Felix Salmon

The minimum-wage stimulus

Felix Salmon
Jun 20, 2013 13:50 UTC

Nick Hanauer has a good idea today: raise the minimum wage to $15 per hour.

The minimum-wage intervention would kill a lot of birds with one stone: it’s a win-win-win-win-win-win.

First of all, most simply and most cleanly, it would immediately raise the incomes of millions of cash-strapped Americans — precisely the people who most need to be earning more than they’re making right now. A whopping 51 million people would benefit directly, along with 30 million who would benefit indirectly: these are enormous numbers.

Secondly, the cost to the government of putting billions of extra dollars into these workers’ hands would in fact be substantially negative: there’s a strong fiscal case for a $15 minimum wage. We currently spend $316 billion per year on programs designed to help the poor, with the lowest-income households receiving about $8,800 per year. Billions of those dollars would be saved as the workers in question saw their wages rise. And no longer would the likes of Walmart be able to take advantage of implicit government wage subsidies, whereby low-paid workers receive substantial top-up checks from Uncle Sam to supplement their direct income.

Thirdly, the move would constitute a huge economic stimulus program: Hanauer says that it would inject about $450 billion annually into the US economy every year. If you like massive stimulus but you don’t like the idea of the government paying for it, then a higher minimum wage is the program for you.

Fourthly, and crucially, a higher minimum wage would be good for employment. A $450 billion stimulus, delivered directly into the hands of the Americans most likely to spend it, can’t help but create jobs across the economy. Of course, as in any healthy economy, there will be a birth/death model: some employers will see demand soar, while others will see their costs rise and their margins shrink. But there’s empirical evidence to suggest that states which raise the minimum wage when unemployment is high — when there’s a lot of slack in the labor force — then you get faster job growth than in the country as a whole.

This is the particular genius of Hanauer’s suggestion: it’s especially effective right now, and we’re at the perfect point in the economic cycle to implement it. At the depths of a recession, a disruptive move like this can have unintended consequences. But the economy is growing now, albeit not as fast as anybody would like, which means the wind is behind our backs to a certain degree. The bigger economic problem is that employment hasn’t kept pace with economic growth: most of the gains in GDP have gone to capital, rather than to labor. A higher minimum wage would redress the balance somewhat.

Fifthly, insofar as a one-off hike in the minimum wage would be inflationary, that’s a good thing, and exactly what the economy needs. We’re well below the Fed’s target inflation rate right now, and the inflation which might result from this policy would give us a healthy short-term boost in the inflation rate, bringing down real interest rates in a world where the Fed is constrained by the zero lower bound. If you’re worried about the unintended consequences of heterodox monetary policy, then again, a rise in the minimum wage might be very helpful indeed in terms of weaning the Fed off QE.

Finally, there’s the global context. There are surely some US jobs which simply aren’t economic at $15 per hour, and those jobs will end up being lost. (In aggregate, as I say, raising the minimum wage is probably good for employment, but the extra jobs at employers taking advantage of all that extra spending aren’t going to be in the same places as the jobs lost at employers who can’t afford to pay that much.) But the point here is that the US has already done a spectacularly good job of exporting most of its exportable low-wage work. As Hanauer says, “virtually all of these low-wage jobs are service jobs that can neither be outsourced nor automated”. As a result, raising the minimum wage will result in many fewer job losses now than it would have done a couple of decades ago.

Of course, given Congressional dysfunction, there’s zero chance that this will happen. But I can easily imagine someone like Ben Bernanke reading Hanauer’s column and dreaming wistfully about how great it would be if we lived in a country where such things were possible. If we want economic stimulus, higher growth, higher employment, and higher inflation — which we do — then raising the minimum wage is exactly the kind of thing we should be doing.


The problem is that Felix, like a lot of people, are ivory tower folks on this. A $15 min MIGHT work in the Northeast and West Coast, but would cause catastrophic destruction in the rural Midwest and South. And, I wish anybody else who “expertly” comments on this issue would not do so until having lived in said areas themselves. (I’m assuming Felix hasn’t.)

