South By North Strategies, Ltd.

Dancing Deficit Hawks

Robert Kuttner of Demos debunks some of the conventional wisdom guiding the thinking of the National Commission on Fiscal Responsibility and Reform.

But there’s a problem with all this fiscal alarmism. It confuses three entirely separate concerns: the current large deficits, which are caused by the deep recession; the long-term health of Social Security; and the inexorably rising costs of Medicare and of health care generally. If you unpack these issues, a different picture and set of choices emerges.
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There are two basic roads to fiscal balance. We can cut spending, raise taxes, depress the rate of growth — and balance the budget at a lower level of economic output. Call it the austerity cure.
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Or we can have more deficit spending in the short run, get economic growth back on track and only raise taxes and trim spending once we have a strong recovery. With that approach, we get fiscal balance at a higher level of economic output. Call it the prosperity cure.

Around The Dial – May 4

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

• Robert Reich argues for a rebirth of regulation.
• The White House identifies harmful loopholes in financial reform.
• The News & Observer reports on the health of RTP’s biotech sector.
• Jeff Faux of EPI discusses current issues in trade policy.

Financial Reform Explained … Humorously

Last night, Elizabeth Warren, the chair of the Federal Oversight Committee, appeared on The Colbert Report, where she discussed some of the key issues in the debate over financial reform.

Housing Bubble History

The transcripts of meetings of the Federal Reserve’s Open Markets Committee  are not released until six years after the fact. Recently, the transcripts of 2004 meetings were released. It appears that some committee member suspected that a housing bubble was forming, yet there was little interest in even considering the possibility.

The transcripts are available here while The Washington Independent offers a summary here. The Huffington Post presents a liberal critique here, and Free Exchange counters here.

Meanwhile, Calculated Risk, which has been posting analyses of the transcripts, offered the following assessment:

So in March 2004 a Fed researcher was expressing concern about house prices being out of line with fundamentals, and in November 2004 a Fed President is talking about widespread speculation … and then there was no further discussion. The 2005 transcripts will be very interesting (to be released next year).

Around The Dial – May 3

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

• Paul Krugman asks what the Gulf Coast oil spill means for environmental policy.
• Naked Capitalism wonders how to separate economics from politics.
• The Atlanta Fed analyzes consumer credit trends.