Saturday, April 28, 2012

US GDP Data: Private Sector Grows 2.8% in Q1 2012, Government Continues to Shrink

The private sector of the U.S. economy grew at a 2.8 percent annual rate in the first quarter of 2012, according to yesterday’s advance estimate from the Bureau of Economic Analysis. Overall growth of real GDP was 2.2 percent, pulled down by the continuing shrinkage of the government sector. 

Follow this link to view or download a classroom-ready slideshow with charts of the latest GDP details.

Wednesday, April 25, 2012

The Charitable Deduction as a Tax Expenditure: What it Buys and What to Do About It (Part 2)

In the first part of this post, I argued that the charitable deduction is popular because people perceive it as a reduction in taxes that encourages charitable giving, but that perception rest on false premises. The charitable deduction is better viewed as a tax expenditure than as a tax reduction; surprisingly little of it goes to genuinely charitable purposes; and the degree to which it stimulates giving is often exaggerated. This second part of the post extends the critique and examines the pros and cons of possible reforms. >>>Read more

Monday, April 23, 2012

Hamilton on Oil Speculation and other links for your classroom

  • Hamilton on oil speculation There has been a lot of chatter about whether speculators or fundamental forces are driving up global prices, and whether limits on speculative activity would help correct a supposed market failure. Here are two items that anyone should read who is concerned with this issue, both from the pen of James Hamilton. I this recent post, Hamilton explains why it is hard to see speculation as the cause of the recent rise in oil prices. In this older post, Hamilton goes into the broader issue of the constructive role that speculation plays in shaping the path of oil prices over time.
  • Megan Greene warns of trouble in Spain If you thought the euro crisis was over, think again. Two recent posts (here and here) by Megan Greene suggest that Spain is about to follow the trail blazed earlier by Ireland: A balanced budget going into the crisis, but despite that, deep trouble getting out of it.
  • Inflation's effects on wages and income distribution Does inflation help or hurt wage earners? This post by Tim Duy argues that there is little evidence that wages fail to keep up with inflation over time. However, there is evidence that excessive efforts by the Fed to restrain inflation can reduce labor's share of income in the long run.

Thursday, April 19, 2012

The Charitable Deduction as a Tax Expenditure: What it Buys and What to Do About It (Part 1)

In size, the tax deduction for charitable contributions ranks sixth on the dirty-dozen list of tax loopholes, far behind deductions for employer-paid health care or home mortgage interest. In popularity, though, it probably ranks first. Perhaps that is because so many people think it really is what it purports to be: a reduction in taxes that encourages charitable giving. Since people like both tax cuts and charity, it is not surprising that they like the charitable deduction. Before we accept that reasoning, however, we need to look more closely at what the charitable deduction really is and what it gives us. Read more>>>

Saturday, April 14, 2012

Latest Inflation Data Show Little Sign that Gasoline Prices are Derailing the Recovery

Recently many commentators have worried that rising gasoline prices will derail the fragile recovery of the U.S. economy. The latest inflation report from the Bureau of Labor Statistics shows little sign that any such thing is happening yet.

The headline all-items CPI for urban consumers rose at a 3.54 percent annual rate in March, down from 5.03 percent in February. (I base these rates on the unrounded CPI data supplied by the Cleveland Fed and state monthly data as annual rates.) Read more>>>

Follow this link to view or download a brief slideshow with charts of all the latest CPI data.

Thursday, April 12, 2012

What happened when Poland’s Fixed Exchange Rate Experiment Failed: Lessons for a Euro Divorce

In a recent paper, Arnab Das and Nouriel Roubini  compare exit from the euro area to a divorce. (See long form here, short form here.) When we hear that friends are heading for the divorce court, two questions immediately come to mind. Why did this arrangement, which seemed like a good idea at the time, go bad? What is the best way out? In answering these questions for countries now facing the prospect of forced or voluntary exit from the euro, it is helpful to look for lessons from other fixed-rate arrangements that have gone bad. Poland’s experience in the 1990s provides one such example. Read more>>>

Friday, April 6, 2012

U.S. Jobs Data: Broad Unemployment Rate Falls Sharply in March

The broad unemployment rate fell sharply to 14.5 percent in March. That is almost three full percentage points below its peak for the business cycle, reached in October 2009. The standard unemployment rate also fell. Its March rate of 8.2 percent was the lowest since January 2009.

The official unemployment rate is the ratio of unemployed persons to the labor force. The broad unemployment rate, which the Bureau of Labor Statistics calls U-6, differs from the standard rate in several ways. In addition to unemployed persons, the numerator of U-6 includes marginally attached persons who would like to work but are not looking because they think there are no jobs. It also includes involuntary part-time workers who would prefer full-time work but cannot find it. The denominator of U-6 is equal to the labor force plus marginally attached workers. Many economists consider U-6 to be a better measure of the number of people who are distressed because of prevailing labor market conditions.

Both the standard and broad unemployment rates are based on a monthly survey of households. Surprisingly for this stage of the business cycle, the March survey showed decreases in the number of unemployed persons, the number of employed, and the labor force as a whole.

The BLS also reports monthly data on payroll jobs, based on a separate survey of employers. The payroll jobs report does not include farm workers or the self-employed. It showed an increase of 120,000 payroll jobs for March, less than in the previous two months. The previously reported February job gain was revised upward by 14,000 jobs, while the January number was revised downward by 9,000 jobs.

The loss of government jobs, which has been a drag on the employment numbers for months, slowed in March. Just 1,000 government jobs were lost in the month. Private sector job gains were broadly based, with manufacturing, health care, and food services among the leaders.

Follow this link to view or download a classroom-ready slideshow of March job market indicators.

The Long-term Labor Market Effects of Drug Prohibition

The U.S. job numbers for March, released today, show moderate, although not spectacular short-term gains: 120 thousand new payroll jobs, unemployment rate down a notch to 8.2 percent. Long-term indicators are less healthy. In particular, as the chart shows, the employment-population ratio fell by 0.1 percent and remains just a fraction above the all-time low it reached last July. Improving that number will require not just fiscal and monetary stimulus, but structural labor market reform. Legalizing marijuana would be a good start. Read more>>>