This lack of informedness then carries elsewhere. I’ve had an Australian comment on my blog who simply doesn’t understand why this won’t work.

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Counterparties: The immigration stimulus

Nov 9, 2012 22:38 UTC

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As Wonkblog and others noted today, conservatives like John Boehner, Sean Hannity and Charles Krauthhammer are signaling that immigration reform may finally be coming. While it’s a politically and racially loaded issue, immigration is economically simple: letting more people come to America would help the economy.

A 2010 study by the San Francisco Fed found that U.S. immigration is associated with higher productivity, an increase in average hours for workers, and has “positive, long-run effects” on incomes for non-immigrant Americans. The Kauffman Foundation has produced reams of research on how immigration boosts entrepreneurship, and recently estimated that companies with immigrant founders produced $63 billion in sales over the last 6 years. Gordon Hanson of the Cato Institute — which dedicated an entire issue of its journal to the subject earlier this year — finds that immigration is valuable whether it’s high-skilled PhDs or low-skilled laborers.

There are, of course, non-economic benefits to bringing more immigrants to the US. Noah Smith last month suggested that drawing the increasingly rich Asian population to the US would help relations with the region. Matt Yglesias suggested we can address the problems of “global poverty and misgovernment” by opening our borders to the world.

In light of the election’s demographic lessons, it’s also worth nothing that immigration is already having a powerful effect of America. The WSJ today examines how the “Latino diaspora” is revitalizing towns like Ottumwa, Iowa and much of the Midwest:

Between 2000 and 2010, the Hispanic population in the Midwest swelled 49%, more
than 12 times the 4% overall population growth there, according to the census.

The number of Latinos climbed 82% in Iowa during that decade and now represents 5% of the state’s population, the census found. The Hispanic population grew 82% in Indiana, 77% in Nebraska and 74.5% in Minnesota.

An Ottumwa bank officer put it this way: “Hispanics are pulling this town out of a long recession”. – Ryan McCarthy

And on to today’s links:

Occupy’s next move: Buy your debt from banks and forgive it – David Rees

How to solve the fiscal cliff: “The Obamaney Plan” – Greg Ip
Let’s not make a deal — Paul Krugman

Public Works
How NYC managed to get its subway back so quickly – NYT

Yes, companies are harvesting — and selling — your Facebook profile – ProPublica

HSBC’s “wink/nod” business model in allegedly running money for drug dealers and gun runners — Telegraph

“Congratulations, you’ve become a Goldman Sachs Partner” – Guardian
Ex-Goldman trader charged with defrauding the bank of $118 million – Reuters

Bionic hand helps amputeee feel human again – Guardian

Official Statements
Bain Capital to investors: We’re still non-partisan. Really. — Dan Primack

Apple’s stock is at its lowest P/E ratio since 2001 – Quartz


Follow us on Twitter and FacebookAnd, of course, there are many more links at Counterparties.


If I’m reading it right, OWS is buying “defaulted loans”, particularly medical and educational loans. These loans are typically sold to debt collectors — and because they aren’t collateralized, they are quite cheap once they are in default.

Yes, debts can be discharged in bankruptcy, but this gives the beneficiaries an opportunity to avoid bankruptcy.

Distressed housing would be much more costly.

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Quantifying the second stimulus

Felix Salmon
Dec 8, 2010 15:01 UTC

Michael Linden and Michael Ettlinger have a good overview of the cost in dollars of the tax-cut compromise, and its benefit when it comes to employment numbers:


David Leonhardt then boils their numbers down even further:

Of its estimated $900 billion-plus cost over two years, roughly $120 billion covers the high-end tax cuts and the estate tax cut, $450 billion covers Mr. Obama’s wish list and $360 billion covers the tax cut extensions both parties favored.

Both in terms of dollars and in terms of jobs, then, this deal is heavily weighted towards progressive options. Yes, the tax cuts for the rich are expensive, at $60 billion a year. But the payroll cut as proposed will cost $120 billion a year, and it does look as though the Obama administration has found its second stimulus.

