“We are three years into an historic economic slump and no policy out of Washington during that time has successfully addressed the full extent of the problem. Whatever the impact has been (positive or negative) from the extraordinary efforts of the Federal Reserve, the President’s stimulus, and various other actions, it is undeniable to say that despite all the good-faith efforts, our economic challenges continue.”
The following three reports are intended to jumpstart a discussion of the economic policy path forward in conjunction with the return of Congress from summer recess, the President’s joint address to Congress on the economy and the first meeting of the Joint Select Committee on Deficit Reduction.
The reports are available via the hyperlinks below. To download and print, please right click “Save Link As”.
Today, HPS releases the second report in a series of three intended to jumpstart a discussion of the economic policy path going forward, both in terms of politics and policy.
This report is intended to provide an overview of the set of potential solutions to the deleveraging process that is holding back our economy. We find:
• Monetary policy designed to elevate inflation above the Fed’s traditional target would devalue debt (and savings) and deleverage households faster.
• Fiscal stimulus in different forms (e.g., tax cuts, transfer payments, public works projects) could raise incomes either directly or indirectly helping the deleveraging process.
• Fiscal support for workouts for debtors in the form of things like mortgage adjustments could likewise speed the deleveraging process.
• Policy shifts could incrementally improve growth prospects through such changes as regulatory reform, tax reform or free trade agreements.
• If policy-makers believe the medicine is worse than the disease, it makes sense to simply wait for the current deleveraging process to run its course.…
Today, HPS releases the first report in a series of three intended to jumpstart a discussion of the economic policy path forward, both in terms of politics and policy.
This report is intended to provide an overview of our current economic challenges and a view of why it has been so difficult to restart growth. We find:
The primary cause of the economic crisis in 2008 was a credit bubble, which caused inflated asset prices and elevated levels of debt, seen most notably in the housing market.
When the credit bubble burst during the financial crisis, unemployment rose and asset prices fell, but the elevated levels of debt remained.
Since the financial crisis in 2008, households and financial institutions have been working to reduce the debt accumulated in the years leading up to the collapse. This process has become known as “deleveraging” and generally involves the use of income to reduce outstanding loans rather than fund spending or investment.
As individuals simultaneously increased savings to pay down debt,
1. Quick Reads: Reax to the American Jobs Act: David Brooks thinks President Obama has “earned a second date,” Justin Wolfers finds the plan very reasonable but Jonathan Tobin just sees more of the same from the White House while Reihan Salam finds Obama to be “clueless about jobs”
“Zero jobs growth.” Whatever the underlying numbers, the headline is a powerful one. The jobs report this month gives voice in data to the concern that we risk a double-dip recession and that the economy is now at stall speed.
This latest report sets a high-stakes table for the President’s joint address to Congress next week, and incrementally raises the pressure for further action by the Federal Reserve.
Scratching the surface, there is some good news to be had. In the household survey, we actually saw 331,000 new jobs, and perhaps even better than that, we saw 366,000 new entrants to the workforce, the highest number this year.
As this household survey drives the unemployment rate, the benchmark for the President to reach 8 percent by Election Day is essentially unchanged. The benchmark for the unemployment rate to get below 8 percent by Election Day was 272,000 jobs per month going into today’s report (see the memo). After today’s report, that benchmark is 270,000 jobs per month …
What if there is no economic recovery before the election? At the beginning of this year, the consensus view was that the economy was bad, but that it would be getting better “next quarter.” The better next quarter never came, and now the economic projections have been adjusted for the worse. The consensus now is that the economy won’t get better next year at all, and we are probably looking at a significant recovery only in 2013.
This view is reflected in the Federal Reserve’s unprecedented policy of keeping low interest rates in place for the next two years, and it has been reflected in recent private sector economic revisions. J.P. Morgan is now projecting an unemployment rate of 9.5 percent in the fourth quarter of 2012; Goldman Sachs is projecting unemployment of 9.25 percent. Both of these estimates are up from the current rate of 9.1 percent. Just today, the Office of Management and Budget released its Mid-Session Review, with official estimates at 9 percent unemployment in …
The HPS Friday Five is a curated list of five items worth your time. Think of the Friday Five as a week-in-review, reading material for Sunday and a sampling of what is going on at HPS. We are eager for your feedback and are looking forward to your thoughts. Thanks – Noah.
Forgotten Read: The Perils of Precaution: Why Regulators’ “Precautionary Principle” Is Doing More Harm Than Good by Henry I. Miller and Gregory Conko, Policy Review, Hoover Institution, June 2001.
Podcast: NPR’s Planet Money’s When Patents Attack: How patent laws stifle innovation in the tech industry.
Song: @ashleyycsmith: Playing “Come On Eileen” as @HPSInsight’s 2nd 9:30 song – we’re pretending it’s “Come on Irene” in honor of #Ireneageddon…
