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The Ledger 01/17/14

The Ledger 01/17/14

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A weekly snapshot of news, views, and economic cues from AEI's Economic Policy team
A weekly snapshot of news, views, and economic cues from AEI's Economic Policy team

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Published by: American Enterprise Institute on Jan 16, 2014
Copyright:Attribution Non-commercial


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Subject: How to measure inequality, strengthen the safety net (AEI Economics Ledger) If you have trouble reading this message, click here to view it as a web page. 
Income inequality
 Income inequality in the US.
The purpose of this testimony is to summarize some ideas that might help policymakers address the current economic crisis facing families and provide them opportunities to be productive participants in the labor market and rebuild their lives. . . . While trying to equalize outcomes for families by attempting to equalize incomes may be an impossible goal, equalizing opportunities for individuals by providing access to good schools and good jobs may be more attainable and realistic.
 A new measure of consumption inequality.
: “Income data are not the best measure of overall welfare. What matters for household
well-being is consumption, since households are better able to smooth consumption rather than income over their lifetime. To that end, we use two alternative sources of data to assess changes in consumption inequality. Our first source, the Consumer Expenditure (CEX) Survey, shows aggregated changes in consumption expenditures for households at all levels of the income distribution. Using these data, we find that consumption inequality has increased only marginally since the 1980s.
Mobility is the biggest threat to the American Dream.
: “The problem is not too much
income inequality, the GOP will say, but too little upward mobility that endangers the American Dream. As Senator Marco Rubio said last week in an important anti-poverty sp
eech, ‘
upward mobility and equal opportunity is not a partisan issue, it is our unifying American principle.
The minimum wage is minimal relief for the poor. 
: “It’s far from widely agreed that
the minimum wage is a good policy tool. Opponents believe that higher mandated wages will cause employers to fire some workers, or not hire additional ones. Proponents argue that these disemployment effects are small. But this debate misses the key point: Even if the minimum wage works as its advocates claim, it is a highly ineffective anti-
poverty tool.”
Strengthening the safety net
Underfunded pensions, underestimated risk. 
“In cities and states around the country,
elected officials, public employees and taxpayers are concerned about the funding of public sector pensions, which are placing increasing pressure on government budgets. But in reality, none of these stakeholders have a clear idea how well funded their plans are, due to accounting rules and disclosures that confuse true funding
that is, money you've actually got
with pseudo-funding based upon money the plan
to earn in the future.”
AEI EVENT VIDEO and summary
 A slowdown afoot?
A bad month ends a typical year. 
: “
Economists and analysts were reasonably hopeful that the labor market had entered a period of self-sustaining recovery.
<Last week’s>
 jobs report takes a sledgehammer to those hopes. The year ended with a roar of disappointment. The economy added only 74,000 jobs last month. While the unemployment rate fell to 6.7%, the drop was driven by a contraction in
the labor force of 347,000.”
 Growth momentum goes away. 
: “
The Fed has to worry about a worsening employment
picture. First, because it can’t do anything about it —
 monthly employment growth in 2013 was identical to that in 2012
 and second because it has said it can.
Fed risks extend across the pond. 
: “
 As the Federal Reserve now begins unwinding its unprecedented quantitative easing program, one would think that it would be well served by being
mindful of Wall Street’s turkey adage. For never before has global liquidity been as ample as it has been
in the past few years. And never before have the countries that have allowed their economic policies to
slip in the good times been so important to the global economy as they are today.”
The US is no longer a world leader in economic freedom. 
The 2014 Heritage/Wall Street Journal national ranking index of economic freedom was published yesterday, and it makes for some sobering reading. The recent overall index rankings for the US among approximately 165 nations since 2008 are as follows:
 2008: 5th
 2009: 6th
 2010: 8th
 2011: 9th
 2012: 10th
 2013: 10th
 2014: 12th
Policies for stronger growth in 2014. 
“Don't expect a grand bargain with entitlement
changes to address the structural fiscal imbalance, or a pro-growth tax reform aimed at putting the U.S. economy back onto a permanently better trajectory. The administration's policy horizon has shrunk, meaning that these long-term challenges will be left for the next President. But there is still a chance of movement this year on immigration, trade, and housing finance reform, all of which would constitute
meaningful progress toward a stronger U.S. economy.”
Financial reform
AEI EVENT VIDEO and summary
Regulators follow the money, but not systemic risk. 
: “
It is difficult to see how asset managers, of whatever size, could create systemic risk. Losses suffered by a managed fund flow through immediately to investors in the fund. According to the Office of Financial Research, the total amount of funds under management is approximately $53 trillion. This means that no matter how large the losses
incurred by funds, there is about $53 trillion in equity that is available to absorb them.”
Banks are safer, but regulators are not. 
: “
The demise of a large bank will be no minor event, but the financial system is safer than previously and so too is the broader economy as a result. Even if incidents such as Madoff or the Whale do not pose a systemic risk, this still leaves the difficult question of how to ensure that they do not slip past financial supervisors. Even before the financial crisis, regulators already had ample powers to head
off harmful behavior.”

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