As Catherine Rampell reports, cutting taxes is almost never the first-best form of stimulus. But it’s the only form of stimulus which is politically feasible—and what’s more, there are diminishing marginal returns to extra spending-related stimulus, in terms of jobs created, since the first stimulus more than covered the low-hanging fruit.

Incidentally, Leonhardt disagrees with my take on payroll-tax cuts. I reckon it makes perfect sense to give them to employees rather than employers, but he says no:

The ideal package would have been larger than the current one, and it would have been better tailored. The $120 billion cut in the payroll tax, for example, will apply to the portion paid by workers, not companies. The Congressional Budget Office and other analysts have said that cutting the workers’ portion provides less bang for the buck because individuals are likely to save some portion of the money. Cutting the employers’ portion subsidizes hiring.

But politics prevented the best kind of payroll tax cut. Republicans did not want one larger than the $120 billion, one-year cut in the package. Administration officials wanted the political benefit of having that whole sum apply to individual workers. The resulting compromise will help the economy, but not as much as it could have.

John Carney made a similar point yesterday:

Temporary tax relief tends not to increase consumer spending by very much. What’s more, tax relief that comes in the form of a temporary payroll tax cut is even less likely to stimulate spending.

Carney has a certain amount of academic literature on his side, especially a recent paper based on a poll of consumers, asking them how much of any tax cut they would save rather than spend.

Here’s the more detailed testimony of CBO director Douglas Elmendorf. He calculates that reducing employers’ payroll taxes would increase GDP by between 40 cents and $1.20 for every dollar spent, while reducing employees’ payroll taxes would boost GDP by somewhere between 30 cents and 90 cents. On the jobs front, every million dollars spent on the employer side would create between 5 and 13 jobs in the first year; if the cuts were applied to employees, the range is between 3 and 9 jobs.

Elmendorf writes that reducing employees’ payroll taxes “would have effects similar to those of reducing other taxes for those workers”; he doesn’t go into any detail about the behavioral economics of quietly reducing withholding versus sending out splashy rebate checks.

So, let me apologize to Greg Mankiw for calling him disingenuous yesterday: there’s clearly much more of a consensus here than I thought.

I’m not yet persuaded that employer-side tax cuts are better: I still think that for three main reasons, employee-side cuts make sense right now. The experience of the last cuts shows how invisible they are and therefore how likely they are to be spent; the size of corporate cash piles shows how unwilling companies are to reinvest extra temporary cashflow; and in general employers are richer than employees, so giving the tax cut to them seems regressive. But it’s clearly credible and intellectually honest to believe otherwise.

That said, I love Elmendorf’s idea of cutting employer-side payroll taxes only for those employers who increase their payrolls. That policy would surely have a very large bang-to-buck ratio.


Wasn’t sure where to add this , but this is an example of what happens to stimulus money that is given to a business … it uses it for anything but jobs unless you impose some mandatory conditions …

http://workinprogress.firedoglake.com/20 11/01/19/union-members-disrupt-mortgage- banksters-meeting-in-dc-video

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How the AIG bailout scuttles chances for a second stimulus

Felix Salmon
Nov 18, 2009 16:08 UTC

Paul Krugman is right to be worried about the unintended consequences of the AIG bailout:

We’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts.

I do fear that the Obama administration has done a bad job of separating the financial-sector bailouts, on the one hand, from the stimulus bill, on the other. And if the general public starts conflating the two, there’s no chance of any more stimulus, no matter how needed it might be.

Part of the problem is that Tim Geithner was so vocal about the urgent necessity for both of them, dating back to his tenure at the Fed during the Bush administration. If he comes out and says that a second stimulus is needed, the obvious rejoinder will be “well you said that about the AIG bailout too”. And there’s no good answer to that.


Mr. Krugman appears to hold the belief one of these government economic activites was better than the other and should; therefore, not generate a lack of trust. In my opinion, there’s no confusion, or confoundedness. Wrong is wrong and there can be nothing wronger about this. A third wrong won’t make this right.

