Economy Experts

Transforming the Highway Trust Fund

Tue, 22 Feb 2011 13:30:00 GMT

A single paragraph in the Transportation Department's fiscal 2012 budget could fundamentally alter the funding mechanism for highways and other transit. The administration is calling for replacing the current highway trust fund with a "transportation trust fund" that will have separate accounts for highways, transit, high-speed rail, and a national infrastructure bank. In the near term, this means that highways would see only a slightly smaller share of the overall national transportation funds that also go to inter-city transit and passenger rail. But over a longer period of time, the move away from a dedicated highway trust fund signals the administration's desire to wean the country away from the automobile.

Transportation Secretary Ray LaHood says the idea is to streamline disparate pots of money into a larger pool that will make the agency more nimble in funding good projects. The department also has proposed consolidating 55 separate highway programs into five to give states and communities the opportunity to build on the projects they identify as priorities.

Is this a good idea? Does it make sense to think of the various components of transportation as a whole entity rather than parcel them into distinct areas? Are there dangers to what the administration is proposing? Would a streamlined government make it easier or harder for states and cities to navigate the funding process?

How much further can the housing market sink?

Mon, 13 Dec 2010 21:14:29 GMT

Home prices have plunged by about one-third since the peak of the housing bubble, according to the S&P/Case Schiller composite index of 20 major cities. Sales of new and existing homes slumped again after the expiration of the Home Buyer's tax credit. And on Monday, Corelogic reported that 22.5 percent of residential properties were underwater in the third quarter, meaning the mortgage was higher than the property's resale value. All this at a time when the Federal Reserve has pushed mortgage interest rates down to nearly all-time lows.

What is holding the market down, despite cheap money and often firesale prices? Is there anything more the government can or should do?

What Can Be Done for the Housing Market?

Mon, 13 Dec 2010 19:00:14 GMT

How much further can the housing market sink? When will it begin to rebound?

Home prices have plunged by about one-third since the peak of the housing bubble, according to the S&P/Case Schiller composite index of 20 major cities. Sales of new and existing homes slumped again after the expiration of the homebuyer tax credit. And on Monday, CoreLogic reported that 22.5 percent of residential properties were underwater in the third quarter, meaning the mortgage was higher than the property's resale value. All this at a time when the Federal Reserve has pushed mortgage interest rates down to nearly all-time lows.

What is holding the market down, despite cheap money and often fire-sale prices? Is there anything more the government can or should do?

A Split on Monetary Policy?

Mon, 15 Nov 2010 14:22:06 GMT

In the two decades before the financial crisis, there was remarkably little partisan or ideological disagreement among economists about how the Federal Reserve should conduct monetary policy. Liberals and conservatives both wanted to keep inflation below about 2 percent and unemployment below about 5 percent. Disagreements were over nuance and timing, not about overall direction. But this week, economists with Republican ties are running newspaper ads warning that the Fed's decision to pump an extra $600 billion into the economy - "quantitative easing" - will debase the dollar and spur inflation. Economists with Democratic leanings say the real danger is the opposite: deflation and double-digit unemployment.

Is there a deepening partisan or ideological split among economists about monetary policy? And if so, what does that say about the state of economics? Do sophisticated models and data analysis take a back seat to political opinion?

James K. Galbraith responded to A Split on Monetary Policy? on December 2, 2010 11:29 PM

Mon, 15 Nov 2010 14:22:06 GMT

The Republicans would hobble Congress Truman and Frankel express my own views in this matter well. Let me just add that the purpose of the Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978 -- as it applied to the Federal Reserve -- was not merely to codify what is now called the "dual mandate." The larger purpose was to place in law a procedure for regular congressional oversight of the Federal Reserve, which had already been ongoing since 1975, under a provision known as H.Con.Res. 133. This settled the question of congressional pre-eminence over the Federal Reserve, and inaugurated...

Ted Truman responded to A Split on Monetary Policy? on November 15, 2010 12:24 PM

Mon, 15 Nov 2010 14:22:06 GMT

The Debate is Off Key I am appalled by my fellow economists. The Federal Reserve is required by law to pursue its dual mandate, and it is doing so to the best of its ability. It is normal to debate whether policy is too tight or too easy, but the nature of this debate has taken on dimensions that I have never witnessed before in my 40+ years as an economist. It seems to be driven by a partizanhip which I find distressing. I agree with the policy, but that is really beside the point. I have also been appalled...

Jeffrey Frankel responded to A Split on Monetary Policy? on November 15, 2010 10:48 AM

Mon, 15 Nov 2010 14:22:06 GMT

The Pot Again Calls the Kettle Black I don’t know if some Republicans are trying to stake out a position that Democrats are pursuing monetary policy that is inflationary. If so, they are on very shaky ground. I will leave it to others to point out how low is the risk of inflation now, with the real economy having only begun to recover from its nadir of early 2009. Or to acknowledge that QE2 is only a second best policy response. (The job could be done much better by fiscal policy.) I will, rather, respond to...

What Are the Prospects for 'Balanced' Growth?

Mon, 08 Nov 2010 13:38:11 GMT

When President Obama meets with leaders from other Group of 20 nations this week, what is he most likely to accomplish in terms of persuading countries to adopt more "balanced'' growth strategies? The United States has been imploring countries that rely on exports for growth and have huge trade surpluses, especially China, to work harder at spurring domestic consumption. But now Asian countries are complaining that the United States is intentionally devaluing its currency through the Federal Reserve's new "quantitative easing" program. Has the Fed made the president's case harder to sell?

James K. Galbraith responded to What Are the Prospects for 'Balanced' Growth? on November 8, 2010 11:48 PM

Mon, 08 Nov 2010 13:38:11 GMT

Amateurs Versus Professionals in Seoul Let's compare jibes, one from China and the other from the United States. In a front page guest editorial in People's Daily on November 7, Professor Shi Jianxun of Tongji University in Shanghai accused the United States of – get this – currency manipulation. He charged that quantitative easing works to drive down the dollar in order to foster economic growth through greater exports. Mr. Shi wrote: “In essence this is an uncontrolled increase in money supply, equal to indirect exchange rate manipulation..." Communist propaganda? Hardly: it's obvious truth. According to Larry Summers, the...

Charles Calomiris responded to What Are the Prospects for 'Balanced' Growth? on November 8, 2010 09:10 AM

Mon, 08 Nov 2010 13:38:11 GMT

Hypocrisy that is also bad economics The Asian (and European and Latin American) complaints are valid. Not only is the Fed's strategy likely to do little good in stimulating growth, it could potentially do great harm, even in the short term, by causing further dollar depreciation, triggering trade disputes and capital controls abroad (as it already has), and making it harder to achieve concessions from other countries that would help rebalance global demand. In the longer term, the QE II policy is very risky, since it exposes the US to inflation risk, notwithstanding the overly optimistic assurances from the Fed...