices sparks worries of deflation; a turf war over primary care; colleges begin to confront costs; regulators worry about solar flares; and a harbor seal pup explores the water for the first time.
Economy
New data suggests the eurozone has returned to recession. “Industrial production in the 17 countries that use the euro fell unexpectedly in March, leaving little doubt the region contracted for a second straight quarter in the first three months of the year and returned to recession, data by Eurostat showed Monday. The European Union’s statistical agency will publish the first estimate of first-quarter gross domestic product Tuesday. Economists are forecasting a 0.2% quarterly decline, according to a Dow Jones Newswires poll. Industrial production fell 0.3% on the month in March and by 2.2% on the year. The latter was the steepest drop since a 3.7% decline in December 2009, while the monthly decline was because of a sharp 8.5% decrease in energy production as the weather in March was warmer than usual for the time of year, a Eurostat statistician said…The data were weaker than expected. Economists had forecast a 0.5% monthly increase and a 1.2% year-on-year fall.” Ilona Billington in The Wall Street Journal.
Commodities prices fell to a new yearly low. “The prices of key commodities fell to their lowest level of the year on Monday, dragged down by worries about Europeas debt crisis and the possibility of a slowdown in China, the worldas second-largest economy. An emerging concern among some economists and investors is that the declining prices of materials such as gold and crude oil could be an early signal of deflation — a decline of prices that is economically corrosive because it makes it more difficult for businesses to make a profit. The downturn in prices is reflected in broad measures of commodity prices. The Standard & Pooras GSCI, an index tracking prices for crude oil, gold, copper and several other commodities, has dropped more than 6 percent this month so far. Even the price of gold, which usually rises when investors have concerns about the economy, has fallen.” Jia Lynn Yang in The Washington Post.
Smile for the camera interlude: Videos of people who think they are posing for a picture.
Health Care
Romney and Obama differ sharply on Medicare. “President Obama and Mitt Romney agree on one thing about Medicare: the differences between them are huge…Mr. Romney, who would limit the governmentas current open-ended financial commitment to Medicare, contends that Mr. Obama has no workable plan to prevent Medicare from going bankrupt. Under the Romney proposal, the government would contribute a fixed amount of money on behalf of each beneficiary, and future beneficiaries could use the money to buy private insurance or to help pay for traditional Medicare…Mr. Obama assails the Romney proposal for the same reason he denounced a similar plan devised by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee: the government contribution, he says, would not keep up with the rising cost of health care, so Medicare beneficiaries — older Americans and people with disabilities — would have to pay more of the cost.” Robert Pear in The New York Times.
A primary care turf war is heating up. “Nurse practitioners are rolling out a campaign this week to explain what, exactly, nurse practitioners do — and why patients should trust them with their medical needs…The AANP will follow up on the public relations blitz with state-level lobbying efforts, looking to pass bills that will expand the range of medical procedures that their membership can perform…All states have ‘scope of practice’ laws, which regulate what medical procedures each profession can, and cannot, perform, given their level of education…In 16 states, nurse practitioners can practice without the supervision of another professional such as a doctor. Other states, however, require a physician to sign off on a nurse practitioneras prescriptions, for example, or diagnostic tests. As the health insurance expansion looms, expanding those rules to other states has become a crucial priority for nurse practitioners.” Sarah Kliff in The Washington Post.
A senator is floating a plan to make HIV drugs cheaper. “Why do American patients pay tens of thousands of dollars each year for HIV drugs that cost just hundreds in Africa? Drugmakers wave their patent rights in developing countries as part of the Presidentas Emergency Fund for AIDS Relief. But the higher cost of brand-name drugs in the United States makes it difficult for many HIV patients to stay on drug regimens that can cost as much as $30,000 a year. Thatas the challenge a Senate subcommittee will explore on Tuesday at a hearing on how to narrow the gap. Itas mainly a vehicle one proposed solution — a proposal by Sen. Bernie Sanders (I-Vt.) that would award prize money rather than grant patent rights to manufacturers that develop new HIV drugs, allowing the medication to go straight to the generic market. But the hearing will also look at the root causes of a dilemma that has had some HIV patients and drugmakers at odds for years.” J. Lester Feder in Politico.
@petersuderman: This new issue of Health Affairs looks so, so awesome. All coverage expansion all the time!
Domestic Policy
Broadcasters are pushing back on recent FCC moves. “TV broadcasters look at the Federal Communications Commissionas recent drive to move them off frequencies and put their political advertising rates on the Internet and draw one conclusion: The FCC has it in for television. And broadcasters are fighting back by publicly airing that charge in the midst of the ongoing policy debate on freeing up airwaves for wireless broadband…For decades, televisionas use of the airwaves was virtually unchallenged. Under Chairman Julius Genachowski, the FCC has focused on fostering mobile broadband as the essential communications platform of the future. As broadcasters see it, television has become a much less important medium to the agency…In the wrangling over spectrum, broadcasters see the wireless industry — which is clamoring for access to more airwaves to satisfy the exploding amount of broadband data traffic — as their main foe. As the wireless industry sees it, the best use of finite spectrum resources is mobile broadband.” Brooks Boliek in Politico.
