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The Ledger 02/28/14

The Ledger 02/28/14

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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 Feb 27, 2014
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Subject: Back to work, tax reform, big banks (AEI Economics Ledger) If you have trouble reading this message, click here to view it as a web page. 
Back to work
TESTIMONY
 How to improve prospects of low-income Americans. 
My experience in New York City leads me to suggest that strengthening work requirements in means-tested social services; rewarding work by enhancing programs that support Americans working at low wages; being honest about the benefits of marriage for children and minimizing the impacts of policies that discourage it; promoting proven programs for young men and young parents; and advancing policies that strengthen the economy and connect Americans to work are the best ways to give struggling Americans a hand up
.”
 
The unemployment trap. 
: “Extended unemployment benefits lower workers’ incentives to
search for jobs and to take jobs that may not be a perfect fit, and they may also lower
firms’ incentives to
hire new workers. It might seem intuitive that these incentives sometimes lead workers to delay their return to work, but many on the left dispute this. There is, however, a long line of literature demonstrating that unemployment insur 
ance (UI) extends the duration of unemployment spells.”
 
More equality, less work. 
: “
CBO has confirmed what many economists already knew: Obamacare has both positive and negative features. On the plus side, more people can afford health insurance, and fewer workers feel trapped in jobs they hate because they rely on the company for care. On the negative side, the insurance subsidies impose high marginal income tax rates that discourage
work. (There are other plusses and minuses as well, of course.”
 
RESEARCH
 Has growth helped the poor? 
: “In
many developed countries such as the United States, economic growth has not resulted in a significant decline in poverty rates. At the same time, by most measures, income inequality has widened considerably since the early 1980s. What
policies can these countries follow to make growth more inclusive?”
 
EVENT VIDEO
Tax reform
Suddenly, an opening for tax reform. 
: “
Two major hurdles remain: the president's position that he would rather lose federal revenues and economic growth than
unfairly
 lower tax rates, and Democrats' misplaced perception of the importance of the inequality debate to their efforts
to hold the Senate.”
 
What to make of Dave
Camp’s bank tax. 
: “Whatever your views on the merits of an asset
tax, if you are going to do it, it makes no sense to leave out Fannie and Freddie. No one can honestly deny that Fannie and Freddie are systemically important: this is not an issue about which reasonable people can disagree.
Their total assets are $3.3 trillion and $2 trillion, respectively.”
 
Big banks and big regulators
 
Congress should curb FSOC
’s
 power. 
: “Unless the power of the FSOC is curbed by
Congress, and soon, we may see many of the largest non-bank firms in the US financial system brought
under the control of the FSOC and ultimately the Fed.”
 
The challenges with regulating big banks.
: “
The biggest banks have become even bigger since the financial crisis, the financial industry more concentrated. On the surface, at least, it seems banks are acting as if the
too big to fail
 safety net continues to exist. The bigger they get, the more lik
ely it is that they can benefit from a government backstop in a crisis.”
 
No banking crisis in China. 
 
China cannot have a Lehman moment. Its financial system does not work the way America's (or Japan's or Italy's) does. In fact, it is not clear how China can suffer any sort of acute financial crisis. And it is extremely unlikely that, if such a crisis did occur, it would do lasting harm to the global financial system.
 
Housing finance
NEW RESEARCH
 Housing risk watch. 
: “The
latest National Mortgage Risk Index for home purchase loans shows that low-risk loans accounted for only 42.2 percent of home mortgages extended in January 2014, down from 45.4 percent in December 2013 and 46.4 percent in August 2013 (the starting date for this series). Loan risk is at a higher level than is conducive to long-run market
stability.”
 
AUDIO
Fannie and Freddie are not OK. 
: “
Fannie Mae reported an annual profit of $84 billion for
$2013. Under the terms of the 2008 rescue, all of the profits will be sent to the Treasury. Fannie’s smaller rival, Freddie Mac is also set to confirm its astounding rebound next week. It’s a surprisi
ng turn of events and a windfall for the government
but potentially a looming disaster for shareholders who may lose
billions for standing by the beleaguered organizations.”
 
In other news
NEW WORKING PAPER
 How people vote.
“Do
[voters] simply vote for their
preferred
 party? Or do they target electoral outcomes and derive their vote in a more
strategic
 manner? . . . Here, we have the strategic voter's decision-making process in a plurality system in a
nutshell: he votes for that one of the two leading candidates whose policy position he likes better.”
 
TESTIMONY
 An examination of competition in the wireless market
: “America’s
success and leadership in the wireless sector is dependent on a variety of competing mobile technologies. Americans benefit from this competition through a wide range of mobile services, applications, and devices provided with network subscriptions that offer value for money.
 
EVENT VIDEO
Mark your calendar
2.28 GDP report released 3.6 Jobless claims released 3.7 Employment situation released 3.13
AEI Event! 
Keep up with AEIecon
Get up-to-the-minute updates on Twitter  @AEIecon. 

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