Costs of the employer health care deduction and other links

• Writing in Forbes, Avik Roy explains how the employer health care deduction drives up health care costs for everyone, in part by increasing the bargaining power of major hospitals and weakening the incentive of insurers to resist that bargaining power. "Fourth-party insurance is worth than third-party insurance," says Roy.
• John Kay of the Financial Times writes that it is time to reform banking regulation to encourage more innovation and competition. What particularly gets him going are regulatory requirements that force anyone who wants to start a new bank to make it just like other banks. Imagine what it would be like, says Kay, if there were a software regulatory agency that had required Bill Gates to work for several years at IBM and finish his Harvard degree before starting his own software firm.
• Simon Johnson sees the $2 billion trading loss at JP Morgan as a sign that banks can't be trusted to manage risks wisely. The disaster at the bank that was supposed to be the best risk manager strengthens the case for stronger regulation of proprietary trading.

How the Latin Triangle Swallowed the Euro

Back in 1996, Rudiger Dornbusch wrote a paper about the political economy of exchange rates in Latin America. He called it “The Latin Triangle”. It describes a cycle in which governments become trapped in inappropriate fixed-exchange rates that inevitably end unhappily. Latin America has put that particular form of economic instability behind it, but a new version of the Latin triangle seems to be playing itself out in Europe today, both in the weaker members of the euro area (the so-called PIIGS) and in some of the newer member states that chose fixed rates (the BELLs—Bulgaria, Estonia, Latvia and Lithuania). This post explores the implications of the Latin American experience for Europe today. >>>Read More

Looking for the Good News in the April Jobs Report

The April jobs report from the Bureau of Labor Statistics is not a strong one. Most comments have focused on the bad news, especially the modest 115,000 increase in payroll jobs. If you look hard, there is some good news, too, although not as much or as easy to find as we would like.

Start my looking more closely at the numbers for payroll jobs. The headline number was admittedly paltry. However, there were some welcome upward revisions for earlier months.  The March number was revised up by 34,000, to 154,000, and February’s by 19,000, to 259,000. All in all, the April report revealed 168,000 new jobs that we didn’t previously know about. That sounds at least a little better. Read more>>>

Follow this link to view or download a brief classroom-ready slideshow with charts of the latest employment numbers.

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. 

Read more>>>

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.