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Why I’m unconvinced by calls for a second stimulus package

Felix Salmon
Jul 12, 2009 23:34 UTC

Brad DeLong has an impassioned plea for further fiscal stimulus under the headline “Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days”. His basic argument is simple: if the $787 billion package was designed using assumptions which turn out to have been overoptimistic, then surely now that unemployment is heading into double digits a second major stimulus is warranted.

But the problem is that spending trillions of dollars is actually extremely difficult, and it’s even harder if you try to front-load it. Government, by its nature, moves slowly, and I get the impression that the “easy” spending — and then some — was all included in the initial stimulus bill. The “shovel-ready projects” have already been funded, and any extra stimulus might well take years to kick in.

In an efficient market, a credible government promise to invest hundreds of billions of dollars in mass transit and nuclear power and smart electrical grids and so on and so forth would have an immediate stimulative effect: people would start spending now, in anticipation of all those government dollars which are going to arrive in a few years’ time. But we’re in a liquidity crunch, and we’re not in an efficient market, and unfortunately government spending only seems to cause any stimulus as and when the checks are written, if then. (Insofar as they go to companies who are running down their inventories, there’s no stimulus at all.)

I don’t think there’s any doubt that there are diminishing marginal returns to fiscal stimulus plans — which brings me to Paul Krugman’s take on the subject, where he asks how an examination of the marginal costs and benefits of deficit spending could possibly come to the conclusion that stimulus of $800 billion was exactly what was needed.

Let me try to hazard an answer to that. Start with the guiding assumption, as stated by Larry Summers when the stimulus bill was going through Congress, that the risks of spending too much paled in comparison with the risks of spending too little. And because the effects of government spending on GDP and unemployment are hard to predict with any accuracy, there was a strong case that a monster $800 billion stimulus bill was in many ways the prudent course of action.

Since then, however, the economy has done much worse than anybody thought it would. Which is one way of saying that the stimulus has not done as well as people thought it would. This is a useful datapoint — and one way of looking at it is to conclude that the stimulus was so big that the last few hundred billion dollars have had virtually no positive effect at all. And that any extra stimulus would similarly achieve very little.

If there is to be a second round of stimulus, then, I think it should certainly go to areas largely untouched by the first round. I like arts spending; DeLong wants an “aid-to-states-that-maintain-effort package”. But unless and until we can demonstrate that the marginal benefit of extra stimulus spending hasn’t already diminished to something negligible, it does seem fiscally reckless to throw good money after wasted funds.

Update: Commenters rightly say that there’s a limit to how much can be done with arts subsidies. Again, they’re the kind of thing where a little goes a long way, but a lot doesn’t go a lot further.

And Brad DeLong responds, saying that of the $787 billion earmarked in the stimulus bill, only $14.5 billion has been spent so far, and that total will barely exceed $50 billion by October. Which seems to me a good reason why we don’t need to increase the total — we’re having a hard enough time spending the money we’ve already got.


Really amazing how many people think the stimulus is the bailout…

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Will Obama’s Stimulus Leak Abroad?

Reuters Staff
Mar 3, 2009 11:57 UTC

Justin Fox has an interesting breakdown of global stimulus packages by country: the US, China, and Spain have big ones, while the rest of the world just doesn’t seem to be trying so hard. He writes:

The concern is that if we in the U.S. do lots of stimulating and other economies don’t, much of the money will just leak out overseas as we spend on imports but others don’t buy our exports.

He’s right, and no amount of "buy American" provisions in the bill will prevent money from leaking overseas in a globalized economy. Liquidity, you might say, always finds its level. At the margin, it does seem that countries such as the UK are freeloading on the US bailout — both in terms of the stimulus package and in terms of the bank bailout.

Here in London, the streets are still vibrant and the restaurants still full: there’s lots of talk of massive pain, and the stock market is down a whopping 64% or so from its highs, in dollar terms. But somehow none of this is obvious, at least to my eyes: the main thing I’m feeling here is just relief that finally I can afford to visit my home country again, after being priced out for years when the pound was worth about $2: it’s now $1.40.

