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A special congratulations to Nobel laureate and AEI adviser Eugene F. Fama!

The way forward
Congress punts again. John Makin: “Congress threw in a requirement for budget talks to resolve, by December 13, differences between House and Senate budget plans that were passed way back in March. Of course there are no holiday season consequences for failure. Merry Christmas to crisis-weary Americans. No agreement will be reached in 2013, and we get to start 2014 with a shutdown already scheduled to begin two weeks after New Year’s Day.” TESTIMONY — The way forward from government shutdown and debt ceiling confrontation. Kevin Hassett: Countries have increasingly begun to rely on specific expenditure targets, either top line numbers, or as a percentage of GDP. . . . The data suggest, then, that we might well seek to adopt a new set of budget rules that set a limit on spending, and then agree to automatically pass continuing resolutions and debt limit increases, provided that the government is spending at or below the target.” Lessons Republicans should learn from the debt ceiling debate. Stan Veuger: “Well then, a global financial crisis has been averted, and the zombie apocalypse will not be with us for at least another few months. Happiness abounds, everyone wins. Except for Republicans in Congress, who appear to have gained exactly nothing from this crisis. But is that really true? No, hopefully they have learned a few lessons.” Worried about more Washington dysfunction come January? Buy Treasuries. John Makin and Brittany Pineros: “PIMCO’s other co-chief, Bill Gross, is buying treasuries. Why? The answer is simple. There will be no default—on Treasuries, at least. But paying Treasuries after the X Date will mean less money for the rest of government, meaning a much weaker economy, which will further drive down interest rates lower and drive up the price of treasuries.” The fight may be over, but the deficit isn’t. Edward Conard: “The size of this annual deficit, America’s publicly held debt — currently an unprecedented $12 trillion — continues to grow relative to GDP with no end in sight. Interest payments on the debt and entitlement growth will gradually eat the U.S. economy alive.”

On to other challenges
Here come Obamacare taxes. Phillip Swagel: “The Affordable Care Act imposes a variety of new taxes to cover part of the cost of providing coverage to millions of additional people, including taxes on highcost health insurance plans, medical devices, tanning salons, and capital gains and dividends. This last provision is a penalty on people who save and invest.” What Yellen faces from the Senate. Ramesh Ponnuru: “Most of the critics think money has been too loose as a result of unorthodox monetary policies such as quantitative easing. They’ve been warning for years that inflation would accelerate in due course. So far no such trend has shown up in the data.”

Wall Street loves Yellen. Tim Carney: “It's easy to see how Yellen, despite calling for more financial regulation, was Wall Street's favorite. ‘Wall Street loves quantitative easing much more than it dislikes regulation,’ wrote Yellen critic John Berlau of the free-market Competitive Enterprise Institute.”

Playing the numbers game
AARP’s fuzzy math on Social Security. Andrew Biggs: “AARP overlooks is the money pulled out of the economy through Social Security payroll taxes to fund these benefits. These taxes have what we might call a "divisor effect:" For each dollar of taxes levied, workers have less to spend, and that reduction is passed on throughout the economy. If workers spend the same percentage of their incomes as retirees, then the net economic effect of Social Security isn't $1.4 trillion or nine million jobs. It's zero.” Larry Summers is wrong about the US growing out of debt. Jim Pethokoukis: “It’s been my experience that many liberals see America’s long-term debt problem as one mainly of too little taxing rather than too much spending. Minor entitlement tweaks + a value-added tax = no problemo.” Methanol advocates argue against themselves. Benjamin Zycher: “In ‘A Chemistry Breakthrough That Could Fuel a Revolution’ (op-ed, Oct. 11) extolling the virtues of methanol as a transportation fuel, George A. Olah and Chris Cox fail to mention one central fact: Methanol has about half the energy content of gasoline. (Ethanol has about two-thirds.)”

After a tiring few weeks in Washington, enjoy your weekend.
Remember, this is the not the end. Jim Pethokoukis: “The threat America faces isn’t so much death and destruction as it is the prospect of a long, slow decline. . . .The real problem is that the national debt will be starting from historically high levels when the entitlement tidal wave begins to make landfall.” And if you miss the drama, here’s some from AEIdeas.org. Benjamin Zycher: “With respect to the past use of the debt ceiling as a political tool, Norm Ornstein would do well to peruse the recent history of the politics of the debt ceiling.” Stan Veuger: “I’d rather not test the resilience of the global financial system gratuitously, as Dr. Zycher remarkably appears to advocate for.” Benjamin Zycher: “Stan truly is a deeply serious scholar, but also is a young man apparently under the impression that history began in 2008.”

Mark your calendar
10.23 AEI Event: From multiple choice to one size fits all? Obamacare and the future of competition in health care 10.24 Jobless claims numbers released 10.24 AEI Event: Innovators versus litigators: Chairman Bob Goodlatte on the need for patent reform 10.30 First estimate of Q3 2013 GDP

Keep up with AEIecon
Get up-to-the-minute updates @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. If you were forwarded this message, click here to subscribe to AEI newsletters. Click here to unsubscribe or manage your subscriptions. American Enterprise Institute for Public Policy Research | 1150 Seventeenth Street, NW, Washington, DC 20036 | 202.862.5800 | www.aei.org

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