A federal judge struck down a NLRB rule on union elections. “A federal judge ruled Monday that a contentious union election rule proposed by the National Labor Relations Board (NLRB) is ‘invalid.’ In an 18-page memorandum opinion, U.S. District Judge James Boasberg struck the regulation down, saying the labor board only had two members when it voted on the final rule in December 2011. Boasberg said the agency needed at least three members to have a quorum for action on the rule…Two NLRB members — Chairman Mark Pearce and then-Member Craig Becker, both Democrats — participated in adopting the rule. The labor boardas third member at the time, Republican Brian Hayes, did not participate…The judge said the decision by the U.S. District Court for the District of Columbia ‘may seem unduly technical,’ but cited a 2010 Supreme Court ruling that the NLRB needs a quorum of three members to issue regulations and make rulings. Boasberg said his ruling was not made on the merits of the union election rule and noted the NLRB could vote again to pass it.” Kevin Bogardus in The Hill.
@AlecMacGillis: Dems’ failure to pass labor law reform in ’09-’10 haunts once again–a judge just threw out NLRB’s incremental new rule to ease organizing.
Colleges are beginning to confront costs. “College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families. Increasingly, they are looking for other ways to pay for education, stepping up private fund-raising, privatizing services, cutting staff, eliminating departments — even saving millions of dollars by standardizing things like expense forms…The problems arenat confined to public colleges. Administrators at some nonprofit private institutions said they too had come to realize they could not keep raising tuition and fees.” Andrew Martin in The New York Times.
Adorable animals exploring the world interlude: The firsts of a harbor seal pup.
Energy
A transmission line for offshore wind is moving forward. “A pioneering proposal to build a wind power transmission line on the ocean floor from southern Virginia to northern New Jersey cleared a hurdle on Monday when the Interior Department opened the way for the projectas sponsors to start work on an environmental impact statement. The Bureau of Ocean Energy Management, part of the Interior Department, said that no competitor had emerged for the right-of-way for the proposed transmission line, known as the Atlantic Wind Connection, allowing the bureau to issue a ‘determination of no competitive interest.’ By linking wind farms 15 to 20 miles off the coast, the backbone would greatly reduce the number of individual radial lines needed to bring the energy to shore…Construction of the full project would take about 10 years, according to the company. The right-of-way corridor, including branches to reach the shore at intermediate points, would run about 790 miles, the Interior Department said.” Matthew Wald in The New York Times.
Regulators are considering options to protect the grid from solar flares. “With a peak in the cycle of solar flares approaching, U.S. electricity regulators are weighing their options for protecting the nation’s grid from the sun’s eruptions–including new equipment standards and retrofits–while keeping a lid on the cost. They are studying the impact of historic sunstorms as far back as 1859 to see if the system needs an upgrade, and encountering a clash of views on how serious the threat is and what should be done about it…The sun is expected to hit a peak eruption period in 2013, and while superstorms don’t always occur in peak periods, some warn of a disaster. John Kappenman, a consultant and former power engineer who has spent decades researching the storms, says the modern power grid isn’t hardened for the worst nature has to offer. He says an extreme storm could cause blackouts lasting weeks or months, leaving major cities temporarily uninhabitable and taking a massive economic toll.” Ryan Tracy in The Wall Street Journal.
Highway crashes are the leading cause of fatalities for oil and gas workers. “Over the past decade, more than 300 oil and gas workers like Mr. Roth were killed in highway crashes, the largest cause of fatalities in the industry. Many of these deaths were due in part to oil field exemptions from highway safety rules that allow truckers to work longer hours than drivers in most other industries, according to safety and health experts. Many oil field truckers say that while these exemptions help them earn more money, they are routinely used to pressure workers into driving after shifts that are 20 hours or longer…Last year, the National Transportation Safety Board said it ‘strongly opposed’ the oil field exemptions because they raise the risk of crashes. This threat will grow substantially in coming years, safety advocates warn. According to federal officials, more than 200,000 new oil and gas wells will be drilled nationwide over the next decade.” Ian Urbina in The New York Times.
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.
Fasten your seat belts for the Bond Roller Coaster
From network.nationalpost
Recent repeated hikes in Canadian mortgage rates seemingly are telegraphing a rise in interest rates some time this summer. In a piece flagged by AdvisorAnalyst.com — The Bond Roller Coaster — Tacita Capital’s Michael Nairne warns “the good times for bonds couldn’t last forever” and suggests investors recognize that “in the next year or so the bond roller coaster is about to get underway.”
Unfortunately, a roller coaster implies you don’t know when the rises and falls will occur. Many advisors I’ve talked to — notably ValueTrend Wealth Management’s Keith Richards, who I quoted in this piece in March — have been counselling clients to reduce exposure to long bonds since they are most likely to fall in price as interest rates rise. However, Nairne cautions that “some longer-term bond exposure is needed today as a hedge against a deflationary scenario.”
