Subject: State of the economy; Dodd-Frank anniversary; the 99 percent (AEI Economics Ledger


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State of the economy

Janet Yellen puts on a brave face. J ohn Makin: “Federal Reserve Chairwoman J anet Yellen, in her
semi-annual monetary policy report to Congress on J uly 15, did her best to put some lipstick on the pig
that is the US economy. She started with the relatively bright side -- that the labor market had added
230,000 jobs per month over the first half of the year while the unemployment rate had dropped to 6.1
percent in J une. It was all downhill from there.”
The hope for growth. Kevin Hassett: “In the aftermath of the Great Recession, observers have searched
for a cause for the persistent limping pace of economic growth. Demand-side theories have formed the
basis of the common assertion that the lingering effects of the financial crisis are to blame for our slow
growth, but a striking new paper argues that another culprit may be to blame: the computer.”
NEW RESEARCH -- Time to switch to the supply si de. J ohn Makin: “Modest monthly increases in
employment numbers are only distracting observers from the weak labor market trends underlying the
economy's feeble five-year recovery. Policymakers must overcome partisanship to encourage investment
through supply-side measures that will enable the economy to grow more vigorously.”
NEW REASEARCH -- How fast are semiconductor prices falling? Stephen Oliner, Daniel Sichel, and
David Byrne: “A stalling out of innovation in this sector likely would have broader implications for the
economy, as semiconductors are an important general-purpose technology lying behind machine
learning, robotics, big data, massive connectivity, and many other ongoing advances..”
Monday marks the four-year anniversary of Dodd-Frank
FROM THE ARCHIVES -- Dodd-Frank’s flaws: Peter Wallison: “The whole foundation of the interconnectedness
idea -- the very basis for Dodd-Frank’s concern about large firms dragging down others -- has been
proven false. Edward Pinto: “The Dodd-Frank Act was enacted following a mortgage meltdown, but
perpetuates the same policies that made the meltdown inevitable.” Paul Kupiec: “Before the Dodd-Frank
Act, the average employee of a federal bank regulatory agency received 2.3 times the average
compensation of a private banker. By 2013 this ratio increased to more than 2.7.” Alex Pollock: “If
anybody at all is a SIFI, then Fannie and Freddie are SIFIs.” Abby McCloskey: “Dodd-Frank was intended
to protect consumers. But Dodd-Frank is making the poor worse off.”
TESTIMONY -- What makes a bank systemi call y important? Paul Kupiec: “The Dodd-Frank Act uses
the phrase ‘systemic risk’ 39 times in directing the financial regulatory agencies to identify, mitigate, and
minimize ‘systemic risk.’ But the Dodd-Frank Act never defines systemic risk. Because the term is ambiguous,
the law allows the regulatory agencies wide discretion to interpret the powers it conveys. The DFA directs agencies
to draft and implement rules to control and minimize ‘systemic risk’ without requiring the agencies to identify specifically
what they are attempting to control or minimize.”
ICYMI -- Can committees create financial stability?
Policies for the 99 percent
Fixing the child care penalty. Alan Viard: Under basic tax policy principles, workers should be allowed
to deduct the expenses of earning the income on which they are taxed. Child care meets the economic
definition of a work-related expense -- parents are less likely to work when child care becomes more
expensive. Unfortunately, the federal tax code does not provide proper treatment for child care costs.”
Miscalculating reti rement income. Andrew Biggs and Sylvester Schieber: “Retirement plans are in
theory designed to help retirees maintain their standard of living as they move out of the labor force. The
SSA's wage indexing overstates an individual's pre-retirement earnings, which raises the bar for what
counts as adequate retirement income.”
Should most of our attention be on the 1 percent? Michael Strain: “Hillary Clinton seems to think not.
In a recent interview with Der Spiegel, Clinton argued that ‘the crux of the concern in our country’ has
‘never been’ the fact that some people earn very high incomes. ‘We’ve always had people who did better
than other people. That’s just accepted,’ she said. ‘The question is,’ she continued, ‘how do we get back
to having an economy that works for everybody.”Clinton’s focus on “the 99 percent” is exactly right—and
so refreshing. The Post reports that many on the left are coming around to this position, too.”
The rise of entitlements
Don't rule out anything on Medicare. Alan Viard: “Medicare, the federal government’s second largest
entitlement program, is slated to grow much faster than the economy in upcoming decades. The sooner
we address the pressing budgetary challenge posed by the program’s unsustainable growth, the better.
Unfortunately, a new Senate bill would put up roadblocks on the path to reform by ruling out potential
Medicare solutions.”
Tax hikes won’t come close to solving US debt problem. J im Pethokoukis: “Even though revenue will
rise 6 percentage points over historical levels, spending will rise by 16 points over historical levels.
Record tax revenue, but also record spending. As I said, there’s your trouble.”
Mark your calendar

7.21 Four-year anniversary of the Dodd-Frank Act
7.22 AEI EVENT: Who governs the Internet? A conversation on securing the multistakeholder process
7.24 J obless claims announced
7.24 AEI EVENT: Is it time to end the Export-Import Bank?

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