For years, people have been laughing at the horrific economic decline of Detroit. Well, guess what? The same thing that happened to Detroit is now happening to dozens of other communities across the United States. From coast to coast there are formerly great manufacturing cities that have turned into rotting, post-industrial war zones. In particular, in America’s "rust belt" you can drive through town after town after town that resemble little more than post-apocalyptic wastelands. In many U.S. cities, the "real" rate of unemployment is over 30 percent. There are some communities that will start depressing you almost the moment you drive into them. It is almost as if all of the hope has been sucked right out of those communities. Meanwhile, the economic downturn has been incredibly hard on the finances of state and local governments across the United States. Unlike the federal government, state and local governments cannot use the Federal Reserve to play games with their exploding debt burdens. Facing horrific budget deficits, many communities have begun adopting "austerity measures" in an attempt to slow the flow of red ink. All over the nation, deep budget cuts are slashing police departments, fire departments and other basic social services, but it seems like no matter what many of these communities try the debt just keeps growing.
Fiscal Follies: Nouriel Roubini – To avoid a persistent and destructive recession, the fiscal and structural reforms imposed by the bond vigilantes should be accompanied by other euro-zone policies that restore growth and prevent vicious debt dynamics. The European Central Bank should ease monetary policy in order to weaken the value of the euro and bootstrap the periphery’s growth. And Germany should cut taxes temporarily – rather than raising taxes, as planned – in order to increase disposable income and stimulate German demand for the periphery’s goods and services. In short, an optimal path of fiscal austerity would, in most countries, imply a back-loaded but credible commitment to medium-term consolidation, together with short-term additional stimulus when necessary and allowed by market conditions, thereby avoiding the prospect of a deflationary and recessionary spiral. Unfortunately, the main advanced economies are following a divergent path – which, in some cases, will lead them in the opposite direction in 2011. As a result, the risks of debt deflation and eventual disorderly sovereign and private-sector defaults are rising.
Fed independence is the worst solution except for all the others – THERE’S cause to question the Fed’s policies lately. The so-called “Greenspan put” and loose monetary policy may have fueled the financial crisis. More recently, the second round of quantitative easing has divided economists. Some say it’s the only way to prevent harmful deflation. On the other hand, it may spark asset bubbles abroad and rampant inflation in America. It’s not surprising that the Fed’s independence has become so unpopular. We may hear more Fed scepticism now that Ron Paul, not a Fed fan, is chairman of the subcommittee that oversees it. He favours more congressional oversight. But subjecting monetary policy to the political process would be a mistake. An independent monetary authority makes fiscal policy possible because it gives the Treasury the ability to issue cheap debt. It is too easy for politicians to use monetary policy to inflate away debt. Independent monetary policy provides credibility to the bond market that this will not happen, keeping rates low.
Republicans Block Effort To Repeal 1099 Tax Reporting Rules – After spending much of the past eight months or so criticizing the new 1099 reporting requirements contained in the Affordable Care Act, and even trying to repeal them back in July, Republicans are now blocking a Democratic effort to repeal the rules in the lame duck session: Another day, another failed attempt at 1099 repeal. Republicans rebuffed a Democratic effort to repeal health reform’s universally panned 1099 IRS reporting requirements as a piggyback in the tax cut deal, congressional aides on both sides of the aisle confirm to POLITICO. The move leaves 1099 rollback in play for the next Congress, giving Republicans an easy target in an otherwise challenged landscape for health reform repeal. Democratic aides allege Republicans are stalling on repealing the unpopular measure for political benefit. Health reform’s 1099 tax reporting provision requires businesses to file IRS paperwork on any vendor purchases over $600. Both parties have failed in multiple attempts to dial back the unpopular provision.
The Declining Demand for Men – The Great Recession has sometimes been dubbed the Mancession because it drove unemployment among men higher than unemployment among women. Because men tend to work in more cyclical industries than women, they have historically lost more jobs on the downturn and gained more on the upturn. The current upturn, however, is doing little to restore jobs, with November unemployment rates at 10.6 percent for men and 8.9 percent for women. A long-term trend also lurks behind the cyclical pattern — a decline in the demand for the kinds of jobs that men typically fill. For example, men constitute more than 71 percent of the work force in manufacturing but less than 25 percent of the workers in health and education services. As the chart above shows, these two employment categories were similar in size in 2000, but manufacturing employment has failed to rise, even in non-recession years. Employment in health and education, in contrast, has risen slowly, but steadily.
New York Study on Who May End Up Homeless Called Cruel … It has long been the standard practice in medical testing: Give drug treatment to one group while another, the control group, goes without. Now, New York City is applying the same methodology to assess one of its programs to prevent homelessness. Half of the test subjects — people who are behind on rent and in danger of being evicted — are being denied assistance from the program for two years, with researchers tracking them to see if they end up homeless. The city’s Department of Homeless Services said the study was necessary to determine whether the $23 million program, called Homebase, helped the people for whom it was intended. Homebase, begun in 2004, offers job training, counseling services and emergency money to help people stay in their homes.
But some public officials and legal aid groups have denounced the study as unethical and cruel, and have called on the city to stop the study and to grant help to all the test subjects who had been denied assistance.
Friday Animations–Estate Tax – Well, not exactly an animation, but Estate tax attorney Douglas A. Cook has a chart on the Federal Estate Tax 2001-2011 (linked from the Wills, Trusts & Estates Prof Blog) and also as an animation (see below). Certainly a picture worth a thousand words in terms of showing that ordinary Americans are essentially not taxable under any version of the estate tax. So what the Obama -GOP deal amounts to is a giveway to those few millionaires who had enough assets in the wrong category that they would actually have to pay some amount of tax–only about 5,500 estates under the 2009 version of the bill, about 145,000 in 2011 if the current laws (enacted under GW Bush) remain without any action by today’s Congress to change them, but even fewer than 5500 under the Obama deal for a $5 million exemption and a mere 35% top rate
Defense is On the Table – Some people, like Ezra Klein, think the taxes/unemployment agreement pending before the Congress this week amply demonstrates that "no one [including the Congress] really cares about the deficit," since the package will add roughly $900 billion to the deficit over the next couple of years. Maybe some people are right. Members of Congress have rarely been reluctant to push a pet spending rock when the opportunity presented itself and this agreement is expensive. But when the posturing stops this week and the last Congress slinks out of town, the last month will have been memorable for the way it changed the atmosphere around deficits, particularly with respect to defense. The Simpson-Bowles deficit reduction proposal may have failed to get the requisite 18 votes to force it on the Congress, but it changed the debate about our spending. And the earlier Rivlin-Domenici panel matched that effort and raised it, putting an even wider array of options on the table, including the idea of a payroll tax holiday next year to provide short-term stimulus.