Fracking and the Environment: An Economic Perspective

When people look at “fracking”—the production of natural gas through hydraulic fracturing techniques--they see different things. Critics see polluted wells, exploding houses, and earthquakes—an environmental disaster in the making. These anti-frackers have a simple solution: ban it. In contrast, industry supporters see hydraulic fracturing as a safe technology that drillers have been using for decades without controversy and that now promises a new era of energy abundance. The pro-frackers, too, have a simple solution: get the government out of the way and drill baby, drill.

As an economist, I see something still different: a familiar pattern of negative externalities and missing market signals, to which the appropriate response is unlikely to be either prohibition or laissez-faire. >>>Read more

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. 

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

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

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.

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>>>

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.

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>>>