James Pethokoukis

Politics and policy from inside Washington

How to make sure Uncle Sam doesn’t bail out states

Dec 6, 2010 22:08 UTC

Here is a bit from latest Reuters Breakingviews column (more on this topic to come):

Republicans in the U.S. House of Representatives want to stop state and local governments from issuing tax-exempt bonds unless they are more forthright about future obligations. The effort may pave the way for a more radical one: changing the law so that states are allowed to go bankrupt and stiff their creditors. .. But it’s about more than just openness. Some Republicans hope the shock of the newly revealed debt totals will grease the way towards explicitly permitting states to declare bankruptcy. Local municipalities do this from time to time, most famously California’s Orange County in 1994. But states can’t. Allowing them the same ability to renegotiate obligations could enable them to slash public employees’ lavish benefits, a big factor in their financial woes.

Is China ginning up its GDP data?

Dec 6, 2010 16:44 UTC

Is China one giant Enron? Well, maybe not. Clearly, there is real growth going on there. But this does seem fishy:

China’s GDP figures are “man-made” and therefore unreliable, the mn who is expected to be the country’s next head of government said in 2007, according to U.S. diplomatic cables released by WikiLeaks.

Li Keqiang, head of the Communist Party in northeastern Liaoning province at the time, was unusually candid in his assessment of local economic data at a dinner with then-U.S. Ambassador to China Clark Randt, according to a confidential memo sent after the meeting and published on the WikiLeaks website.

The U.S. cable reported that Li, who is now a vice premier, focused on just three data points to evaluate Liaoning’s economy: electricity consumption, rail cargo volume and bank lending.

“By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are ‘for reference only,’ he said smiling,” the cable added.

A spokesman for the U.S. Embassy to China was not immediately available.

Chinese economic numbers, especially at the provincial level and lower, have long been viewed with suspicion by analysts.

“That China’s GDP is not reliable, especially for local GDP, that is nothing new,” said an economist with a foreign bank who requested anonymity because of the sensitivity of discussing top national leaders. ”Some of the volume data, such as power and rail freight and even (bank) credit, are interesting because there is less incentive to massage them at the local level. But they reveal only part of the truth, not the entire truth,” he said.

Ouch. Then you start to recall all those stories about the nation’s empty cities and ghost malls

Tax cut endgame

Dec 6, 2010 16:34 UTC

OK, so for sure we seem to be talking about 2-3 year extension, including dividends and capital gains), as well as a one-year extension of unemployment insurance. Other adds on may include the doc fix, Obama’s Making Work Pay tax credit, the R&D tax credit, an estate tax around 35 percent with a$3.5- 5 million exclusion. I am still wondering if the final deal with include raising the debt ceiling. I hope not since I would rather enjoy writing about the battle over the issue in 2011.

Krugman’s numbers on the Bush tax cuts don’t add up

Dec 6, 2010 15:59 UTC

Why is Paul Krugman being so  unhelpful here:

A few months ago, the Congressional Budget Office released a report on the impact of various tax options. A two-year extension of the Bush tax cuts, it estimated, would lower the unemployment rate next year by between 0.1 and 0.3 percentage points compared with what it would be if the tax cuts were allowed to expire; the effect would be about twice as large in 2012. Those are significant numbers, but not huge — certainly not enough to justify the apocalyptic rhetoric one often hears about what will happen if the tax cuts are allowed to end on schedule.

That might be true of the high-end Bush tax cuts, but letting them all expire would chop at least two percentage points off GDP, according to a variety of economic models run by banks and consultants


Banks and consultants know way more about economics than a Nobel Prize for Economics winner.

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