Baum on Money: End of 'Extraordinary'?
Good morning, all. It's Day 14 of the U.S. government shutdown. Over the weekend, great expectations met dashed hopes of a resolution to the debt ceiling. Fasten your seat belts. It's going to be a bumpy ride this week. On to your morning reads.
Great Expectations to dashed hopes
Republicans have dropped Obamacare as a bargaining chip in the negotiations (if you can call them that) to increase the government's borrowing authority. Now Democrats are moving the goal posts, demanding a reduction in the automatic cuts to discretionary spending known as sequestration. That put the kibosh on what was looking like a possible agreement before the weekend. Everyone seems to be waiting for the stock market to weigh in -- or at least provide some much-needed motivation to lawmakers.
Surprising to whom?
Foreign aid does more harm than good, according to Angus Deaton, an expert in the field of international affairs. The only question is what took him so long to figure it out? Global poverty is not the result of a lack of resources or opportunity, but of "poor institutions, poor government and toxic politics," according to a New York Times review of his new book, "The Great Escape." With $134 billion in official aid flowing from rich to poor nations, it's a sad commentary when someone who has worked with the World Bank for decades creating yardsticks to measure global poverty finds the conclusions surprising.
A not-so-extraordinary question
Since May, the U.S. Treasury has been using "extraordinary measures," or accounting sleight-of-hand, to avoid exceeding the statutory $16.7 trillion debt ceiling. Those measures include replacing Treasuries held in internal government accounts with IOUs, which are not subject to the statutory debt limit. (You try that and see how far you get.) How about getting rid of the extraordinary measures? Eliminating them wouldn't change the "brinkmanship of the debt limit," writes the Urban Institute's Donald Marron. It would merely shift the date on which the Treasury runs out of borrowing authority, remove the guessing game over the actual drop-dead date and "increase the transparency of our goofy budget process." Maybe next time.
Elusive answers to the unemployment riddle
Economists and policy-makers have been trying to understand the reason for the prolonged period of high unemployment in the U.S.: a skills mismatch, weak aggregate demand, or wage rigidities. The Atlanta Fed's annual employment conference examined the issues without coming to a definitive conclusion. (The bank's Macroblog provides summaries and web links.) One area of inquiry was whether the unprecedented extension of jobless benefits (to 99 weeks) increased the duration of unemployment. The answer? One paper found a "statistically significant" effect that was only a minor contribution to total unemployment. Another concluded that extended benefits accounted for virtually all the increase in unemployment. And you wonder why it's called the dismal science?
And the winner is…
The Nobel Prize in Economic Sciences will be announced momentarily. Friedrich Hayek, the 1974 winner, had some reservations about the creation of a prize in his chosen field. First, it would "tend to accentuate the swings of scientific fashion." The Swedish Academy allayed Hayek's apprehension "by awarding the prize to one whose views are as unfashionable as mine." His second reservation was that the prize "confers on an individual an authority which in economics no man ought to possess." Unlike in the hard sciences, where a Nobel laureate's influence is on experts in his field, an economist has influence over politicians, journalists and the general public. Can you think of a Nobel-winning economist who has gained undue influence because of the prize?
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)