Data for the Classroom: US GDP First Quarter 2011

US GDP grew at an estimated 1.8% annual rate in Q1 2011, according to the latest data from the Bureau of Economic Analysis. The January-March 2011 quarter was the 7th consecutive quarter of growth since the end of the recession that lasted from Dec 2007 to Jun 2009. The growth rate of 1.8 percent disappointed many observers. Growth is expected to recover somewhat later in the year, but the recovery remains weak.

Failure of Austerity in Europe? What Does the Latvian Exception Prove?

Writing in The New York Times this week, Paul Krugman argues that austerity has failed in Europe. Budget cuts and tax increases were supposed to provide the confidence needed to get troubled EU economies back on track, but the "confidence fairy" hasn't shown up. Austerity has not just failed to work, says Krugman—it has made matters worse. He shares the view, held almost universally outside official circles, that doubling down on austerity will not save Greece, Ireland and Portugal from eventual default in one form or another.

Meanwhile, there is the case of Latvia, where a stringent austerity program, supported by the EU and the IMF, predates those of Greece, Ireland, and Portugal. Austerity brought on a stunning 18 percent drop in Latvian GDP in 2009, but now the country is returning to growth. Unemployment and the budget deficit are still high, but falling. Is Latvia the exception that proves that austerity is a good idea after all?

→Read the full post on Ed Dolan's Econ Blog at Economonitor.com

Will Shifting Political Winds Finally Kill Ethanol Subsidies?

As recently as last December, the coalition backing U.S. ethanol subsidies appeared to be alive and well, despite the fact that everyone knew they were bad for the environment, bad for energy efficiency, and bad for the budget. The largest subsidy, a tax credit for blending ethanol into gasoline, was set to expire at the end of 2010. At the last minute, though, ethanol's friends rallied to slip a little-noticed one-year renewal of the subsidy into a bill extending the Bush tax cuts and benefits for the long-term unemployed. As I blogged at the time, it looked like ethanol subsidies were a classic case of a bad policy that refused to die.

Now ethanol subsidies are back in the news, and this time they may be on the way out. One piece of legislation, introduced by Senators Tom Coburn (R-OK) and Dianne Feinstein (D-CA), would not only end the 45-cent per gallon tax credit, but also eliminate the 54-cent per gallon tariff on imported ethanol. To understand what has changed, we need to look at the economics behind the shifting pro- and anti-ethanol coalitions.

Are Financial Regulators Flying Blind? Could Better Risk Topography Help?

Data on the capital and liquidity of banks are the navigation aids that regulators depend on to avoid another financial crash. Improvements to these indicators, adopted last year by the Basel Committee on Bank Supervision, are among the most heralded regulatory reforms since the 2008 crisis. But what if the instruments are faulty, even in their upgraded form? If so, regulators are flying blind, and our chances of avoiding another crash are slim. What can be done?

The People's Budget: Cutting the Deficit the Progressive Way

In previous posts, I have discussed bipartisan attempts to find a fiscal policy compromise (here and here), and also Republican plans for closing the budget gap through spending cuts alone (here and here). Today's post turns to the less widely publicized People's Budget from the Congressional Progressive Caucus. What is there to like about the progressive fiscal plan, and what not to like?

The Ecosocialist Critique of Capitalism vs. Real World Socialism

It has been twenty years now since first glasnost and then the collapse of the USSR lifted the curtain on the appalling environmental record of Soviet socialism. Over that same 20 years, the burgeoning economy of socialist China has overtaken the United States as the world's largest emitter of greenhouse gasses. Still, it remains common to hear capitalism singled out as the greatest environmental threat to our planet, and socialism as its salvation.

What Can We Learn about the Ryan Medicare Plan from German Experience?

Last week Republicans in the US House of Representatives, following the lead of Representative Paul Ryan, endorsed a far-reaching plan to reform Medicare, the nation's health care system for the elderly. Since it began in 1965, Medicare has been a government-run, single-payer system that reimburses private doctors and hospitals for the health care services they provide. Under the Ryan plan, it would be transformed into a system in which seniors would choose from a list of  competing private insurance plans, with the premiums paid partly by government and partly by the beneficiaries themselves.

Supporters of the Ryan plan see several benefits. An open letter, posted on the web site of the American Enterprise Institute and signed by a list of prominent physicians and economists, puts it this way:

Having more control over their health care spending would encourage consumers and patients to make better health care choices. It would stimulate more innovative and accountable competition by health care providers and give them incentives to better coordinate the care of their patients. Enhanced competition could offer seniors relief from rising Medicare premiums. Just as important, this reform could begin to ease the crushing tax burden imposed by the current program on our children and grandchildren.

Critics fear that in its zeal to ease the burden on taxpayers, the Ryan plan would make Medicare-equivalent health care unaffordable for many, if not most seniors. Under the plan, the value of government payments would be capped at the rate of growth of the Consumer Price Index. If medical costs continued to grow faster than the CPI, as they have in the past, more and more of the financial burden of health care would be shifted over time to beneficiaries. A study from the Center for Economic and Policy Research, using assumptions from the Congressional Budget Office, claims that by 2022, a senior citizen at the median income would have to pay 35 percent of that income to obtain coverage equivalent to Medicare, with the figure rising to 68 percent by 2050.

The idea of competing private health insurance plans, with premiums split between beneficiaries and the government, is far from new. It has been used for many years in Germany, among other places. What insights regarding the likely effects of the Ryan plan can we get by looking at the German experience?