At those levels, Brits aren’t going to be buying much in the way of US exports with or without a stimulus package. On the other hand, it’s worth noting that the main British export of late has been financial services, and there’s not a huge amount of demand for that Stateside at any exchange rate. But maybe Britain can start working on its tourist trade: I can highly recommend Wheelers Oyster Bar in Whitstable if you want to eat some astonishingly wonderful seafood at a quintessentially English seaside town. Make sure to reserve in advance: it fills up quickly, and the pound is weak!

Reprinted from Portfolio.com

Judging Treasury

Felix Salmon
Sep 16, 2013 15:56 UTC

There’s a fascinating heavyweight fight going on when it comes to writing what you might consider the official narrative of the financial crisis. The White House released its own 49-page report this morning, talking in glowing terms of the successes that the Obama Administration has made on the financial-reform front. Meanwhile, this week’s issue of Time magazine takes the opposite tack in a tough cover story by Rana Foroohar, headlined “How Wall Street Won”.

The interesting thing about this fight is that it has actually been engaged: Treasury responded to Foroohar on its website, and she of course replied to them. (If the first link to her cover story steers you into a paywall, then try going from her blog post: that might work.)

It’s also worth noting Foroohar’s “to be sure” sentence, in her introduction: “The truth is,” she writes, “Washington did a great job saving the banking system in ’08 and ’09 with swift bailouts that averted even worse damage to the economy.” She’s right about that — but neither side of the debate dwells for long on that fact, partly because most of the emergency actions which saved the banking system were put in place by the George W Bush administration, rather than the current lot.

If you think of the economy as a ship, then what the Obama administration inherited was a crippled vessel, still afloat, but badly damaged from a serious fire in the boiler room. It had fallen to the Bush administration to actually put out the fire, which they did. And so the Obama administration set to work trying to fix the ship, with things like the original stimulus package. And they also had to fix up the damaged boiler room, and ensure that it would never again explode in such a devastating manner. That was the job of Dodd-Frank, as well as Basel III.

Foroohar’s point is pretty simple. The US economy is far from ship-shape right now — just look at the unemployment rate, or the employment-to-population ratio, or the median wage, or any other measure of how the broad mass of Americans is faring. The 2009 stimulus might have done a bit of good at the margin, but here we are, five years after the crisis, and the Federal Reserve still feels the need to pump $85 billion a month into the economy in its latest round of QE, on the grounds that interest rates are at zero and can’t be lowered any further. The economy, in other words, finds it hard to stay afloat without artificial aid.

And then, when you go down into the boiler room, it has been patched up here and there, and people are still working on some of the more damaged areas — but if you look at the whole thing, it’s not exactly explosion-proof. Sure, it’s safer than it was in 2007, but that’s not saying very much. And when people like Gary Gensler try to come in and add some crucial regulators to highly dangerous parts of the system, they get stymied — by none other than Treasury itself!

Treasury’s take, by contrast, is more granular. Look at TARP — it made money! Look at the stress tests — they worked! Look at the first derivatives on measures like house prices, credit flows, and total household wealth — they’re positive!

Neither take tells the whole truth, although the Obama administration is probably the more disingenuous of the two: “as a matter of law,” writes Treasury’s Anthony Coley, “Dodd-Frank ended the notion that any firm is ‘too big to fail.’” Er, no, it didn’t. Lots of us still have the notion that there are dozens of firms which are too big to fail — and other entities, too, like the state of California. It might be less likely, now, that any given firm will fail. What’s more, if and when a big firm does fail, there’s now a semblance of a procedure to follow, which — if everything goes according to plan — might even involve zero federal dollars. But still, too big to fail is too big to fail, and ultimately, if push comes to shove, the implicit government backstop is still there.

The thing is, the TBTF problem is endemic to modern finance — there was no realistic way that the Obama administration or any other government could ever stop it from being the case. In theory, we could have let the entire boiler room melt down, to the point at which it could no longer inflict any more damage. That’s what Michael Lewis thinks we should have done: “I don’t feel, oh, how sad that Lehman went down,” he says. “I feel, how sad that Goldman Sachs and Morgan Stanley didn’t follow. I would’ve liked to have seen the crisis play itself out more.” But if that had happened, the whole ship would have sunk — and would have taken the entire global economy down with it. Yes, there’s moral hazard in bailing out banks. But the time to deal with moral hazard is before the crisis hits. Once the boiler room is ablaze, the first job of the stewards of the ship is, always, to put out the fire. Even if — especially if — that means protecting parts of the system which are inherently dangerous.

