Economics Headlines for the Week: 1/24/2011
Economics headlines from this week’s news, blogs, and op-eds.
I’d like to apologize to my regular readers and subscribers for not posting this on Monday as I was traveling this weekend. Generally, these are posted on Monday mornings and in the future I’ll try to be more consistent.
To see the week’s economics headlines click here:
Does it tell us anything that a post-Soviet country is reacting to the push for austerity with more political vigor than most western European countries and the United States? In my personal opinion, this is a fitting metaphor for what austerity advocates are forcing on their economies. Note: You can find videos of this act of protest online, but I wouldn’t recommend it.
While the tone of this article is a bit hostile for a policy piece, I have to recommend it on the basis that it makes an extremely important and valid point… Austerity has a terrible track record historically, and has led to some of the most horrific economic and political consequences of any economic ideology. The end of Weimar Germany anyone?
This article makes the point that historically pensions funds have proven a stable means of paying out benefits to employees, and that what has occurred during the recession is an anomaly rather than being due to overly generous plans.
Here are my thoughts: Remember how everyone’s 401k savings went down the hole during the recession? Well, that pretty much accounts for what happened to government pensions. So the argument being put forth these days that overly generous benefits are to blame is a bit rich, especially when you consider the banks all got a bailout so they could recoup their losses and keep operating while pensions funds did not. Also, most pension funds mandate a certain percentage of investments be in highly rated assets (such as those falsely rated mortgaged backed securities that were at the heart of the recession), so that they could hedge against risky investments declining in value. This means that their safety-net was actually a liability. Further most funds have stop-loss type policies to minimize damage to the principal holding necessary to pay out benefits, this means when the market drops as a whole (as it does in recessionary times) these funds are forced to take significant losses.
A sound piece by the President of the United States on the challenges and benefits of running an efficient regulatory system for the economy.
Basically this piece is similar to the pension piece above. Historically states have been very good at balancing their budgets (including wages and benefits for state-employees). Their current fiscal problem is a temporary one, the current recession has contracted large portions of the tax base which states use to fund operations. The problem with this piece is that the point is so obvious it basically shows that the bias of modern news reporting is so deep that you cannot read about any economic policies without getting a mouthful of B.S. (provided that’s what is in the interest of those who have political/ideological sway). In this case conservatives and business interests have been pushing for States’ rights to bankruptcies so that they can do away with government services as well as public employee unions and pensions, rather than simply raise taxes slightly to bring revenues back to where they were before the crisis or institute a federal bailout program for states as was done for the banks. I guess states aren’t too big to fail? Now some states may have been a bit irresponsible, California comes to mind, however most of the irresponsibility ironically comes from tax cuts that were enacted when the economy was strong which resulted in revenues being more fragile than they should have been during the downturn.
It’s always nice when a Nobel Prize winner sees the same things you do. I referenced this scheming in my Economics Headlines post last week.
Good news, the IRS is stepping up its tax enforcement and trying to catch people who don’t want to pay for government services. The bad news, these people are mostly small fish compared to the corporations and truly rich who also don’t want to pay but have better accountants.