South By North Strategies, Ltd.

Fixing The Proposed Supplemental Poverty Measure

Writing in Spotlight, Shawn Fremstad of the Center for Economic and Policy Research proposes three improvements to the proposed supplemental poverty measure. Writes Fremstad:

Overhauling the poverty measure is sometimes presented as a technical issue, and the approach recommended by the NAS as a fait accompli that simply needs to be implemented without making any policy decisions.  This isn’t the case. While there are a myriad of technical issues involved in operationalizing the NAS approach, there are also major policy questions . These include, most importantly, where to actually set the supplemental poverty threshold, a question that the NAS called “ultimately political.”
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Three modifications to the SPM are essential: 1) the thresholds must be set at a minimally decent level, one that doesn’t continue to “define poverty down” as the current measure has; 2) education and basic savings should be treated as necessities rather than luxuries; and 3) the thresholds should be adjusted upward for families without health insurance. These modifications would improve the measure’s accuracy and are consistent with the overall approach NAS recommended.

Around The Dial – June 22

Economic policy reports, blog postings, and media stories of interest:

• Economix discusses the flawed theory of the undeserving unemployed.
• Paul Krugman doesn’t wish to “shortchange the economy.”
• Economist’s View summarizes the debate over fixed-rate mortgages.
• Felix Salmon notes the other job of the BP compensation fund.
• Free Exchange presents both sides of the fiscal policy debate.

Who Governs?

Writing in The Financial Times, Robert Skidelsky asks “who governs — governments or financial markets?”

We are about to embark on a momentous experiment to discover which of the two stories about the economy is true. If, in fact, fiscal consolidation proves to be the royal road to recovery and fast growth then we might as well bury Keynes once and for all. If however, the financial markets and their political fuglemen turn out to be as “super-asinine” as Keynes thought they were, then the challenge that financial power poses to good government has to be squarely faced.

Assessing Financial Reform

The Baseline Scenario assesses the broad contours of the financial reform reconciliation process and is not pleased. Writes Simon Johnson:

The financial crisis of fall 2008 revealed serious dangers have developed in the heart of the world’s financial system.  The Bush-Obama bailouts of 2008-09 confirmed that our biggest banks are “too big to fail” and the left, center, and right can agree with Gene Fama when he says: “too big to fail” is perverting activities and incentives.
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This is not a leftist message, although you hear people on the left make the point.  But people on the right also increasingly understand what is going on – there is excessive and abusive power at the heart of our financial system that completely distorts markets (and really amounts to a hidden, unfair and dangerous taxpayer subsidy).
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This administration and this Congress had ample opportunity to confront this problem and at least wrestle hard with it.  Some senators and representatives worked long and hard on precisely this issue.  But the White House punted, repeatedly, and elected instead for a veneer of superficial tweaking.   Welcome to the next global credit cycle – with too big to fail banks at center stage.