Latest Data Suggest Output Gap is Closing but Employment Gap is Closing Faster

The latest GDP data from the Bureau of Economic Analysis indicate that the output gap narrowed in Q4 2011 at a slightly more rapid pace than previously estimated. The second estimate, released February 29, showed US real GDP growing at a 3 percent annual rate last quarter, up from the 2.8 percent advance estimate released at the end of January.

Growth was revised upward for all major sectors of the economy. Read more>>>

Click here to view or download a classroom-ready slideshow with additional GDP charts.

Candidates' Budget Plans Don't Add Up and Other Links for your Classroom

• The bipartisan Committee for a Responsibe Federal Budget has published a new analysis of the fiscal policy plans of the GOP presidentia candidates, Primary Numbers: The GOP Candidates and the National Debt. It finds that by and large, their budget plans don't add up. They rely on excessively optimistic growth projections and other unrealistic assumptions, and are too short on specifics of spending cuts and loophole closing. Under Romney's, Santorum's, and Gingrich's plans, the national debt would continue to increase as a share of GDP. Ron Paul's plan is the only one that would actually cut the debt if enacted, but it, too, relies on unrealistic assumptions, especially regarding spending cuts.
• It is hard to keep up with all the news about China's economy. If you have to read just one thing, the latest post from Michael Pettis is always a good choice. In When Will China Emerge from the Global Crisis? Pettis explains that China is beginning to suffer a hangover from the investment surge it used to paper over the early effects of the global crisis. Now the hard steps of structural reform are needed, including a big reduction in the role of state-owned industries.
• GDP candidate Mitt Romney often accuses President Obama of wanting to turn the United States into a European-style welfare state. In this New York Times column, David Brooks explains that if you include a full accounting for tax expenditures such as tax breaks for employer-sponsored health insurance, the United States already has a welfare state of comparable size to most European countries.
• Megan Greene visits Greece regularly. In this recent blog post, she reports that sorrow and bitterness are growing at all levels of greek society. Greeks still want to have it both ways: They want to enjoy the benefits of euro membership but not to bite the bullet on the deep structural reforms needed to go along with cuts to wages and pensions.

When Does “It Will Hurt the Poor” Outweigh “It’s Good for the Environment?”

“Nearly every environmental policy hurts the poor the most,” say Iain Murray and David Bier of the Competitive Enterprise Institute. Writing recently in the Washington Examiner, they don’t limit their criticism to absurdities like federal tax credits for the $100,000 plug-in Fisker Karma (“a bold expression of uncompromised responsible luxury.”) The two analysts have it in for any environmental policy that would raise the price of anything—cap-and-trade programs for carbon emissions, clean energy mandates, light bulb regulations, the works.

To be sure, some of the policies they list have their flaws, as I would be the first to concede. What I would like to focus on here, though, is when “it will hurt the poor the most” is an independently valid objection to otherwise sound, market-based environmental policies. I am inclined to say that it never is. Here is why: Read more>>>

Updated Seasonal Factors Remove Much of the Volatility from 2011 Monthly CPI Data

2011 was a roller coaster ride for U.S. consumer price inflation—or was it? If you went by the releases from the Bureau of Labor Statistics, monthly CPI inflation, stated as annual rates, bounced from over 6 percent in February, down to under -2 percent by June, and then back up over 6 percent in July. That made life hard for policy makers, forecasters, and anyone trying to use the CPI to index payments.

It turns out, though, that inflation was not so volatile after all. As part of yesterday’s CPI report for January, the BLS released revised seasonal adjustment factors. When we apply the new adjustment factors to data for the last two years, much of the month-to-month variation in inflation disappears. >>>Read More

Reforming the Payroll Tax: We Need more than another Temporary Cut. We Need a Permanent Fix

President Obama’s 2013 budget includes a proposal to extend the current 2 percent payroll tax cut, first put in place last year, for the balance of 2012. Congress will probably go along after another round of grandstanding. Yes, the payroll tax is too high. In itself, even a small, temporary cut might be welcome, but it is not what we really need. We need a permanent fix of the payroll tax, yet another broken part of our broken tax system. Here is why. Read more>>>

Why Joe Nocera is Wrong about Keystone XL

Last week Joe Nocera of the New York Times wrote two columns in defense of the Keystone XL pipeline. Read my two-part guest post on Think Progress/Green replying to each of Nocera's columns:

Part 1: I am usually a big fan of Joe Nocera, whether he is skewering Wall Street crooks or exposing the high-handed behavior of the NCAA, but he is all wrong about the Keystone XL pipeline. He claims that Obama, in his “centrist heart of hearts,” also favors KXL. If so, the President is wrong, too. Read the rest of Part 1 >>> 

Part 2: Joe Nocera replies to his Keystone XL critics in “The Politics of Keystone, Take 2” in Saturday’s New York Times. He still doesn’t get it. Like many people, Nocera doesn’t seem to understand the relationship between energy use and energy prices. Read the rest of Part 2>>>

Latest Economic Data Begin to Shift the Counterfactual in Favor of Democrats

For all of last year, as the parties tested their rhetoric in the early stages of the election campaign, Democrats were stuck in the unenviable position of arguing a counterfactual: “The economy is bad, but without what we have done, it would have been even worse.” That could very well  have been true, but it was not exactly a stirring closer for a stump speech.

Now, in light of the latest economic data, the situation is beginning to shift. Suddenly the Republicans are the ones left with the counterfactual: “The economy is getting better, but if we had been in charge, it would be better still.” Not nearly as good a line as “failed stimulus,” “economy in free fall,” or “record unemployment.” Read more>>>

US Employment Data: Economy Adds 257,000 Private-Sector Jobs in January

The U.S. employment scene continued to improve in January, according to the latest release from the Bureau of Labor Statistics. The economy added 243,000 payroll jobs in January, and 257,000 in the private sector. Federal and local governments shed jobs in the month, explaining the difference.

The unemployment rate dropped another 0.2 percentage points to 8.3 percent, equaling the rate during President Obama's first full month in office. The unemployment rate decreased despite an increase in the size of the labor force. U-16, the broad measure of employment stress that includes part-time workers who would prefer full-time jobs and marginally-attached workers, decreased slightly to 15.1 percent.

Follow this link to view or download a classroom-ready slideshow of the latest employment data.

What Happened to Corporate Tax Reform?

President Obama’s 2011 State of the Union Address contained ringing language on corporate tax reform:

Over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries.  Those with accountants or lawyers to work the system can end up paying no taxes at all.  But all the rest are hit with one of the highest corporate tax rates in the world.  It makes no sense, and it has to change.
So tonight, I’m asking Democrats and Republicans to simplify the system.  Get rid of the loopholes.  Level the playing field.  And use the savings to lower the corporate tax rate for the first time in 25 years –- without adding to our deficit.  It can be done.

That was then. This year, instead, the White House is advocating a handful of minor fiddles that would raise corporate taxes on some while creating new loopholes for others. Read more>>>