Economic Daily Outlook

TUESDAY, MAY 1, 2012



Krugman Says Fed ‘Reckless’ to Allow High Jobless Rate (Bloomberg)

By Timothy R. Homan and Trish Regan

Nobel Prize-winning economist Paul Krugman suggested Federal Reserve policy makers led by Ben S. Bernanke are “reckless” for refusing to pursue higher inflation, which he said could lower U.S. unemployment.

“The reckless thing is to allow mass unemployment to continue,” Krugman, a Princeton University professor, said on Bloomberg Television’s “Street Smart” yesterday. “We have had a massive failure of our political system that has come to accept that 8 percent unemployment is the new normal and there is nothing that can be done,” Krugman said. “We’re in a low- key version of the Great Depression.”

Krugman, whom Bernanke hired at Princeton in 2000 when he was chairman of the economics department, has said the Fed should tolerate inflation of 3 percent to 4 percent to boost the economy and put Americans back to work. He was responding yesterday to Bernanke’s comments last week that pursuing such a policy would be “reckless.”

Fewer Americans form households after recession, hampering economic recovery (Washington Post)

By Michael A. Fletcher

The recession reduced the rate at which Americans set up new homes or apartments by at least half. Although the number of new households has begun to recover over the past year, its growth rate continues to lag behind its historic pace, according to Census Bureau statistics.

More than one in five adults between ages 25 and 34 live with their parents or in other “multi-generational” living arrangements, the highest level since the 1950s, according to the Pew Research Center.

Analysts estimate that there are more than 2 million fewer occupied homes than there would have been had Americans continued moving into new homes and apartments at the rate they did before the recession. Not only are young people returning to the nest in numbers not seen in generations, but also the weak job market and increased border enforcement have caused a marked decline in immigration, hobbling another major source of new households.

The slowdown has broad implications for the economy. It has trimmed demand for housing, even as the economy struggles to absorb the oversupply of new homes that came with the housing bubble and the millions of foreclosures that continue to weigh on the market.



OPINION: The White House vs. Red Tape (Wall Street Journal)

By Cass Sunstein

In an interdependent global economy, diverse regulations can cause trouble for companies doing business across national boundaries. Unnecessary differences in countries’ regulatory requirements can cost money, compromising economic growth and job creation. Think of divergent requirements for car headlights, or the labeling of food, or standards for container sizes.

Recognizing this, President Obama’s Jobs Council has called for U.S. agencies to better align U.S. regulations with those of our major trading partners. And today the president is issuing an executive order, “Promoting International Regulatory Cooperation,” with a simple goal: to promote exports, growth, and job creation by eliminating unnecessary regulatory differences across nations.

The order makes clear that we will not undermine American laws or compromise our national prerogatives. But it emphasizes that international cooperation and harmonization can increase trade and job creation, eliminating pointless burdens without creating a regulatory race to the bottom. From now on, an interagency working group chaired by the White House Office of Information and Regulatory Affairs will be a forum for reducing this red tape.

To promote accountability, the order provides a mechanism for the White House working group to engage directly with the public, including the business community, by establishing a process to solicit input on how best to eliminate unnecessary costs.



Doctors: Proposal on Medicare overpayments would impose burden (The Hill)

By Elise Viebeck

A proposed rule aimed at reducing Medicare overpayments to doctors is onerous and needs another look, medical groups are telling federal regulators.

Revisions are needed to “significantly reduce administrative burdens for physicians” under the rule, said Dr. Steven Stack, chairman-elect of the American Medical Association (AMA), in a statement Monday.

The rule comes as part of the implementation of the 2010 healthcare law, and would require doctors who receive Medicare overpayments to report and return them within 60 days.

Stack stated that similar initiatives at the Centers for Medicare and Medicaid Services “are already in place, and conflicting requirements will make it difficult for physicians to know which guidelines to follow.”

GOPers split over how to reform health care (Politico)

By Jennifer Haberkorn

Ask the 242 House Republicans what kind of health policy they’d like to enact instead of President Barack Obama’s health care reform law and you might get 242 different answers.

Even after three years of railing against Obama’s plan, Republicans have coalesced around only a few basic tenets of health policy — let alone a full replacement plan.

They are even divided over whether some of the popular pieces of Obama’s health law are a good idea. For example, most Republicans support the health law’s requirement that insurance companies accept all applicants — but the replacement plan put forward by the most prominent Republican ignores that idea.

