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The Ledger 08/01/14

The Ledger 08/01/14

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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 Jul 31, 2014
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07/31/2014

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Subject: Busy week in Congress, the facts about corporate inversions, Q2 growth fundamentals (AEI Economics Ledger) If you have trouble reading this message, click here to view it as a web page. 
Congress stays busy before August recess
Testimony — Does SNAP support work? Yes and no. 
The Supplemental Nutrition  Assistance Program (SNAP) alleviates material hardship, reduces poverty, helps the elderly and disabled, and provides needed food to children in low income families. Despite these positive aspects, some efforts to promote the use of SNAP in the post-recession period have reduced the work support aspect of the program.”
Testimony — Increasing economic opportunity for African Americans: Local initiatives that are making a difference. 
 Aparna Mathur:  Amongst all races, economic mobility is of particular concern for  African-Americans. African-Americans experience significantly less upward economic mobility compared to whites. Forty-four percent of blacks in the bottom quintile stay there into adulthood compared to just 25 percent of comparable whites. A large majority of blacks born in the bottom half of the income distribution are likely to exceed their parent’s place in the income distribution, but only 35 percent improve their relative position by 20 percentiles or more, less than the nearly 50 percent statistic for whites.” 
Testimony — Even if you like your plan, you may well lose your plan. And even if you like your doctor, you may well lose your doctor.
 Stan Veuger : “By 2018 between 73 to 96 percent of employer plans will lose their grandfathered status. Therefore, even more families that were happy with their coverage will not be able to keep it and see their plans change. Enacting H.R. 3522, the ‘Employee Health Care Protection Act of 2013,’ would extend grandfathered status to plans offered in 2013 and allow the president to come closer to keeping his promise.”
Spotlight on corporate inversions
President Obama’s misleading commentary about corporate inversions
.  Alan Viard: “Rather than condemning corporations that change their ‘technical address’ to lower their taxes, we should be asking why we base tax liability on that technicality in the first place. If we tell a corporation that it must pay millions of extra dollars in tax because it has a piece of paper that was issued in the United States rather than abroad, should we really be surprised when it tries to get a new piece of paper issued abroad?”
State of the economy
Second-quarter growth beats expectations. 
John Makin:
 
“‘Surprise!’ say the sell-side, upbeat economy touts. Second-quarter GDP growth came in at a 4% pace, well above the expected 3% pace. But that’s as good as the news gets.”
What’s behind the US energy boom?
 Mark Perry: “It would be easy to look at the dramatic 35% increase in America's oil and natural gas production since President Obama took office and think the administration deserves much of the credit. But the energy boom has happened in spite of him.”
Social Security deficit rises again.
  Andrew Biggs: “Like the CBO, the Social Security Trustees see a worsening picture for Social Security: last year they projected a 75-year deficit of 2.72% of payroll, while
 
this year it’s up to 2.88%. That’s a mere $10.6 trillion in present value for anyone counting, up $1 trillion from a year ago.”
Too big to fail and other financial risks
Too big to fail lives on. 
Paul Kupiec: Data on bank funding costs provides clear evidence that Dodd- Frank has not ended TBTF. In the years prior to the financial crisis — 2005, 2006, 2007 — the largest banks, those with assets greater than $100 billion, paid a higher average cost for their funding than did smaller banks. After the financial crisis and passage of the Dodd-Frank Act — 2012, 2013 and 2014 — the largest banks have lower average funding costs compared to smaller banks.”
Housing risk declines, for now. 
Edward Pinto and Stephen Oliner : “AEI’s National Mortgage Risk Index for home purchase loans fell almost half of a percentage point in June to 11.44%. This drop reflected declines for three of the four agencies (Fannie Mae, Freddie Mac, and the FHA), along with a decline in the share of purchase loans guaranteed by the FHA and Rural Housing Service (RHS). The index for the Rural Housing Service hit a new series high at 19.75%.”
 Around the world
Passing the trans-Pacific trade pact comes down to this. 
Claude Barfield: “The TPP has become the single most important symbol of future US leadership in Asia. Failure will have not only economic but also debilitating diplomatic and security consequences. Within the United States, two imperatives are key: hands-on presidential leadership (admittedly not a normal Obama strength), and responsible initiatives from congressional Republicans, who have provided the bedrock majorities for FTAs for the past two decades.”
No free lunch for the ECB. 
Desmond Lachman: “Before opting for a policy of quantitative easing, European policymakers should weigh alternative policy options. They might consider supporting the ECB’s present monetary policy with more expansionary fiscal policies for suitable countries, such as Germany. They might also consider policies aimed at increasing the flow of credit and at reducing borrowing costs for small and medium-sized firms in the European periphery.”
In other news
Hillary's weak-but-illuminated critique of the Ryan antipoverty plan.
 Jim Pethokoukis: “Does Hillary really think state governments, particularly those led by GOP governors, hate their poor people? Is that where the political debate is? Another, more constructive way of looking at it: the Rubio/Ryan approach is a perfect antidote to the ‘rejection of Medicaid funds’ mindset because it strips the federalism politics out of it and invites/empowers states to innovate.”
Mark your calendar
Today! Monthly employment situation numbers released 8.7 Weekly jobless claims released
Keep up with AEIecon
Get up-to-the-minute updates on Twitter  @AEIecon.  Read more from the American Enterprise Institute economic policy team at www.aei.org/economics. Contact Abby at abby.mccloskey@aei.org if you have questions for the economics team.
 Sign up for a weekly copy of the LEDGER here. 
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