Ultimately, I think that both the White House and Foroohar are far too invested in a narrative where the government is in control, and can effectively determine the state of not only the US financial system but also the entire US economy as a whole. When in fact, of course, it can’t even nominate its preferred candidate to become the chairman of the Federal Reserve. The Obama administration could have done better, both in terms of bank regulation and in terms of broader macro policy. But it was operating within real constraints, both nationally and internationally. And the prospect of fireproofing the engine room so that no crisis would ever happen again — well, that was always impossible, for any government, in any country bigger than, say, Bhutan.

Overall, if Treasury is giving itself an A for its post-crisis actions, and Foroohar is handing out a C, then I’d duck the question and point to the bigger truth — that the quality of Treasury’s actions is not nearly as consequential as most people think. We live in a path-dependent liberal democracy, and the older our democracy gets, the more entrenched it becomes, and the harder it is to change anything truly fundamental. Treasury’s tinkering was, at the margin, a positive force, and I’m glad they did what they did, even as I wish they had done more. But I don’t kid myself that if they had done more, it would have made all that much of a difference. Or, for that matter, that if they had done less, things would have been noticeably worse than they are right now.


You forgot something, Felix. The Obama Administration inherited a crippled ship with a damaged boiler, AND FIVE MILLION PASSENGERS THROWN OVERBOARD into unemployment, plus another 4 million hanging onto the side of the ship about to fall in. Oh, and half the crew was planning a mutiny and refused to help the captain right the sh.

A bit hard to replace the boiler when you are trying to fish the survivors out of the water. And when half the crew is planning a mutiny and refusing to help the captain right the ship.

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Counterparties: Passing Abenomics

Jun 13, 2013 22:43 UTC

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The world is questioning the effectiveness of Abenomics — the economic policies advocated by Shinzō Abe, the prime minister of Japan. Abe’s plan to revitalize the country’s sluggish economy seemed to be working, as reflected in the Nikkei which soared to around 15,100 in May from 10,395 in December. That has changed: the Nikkei fell 7% yesterday and is down 20% since its May high, closing at 12,445 Thursday. Swiss hedge fund manager Felix Zulauf said Japan would  “cause the next big global crisis”.

The reality is it is probably too soon to tell whether Abenomics is working. The prime minister’s three-pronged plan is certainly ambitious. In order to do “whatever it takes” to hit a 2% inflation target, the Bank of Japan is flooding the markets with money and the government has implemented major fiscal stimulus. Last week, Abe proposed a growth strategy that includes a target to lift per-person income by 40% over 10 years and “a series of deregulated and lightly taxed zones around the country”. Abe has said this is the most important of the three prongs, but The Economist notes that the announcement “left many disappointed by its timidity”.

As far as growth goes, David Keohane points out that “it’s hard to escape the effects of demographic determinism.” Japan has an aging population, a very low fertility rate, and Abe has not yet proposed a great solution to fix this.

What Japan does have going for it is low unemployment, although as Noah Smith has pointed out, a lot of that has to do with falling real wages and women opting out of the labor force. But Joseph Stiglitz is still bullish on Japan, noting that “we see that even after two decades of ‘malaise,’ Japan’s performance is far superior to that of the United States”  – if you consider a broader range of factors like inequality and life expectancy. The Nikkei is still up almost 20% since the beginning of the year.  – Shane Ferro

On to today’s links:

The Fed
Ben Bernanke would very much like you to stop overreacting to what Ben Bernanke says – Jon Hilsenrath

With 3 unemployed workers for every job opening, “the labor market is still pretty much murder” – The Atlantic

New Normal
The biggest economic mystery of 2013: What’s up with inflation? – Matthew O’Brien
Everyone gets a college degree! (sort of) – NYT

