The Daily Dish
Good Morning –
Despite our best efforts at the Dish, the WSJ reports that consumers are either unaware or
“unfazed” by the fiscal cliff. “Consumer confidence surged in early October to its highest level
since before the recession, according to a survey from the University of Michigan on Friday. A
separate survey of consumers by RBC Capital Markets earlier this month found that most
either weren’t following the fiscal cliff or weren’t concerned about it.”
Recall that “the last time Washington played chicken with the economy, during last year’s
debate over raising the debt ceiling, consumer confidence plunged, but rebounded relatively
quickly once the threat passed.” This time the debate will occur during prime holiday
shopping season, and the direct impact on consumers is greater.
Then there are the economists surveyed by the National Association for Business Economics
who predict “the U.S. economy will likely expand 2.4 percent next year, up from projected
growth of 1.9 percent in 2012.” How? They assume Washington will avoid going off the cliff.
Reuters reports that “55 percent of respondents think [2001/2003] tax cuts…will be extended
for all taxpayers in 2013…Also, about four-fifths of the economists polled predicted that
planned spending cuts will be greatly watered down.”
Simply ignoring the fiscal cliff will not get the U.S. economy safely into 2013.
AMERICANACTIONFORUM.ORG
Doug’s Daily Economic Outlook
The Treasury report is in and the U.S. ran a deficit of $1.09 in fiscal 2012, the 4th largest since
WWII and the 4th trillion dollar deficit in a row. The issue now is what strategy is best to deal
with deficit and mounting debt. Step one should be a focus on economic growth. Congress
will not have the political steadfastness to address the deficit in recession — a corollary to this
is that the U.S. must avoid the fiscal cliff. A useful addition to policy arsenal in this regard
should be a pro-growth comprehensive tax reform as the top priority in 2013. The next step is
to control current and, especially, future spending growth. Here there two potential pitfalls. The first is too heavy a reliance on discretionary spending
cuts. The discretionary account contain all the core functions of government — national
security, infrastructure, education, basic research, etc. — and should be right-sized and no
more. Instead, the real money is in the mandatory accounts, especially the entitlements:
Affordable Care Act, Medicare, Medicaid, and Social Security. Some deficit hawks propose
across-the-board cuts in these programs to control spending. Unfortunately, that approach
leaves the basic architecture unchanged. And it is the architecture of these programs that got
the U.S. in trouble to begin with. Instead, the key is transformational reforms of these
programs that cap the taxpayers’ exposure to future spending and target the social safety net
more carefully.
The U.S. has had record deficits. It is now time for unprecedented reforms.
What We’re Reading
Economic Reports for the Week Ahead – Data to be released include retail sales for September
and business inventories for August (Monday); the Consumer Price Index for September and
AMERICANACTIONFORUM.ORG
industrial production for September (Tuesday); housing starts for September (Wednesday);
weekly jobless claims, the Philadelphia Fed index for October leading economic indicators for
September (Thursday); and existing home sales for September (Friday). (NYT)
Bernanke Says Fed Policy Could Benefit Global Economy – The Federal Reserve chairman, Ben
S. Bernanke, defended the central bank’s monetary policy on Sunday from claims that it was
hurting the economies of emerging countries. Mr. Bernanke has often defended Fed actions
against domestic critics, who argue the policy of keeping interest rates near zero while
ramping up asset purchases hurts savers and risks future inflation. But in a speech here, he
addressed critics abroad by saying that stronger growth in the United States bolsters global
prospects as well. (NYT)
Federal Reserve flirting with higher inflation – Will the U.S. Federal Reserve look the other
way if inflation overruns its target? Risking the wrath of politicians and the central bank’s
hard-won plans for boosting employment that explicitly allow for inflation to run above the
Fed’s 2.0-percent goal. Investors are wondering just how high – and for how long – the Fed
may allow inflation to rise to encourage borrowing, investment and hiring. (Reuters)
Economists argue about sequestration’s effect on jobs – As a prominent analyst of the local
economy, Stephen S. Fuller of George Mason University’s Center for Regional Analysis
attracted plenty of attention when he estimated that the mandatory budget cuts coming in
January could save more than 2 million jobs nationwide, including nearly 450,000 in the
District, Maryland and Virginia. The conservative Cato Institute challenged those estimates –
and let Fueller defend himself – at a debate last week. (WaPo)
U.S. Oil Boom Falls Short of Pump – Surging U.S. oil production is driving down domestic
benchmark crude prices and delivering a windfall to some refiners and their investors. But
AMERICANACTIONFORUM.ORG
the oil boom is providing little relief for consumers at the pump. U.S. crude production is
expected to rise 12% this year and 8% in 2013, whit it will hit the highest level since 1993,
according to government figures. (WSJ)
U.S. Ties Hospital Payments to Making Patients Happy – Nearly $1 billion in payments to
hospitals over the next year will be based in part on patient satisfaction, determined by a 27question government survey administered to patients. Hospitals with high scores will get a
bonus payment. Those with low ones will lose money. (WSJ)
A Risky Lifeline for Seniors Is Costing Some Their Homes – The very loans that are supposed to
help seniors stay in their homes are in many cases pushing them out. Reverse mortgages,
which allow homeowners 62 and older to borrow money against the value of their homes and
not pay it back until the move out or die, have long been fraught with problems. But federal
and state regulators are documenting new instances of abuse as smaller mortgage brokers,
including former subprime lenders, flood the market after the recent exit of big banks and as
defaults on the loans hit record rates. (NYT)
Also From the Forum
Reminder About “Inherited” Policies – The Administration has specifically and continually
pointed to three policy decisions under the previous Administration that
have been, in the view of the current White House, detrimental to the budget picture: the 2001
and 2003 tax cuts, the 2003 prescription drug bill, and “unpaid for” wars. However, despite the
criticism this Administration has largely retained these policies, and even expanded or
otherwise exploited two of them. (Blog here)
The State by State Impact of ACA Regulations – Since passage of the Affordable Care Act (ACA),
the American Action Forum (AAF) has tracked the state of its regulatory implementation. To
date, the ACA has imposed a total of $27.6 billion in new regulations – at least $20.4 billion in
lifetime costs on private entities and $7.2 billion in increased burdens on state budgets. In this
AMERICANACTIONFORUM.ORG
paper AAF examines how this $27.6 billion in new costs break down on a state-by-state level.
The data show that five states will endure at least $1 billion in ACA regulatory costs. (Study
here)
AMERICANACTIONFORUM.ORG