“It’s a terrible idea,” Rep. Tom Price (R-Ga.), the sponsor of the plan, told POLITICO. He said Democrats only enacted the provision in order to require exactly what kinds of insurance Americans must have. He would rather expand coverage voluntarily.

The wide range of GOP opinions could make it hard for the party to come together behind a single plan to replace Obama’s health care law if it’s overturned by the Supreme Court this summer.



Obama campaign ad uses energy to draw contrast with Romney (The Hill)

By Ben Geman

President Obama’s reelection campaign is launching a new ad in three swings states that aims to contrast Obama’s record on energy policy with Mitt Romney, claiming Romney has a history of sending jobs overseas.

The campaign, with the new ad, seeks to kill two birds with one stone by parrying attacks on Obama’s green energy programs while knocking Romney’s record in business and as Massachusetts governor.

The 30-second ad that will air in Virginia, Ohio and Iowa opens by decrying “false attacks from Big Oil,” pointing to a Washington Post article Monday that called a pair of ads attacking Obama’s energy programs – including a multi-million dollar buy from Americans for Prosperity – inaccurate and out of context.

Coal’s Future Is Rocky at Best (Bloomberg Businessweek)

By Matthew Philips

Is coal doomed? The dirty yet abundant energy source has had some rough patches before, but nothing like this. In 1985 coal accounted for 57 percent of all power generated in the U.S. Last year it was 42 percent. The U.S. Energy Information Administration estimates it will fall to 40 percent this year. Prices for Appalachian coal are down 24 percent over the past 12 months; for coal from the Powder River Basin in Montana and Wyoming, they’re down 45 percent. “With the prices you’re looking at now, no one can make money,” says Lucas Pipes, an analyst at Brean Murray, Carret.

Coal is in a struggle with a perfect adversary: ultracheap natural gas. With all the shale reserves unlocked by fracking, gas prices have steadily declined since mid-2008, to the point where they’re hovering around $2 per million British thermal units for the first time in a decade. That’s lower than coal prices. The natural gas is all domestically derived energy, so the country’s fuel import bill doesn’t go up. It’s clean. And it’s so abundant that the industry may run out of places to store it. Utilities that switch to natural gas are already passing savings on to customers. In 2013 residential U.S. utility bills should fall 1 percent.



OPINION: Education Is the Key to a Healthy Economy (Wall Street Journal)

By George P. Shultz and Eric A. Hanushek

In addressing our current fiscal and economic woes, too often we neglect a key ingredient of our nation’s economic future—the human capital produced by our K-12 school system. An improved education system would lead to a dramatically different future for the U.S., because educational outcomes strongly affect economic growth and the distribution of income.

Over the past half century, countries with higher math and science skills have grown faster than those with lower-skilled populations. In the chart nearby, we compare GDP-per-capita growth rates between 1960 and 2000 with achievement results on international math assessment tests. The countries include almost all of the Organization for Economic Cooperation and Development (OECD) countries plus a number of developing countries. What stands out is that all the countries follow a nearly straight line that slopes upward—as scores rise, so does economic growth. Peru, South Africa and the Philippines are at the bottom; Singapore and Taiwan, the top.

The U.S. growth rate lies above the line because—despite the more recent shortcomings of our schools—we’ve long benefited from our commitment to the free movement of labor and capital, strong property rights, a limited degree of government intrusion in the economy, and strong colleges and universities. But each of these advantages has eroded considerably and should not be counted on to keep us above the line in the future.



Visa Plan Poses Bipartisan Test (Wall Street Journal)

By Gerald F. Seib

You might think, in an election year in which immigration will be a political football, that there couldn’t possibly be bipartisan agreement on fixing any part of the current immigration system.

You would be wrong. There is one area—expanding the number of visas given to highly skilled foreigners, particularly those who learned math and science at American universities—where two senators have found a lot of bipartisan agreement. And a whole lot of business-community support to boot. But that doesn’t mean anything actually will happen this year. And therein lies a sad tale of Washington’s dysfunction.

The two senators are Jerry Moran of Kansas, a Republican, and Mark Warner of Virginia, a Democrat. They are co-authors of the Startup Act, a bill designed to knock down some of the barriers that stand in the way of entrepreneurs trying to launch new companies.