Even if you dump long-term bonds, the problem arises of what to do with the proceeds. You can sit in cash and money market funds and earn virtually nothing while waiting for a rate rise that may or may not come. Or you can take more risk and stretch for yield in dividend-paying stocks, income trusts, preferred shares, REITs and alternative investments.
Rate hike could also derail stocks in next year or so The problem is, as Kiplinger Personal Finance notes in this piece Friday — What a rate hike means for investors — an interest rate rise will eventually also derail the bull market in stocks. The writer, senior associate editor Andrew Tanzer [pictured, right], predicts this may not happen until early 2011:
But how likely are 5% yields given a fragile housing market, stubborn unemployment and limited bank lending? The Federal Reserve Board still insists that very low interest rates are justified “for an extended period,” given the shaky economy and expectations that inflation will remain benign.
Why a laddered approach to bonds still makes sense I’ll point readers to one more web link: the presentation from Odlum Brown Ltd.’s fixed income strategist, Hank Cunningham: Risks to Fixed Income Portfolios. I mentioned this in last week’s blog about the firm’s equity ace, Murray Leith, but Cunningham — author of In Your Best Interest — is certainly worth listening to as well, especially if you’re an older investor heavily invested in bonds. In the column in the paper cited above, Cunningham cautioned against Richards’ “sell long bonds” stance by advocating fixed income portfolios balanced by diversifying credit risk and investing in a “laddered” broad spectrum of maturities.
But he adds that the U.S. yield curve remains mired at its all-time high, “indicating that their recovery is not getting underway.”
Little evidence inflation pressure merits overexposure to Real Return Bonds Despite “media hysteria” over inflation, Cunningham sees little evidence a sharp rise is imminent. In fact, there are pockets of deflation, notably in Japan and some of the PIG economies of Europe (Portugal, Ireland and Spain). Cunningham therefore expects positive returns from a “laddered portfolio of conventional, investment grade, corporate bonds.”
If inflation did start to heat up, bond investors would get some protection from Real Return Bonds (or in the U.S., TIPS or Treasury Inflation Protected Securities). But Cunningham would not put 100% of a bond portfolio in RRBs or TIPS because there is still the risk of deflation and real yields could rise, producing negative performance. “Our view is that conventional bonds will outperform RRBs for the foreseeable future.” Also, because of their long durations, RRBs can be volatile.
In short, Cunningham’s solution to the bond roller coaster ride is to maintain a laddered approach that “minimizes downside risk while producing positive returns.” –62–
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He includes in his post the attached chart, which shows the path of actual and but-for unemployment. Now, we know from research on persistent large output gaps that at high levels of unemployment, the Phillips curve relationship is quite strong. So we would expect a rise in the unemployment rate from 9.4% to 9.8%, like that observed from June to November of 2010, to have a pretty significant disinflationary impact. And indeed, inflation dropped sharply during this period. And it took that significant drop in inflation to cajole the Fed into introducing QE2. Looking at Mr Lahart’s chart, we see that the bump in unemployment in the but-for line is smaller and occurs at a lower level than in the actual series, in which government job losses proceed apace. In the but-for case, inflation probably would not have fallen as much, and the Fed might have waited longer to intervene or have intervened more gently or not at all. And in the absence of intervention, privatejob growth would very likely have deteriorated more, leading to very little net improvement in unemployment.
In the traditional view of marriage, write economists Betsey Stevenson and Justin Wolfers, “the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace. The different skills required for these separate roles provide an economic rationale for the advice your grandmother may have offered, that ‘opposites attract.’” Romantic, right?
Nairne [pictured left from a Wealthy Boomer video with me] says investors have enjoyed an unprecedented three-decade bull market in bonds since long-term government bonds peaked at 14.8% in September 1981. If you’re a baby boomer, that 30-year stretch probably constitutes most of your awareness of financial markets and investing. Click on Nairne’s article and you’ll see some interesting charts on long-term government yields versus inflation.
“There’s little doubt that rates are heading higher. After a three-decade decline, they have nowhere to go but up. For stock investors, what matters is how high and how fast.” One of his sources thinks the trigger for a stock slump would be a 5% yield for 10-year treasury bonds.
Cunningham — pictured left — notes that as the economy started to grow, the spread between 10-year Government of Canada bonds and two-year bonds peaked in January at 231 basis points and has since narrowed to 180 basis points. The yield curve flattened because the two-year yield rose: “Simply put, the market is not waiting for the Bank of Canada to raise rates.”
On the currency side, Cunningham says Canadian investors should brace for “sizable swings” in the loonie. He recommends that fixed income investors remain in C$-denominated bonds if they plan to retire in this country. In his presentation, Cunnigham shows a portfolio of domestic corporate bonds laddered from January 2011 to as late as February 2017. Even if interest rates rise 1% such a portfolio would produce a positive 3.3% return. Odlum Brown also offers an all-government ladder, a Zero Coupon Ladder and an all-corporate one-to-ten year ladder.
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