Junk bonds and treasuries: negatively correlated no more – Sober Look

How the music industry explains American inequality – Alan Krueger

The problem of investing in the US Postal Service – WSJ
Rival hedge funds are pretty excited about SAC’s problems – Reuters

Big Brother Inc.
Washington’s double standard: “Secrets are sacrosanct until officials find political expediency in leaking them” – Jack Shafer
The secrecy industrial complex – David Rohde

Josh Barro takes down CAP’s recommendations for the economy – Josh Barro

The geography of hunger in America – Atlantic Cities

Fiscalists vs market monetarists, a bloggy taxonomy – Cardiff Garcia

CEO’s aren’t that excited about the US economy – Business Roundtable

And, of course, there are many more links at Counterparties.

Counterparties: Why Europe wants to be more Austrian

May 28, 2013 22:32 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

European leaders convened at Sciences Po in Paris today to tackle the continent’s increasingly scary youth unemployment crisis. They did a great job of delivering concerned rhetoric (“We have to rescue an entire generation of young people who are scared,” said Italian labor minister Enrico Giovannini). They weren’t quite as good at nailing down specifics.

However, there is some evidence that leaders are slowly becoming motivated to do something. Their clear incentive: the political ramifications of inaction could look something like last week’s riots in Stockholm, if not much worse.

Joe Weisenthal points to the below chart, showing Germany (DE) and Austria (AT) both with youth unemployment rates below 8%, Greece (EL) and Spain (ES) well above 50%, and Italy (IT) and Portugal (PT) each approaching 40%. Far more countries in Europe are above 20% youth unemployment than are below it.

The most serious step toward reducing unemployment is the Youth Guarantee, adopted last month by the EU’s council of ministers (though implementation is left to the member states, so the plan’s fate is far from certain). The plan would ensure a job or training program to anyone under the age of 25 within four months of leaving school or becoming unemployed. This is all based on programs already in place in Finland and Austria, which have youth unemployment rates of 20% and 8%, respectively. The plan is estimated to cost a total of €21 billion, a fraction of the €150 billion youth unemployment is currently costing the economic union annually. Euro zone countries have already set aside €6 billion for the guarantee over the next six years.

The Italian government announced last week it was considering a job-sharing program between older and younger workers. While this neo-apprenticeship model is a way to get more young people into the workforce, “it wouldn’t create any new jobs, and taxpayers would have to pick up the tab for pension contributions for the older workers who choose to participate,” according to the WSJ– Shane Ferro

On today’s links:

The Fed
The Fed’s latest obsession: managing our expectations – Jon Hilsenrath

Finally, a financial innovation that helps investors – Tadas Viskanta

Fiscally Speaking
A handful of states are slowly approaching budget surplus territory – Calculated Risk

Sony makes money on music and movies, not electronics – NYT

Home prices up 10.9% over March – Case-Shiller
The housing recovery visualized – Matthew Phillips

“Dear Dumb VC: You don’t realize you are going out of business” – Andy Dunn
“Finally, someone who deals with VCs writes a long, angry post about how shitty they all are” – Sam Biddle

Health Care
Walmart is flying employees to top hospitals to have surgery — and saving money – National Journal
Obama’s Cadillac tax is working – Matt Yglesias

Bad Data
A happiness study that only samples bloggers – The Atlantic

“Hot Money”
Criminals need non-bank financial intermediaries too – WSJ

EU Mess
Why a German exit from the euro zone would be disastrous — even for Germany – Pedro da Costa
Angela Merkel is reversing her stance on austerity in a fashion that’s possibly entirely symbolic – Der Spiegel

What if quantitative easing is actually deflationary? – Frances Coppola

“We’re starting the Uber of organ transplants” – McSweeney’s

Big Government
How Washington is dealing with the food truck lobby – Bloomberg

Streaming video is slowly killing cable – Pando Daily

And, of course, there are many more links at Counterparties.


Exactly, FifthDecade. Too many people confuse college with job education. College isn’t a terribly good structure for learning job skills, and job skills aren’t the central purpose of going to college.

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