The Inequality That Matters – Tyler Cowen –

Republican Splits, Fiscal Opportunity – An informative and potentially productive political debate has broken out over fiscal policy. But it is not between Democrats and Republicans — the leadership on both sides of the aisle is trying hard to agree that a moderate stimulus is worth the cost: increasing the national debt by nearly $900 billion. Rather, the intensifying and illuminating debate is within the Republican Party — particularly among people who are presumed to be interested in running for the presidency in 2012.  On one hand, there are those like Newt Gingrich and Mike Huckabee, who are in favor of the tax deal currently on the table. This seems to be where most of the Republican mainstream is. On the other hand, Sarah Palin and Mitt Romney have come out strongly against the proposal.On the merits of the economic argument — within the terms of reference laid down by Republicans themselves — Mr. Romney and Ms. Palin have the advantage. The House Republican Pledge to America, after all, said clearly and forcefully, “We will put government on a path to a balanced budget and pay down the debt.”
 
My name is Bond, Euro Bond – The recent proposal by Luxembourg’s prime minister Jean-Claude Juncker and the Italian finance minister, Giulio Tremonti to provide European governments with Eurobonds has sparked debate. According to this column, it will help through financing infrastructure and increasing market liquidity. But because it requires highly-indebted countries to surrender a large chunk of fiscal sovereignty, it is a good idea whose time has not yet come.
 
The Inequality That Matters – Tyler Cowen –Does growing wealth and income inequality in the United States presage the downfall of the American republic? Will we evolve into a new Gilded Age plutocracy, irrevocably split between the competing interests of rich and poor? Or is growing inequality a mere bump in the road, a statistical blip along the path to greater wealth for virtually every American? Or is income inequality partially desirable, reflecting the greater productivity of society’s stars?  There is plenty of speculation on these possibilities, but a lot of it has been aimed at elevating one political agenda over another rather than elevating our understanding. As a result, there’s more confusion about this issue than just about any other in contemporary American political discourse. The reality is that most of the worries about income inequality are bogus, but some are probably better grounded and even more serious than even many of their heralds realize. If our economic churn is bound to throw off political sparks, whether alarums about plutocracy or something else, we owe it to ourselves to seek out an accurate picture of what is really going on. Let’s start with the subset of worries about inequality that are significantly overblown.
 

Give Up on the Estate Tax – CONGRESSIONAL Democrats have voiced outrage at President Obama’s compromise proposal to lower the estate tax rate to 35 percent, from 55 percent, and raise the per person exemption to $5 million, from $1 million. They have called it a giveaway to the rich. A more reasonable compromise, they say, would have set the rate at 45 percent and the exemption at $3.5 million when the estate tax goes back into effect in January.  But instead of getting into any further arguments over rates and exemptions, Democrats would be better off conceding defeat. They should allow Republicans to get rid of the estate tax altogether — but at the same time arrange for inherited wealth to be subject to income tax.

Yet More Evidence of Hunkering Down Among Small Businesses – Several recent studies suggest that small business owners are hunkering down.  As sales have declined, these entrepreneurs have cut expenses and shed debt to survive the Great Recession and to hopefully be able to thrive when that increasingly elusive recovery actually begins. A new study release by Forbes Insights confirms the findings of previous reports. One of the cautions about some of the previous studies is that the samples used in the studies may not be fully representative of all small businesses.  Most of these are conducted among small business owners from membership or client lists. This study is based on a comprehensive survey of 1.777 small businesses conducted by Forbes Insights in October 2010.
NASA: 2010 Meteorological Year Warmest Ever  The 2010 meteorological year, which ended on 30 November, was the warmest in NASA’s 130-year record, data posted by the agency today shows. Over the oceans as well as on land, the average global temperature for the 12-month period that began last December was 14.65˚C. That’s 0.65˚C warmer than the average global temperature between 1951 and 1980, a period scientists use as a basis for comparison.  The 2010 meteorological year was slightly warmer than the previous warmest year, the 2005 calendar year, when the average temperature was 14.53˚C. In 2010, temperatures measured over land alone were also the warmest ever, with instruments showing a December-November average of 14.85˚C. Combining this warming with above-average ocean temperatures led to the global average of 14.65˚C.
 
Hamtramck’s Budget Nightmare: Michigan Town Left With Nothing Else To Cut  – Bill Cooper, the city manager of Hamtramck, Mich., surveyed the possible solutions to his looming budgetary catastrophe, all of them various flavors of bad. He could lay off firefighters or police officers, whose services comprise nearly two-thirds of the city’s $18 million annual expenditures. Their unions, however, had already absorbed substantial hits and would surely fight back. Public safety, too, would suffer — no minor consideration in this suburban community bordering Detroit. As he confronted the ugly prospect of municipal bankruptcy, Cooper focused on the few programs he considered discretionary, beginning an awkward, even bewildering process of nickel-and-diming his city back toward solvency.  It has come to this in states and cities throughout the nation, many still absorbing crippling budget shortfalls in the wake of the worst economic downturn since the Great Depression. Amid nearly double-digit unemployment and weakened economic opportunities, many municipal governments are capturing significantly-diminished tax revenues and facing stark choices as they try to balance their books.
 
10 Questions for GOP Members of Financial Crisis Inquiry –  I never wanted to write Bailout Nation. I turned McGraw Hill down — repeatedly — but they cajoled and flattered and wheedled and promised, and eventually I relented.I approached the subject with a blank slate, pragmatically, with no agenda. It was a problem solving exercise, and I began by looking for and at the data that led me where ever it would. Following the money is always a good tactical approach for anyone researching these sorts of events. The data led me to numerous conclusions: I blamed Republicans, I blamed Democrats, I blamed the Federal Reserve, Congress, the ratings agencies, mortgage originators and lending banks, the biggest Wall Street firms, the SEC. I blamed US borrowers and home buyers, the RE agents, the mortgage brokers, and appraiser. I blamed the other end of the sausage factory, the collateralized debt obligation (CDO) underwriters, managers and the funds that bought them. I blamed Greenspan & Gramm, Bush & Clinton, Paulson & Bernanke & Rubin & Summers. Even mutual funds, compensation consultants and crony corporate board members come in for criticism. (This is only a partial list). Which leads to today’s exercise in willful ignorance.
 
Housing Starts increase slightly in November – Total housing starts were at 555 thousand (SAAR) in November, up 3.9% from the revised October rate of 534 thousand, and up 16% from the all time record low in April 2009 of 477 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).  The increase this month was due to single-family starts, but the level is still very low. Single-family starts increased 6.9% to 465 thousand in November.  The second graph shows total and single unit starts since 1968. This shows the huge collapse following the housing bubble, and that housing starts have mostly been moving sideways for two years – with a slight up and down over the last six months due to the home buyer tax credit. Here is the Census Bureau report on housing Permits, Starts and Completions.
 
Crisis panel’s GOP members blame U.S. housing policy for crisis…  Republicans on a congressionally appointed panel studying the causes of the financial crisis largely blamed federal housing policy in a brief paper Wednesday that highlighted how differently the right and the left view the origins of the crisis. Splintering from their Democratic counterparts, the four GOP members of the Financial Crisis Inquiry Commission pointed the finger at politicians in Washington for promoting lax mortgage lending standards that allowed lower- and moderate-income people to buy homes beyond their means.  Specifically, they wrote, the Clinton and Bush administrations turned mortgage finance companies Fannie Mae and Freddie Mac, chartered by Congress to expand homeownership, into "two enormous monoline hedge funds" whose "only option available was to invest in mortgages of increasingly lower quality and higher risk to the taxpayer."
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