#ceprdc

The Trans-Pacific Partnership and Team Pfizer

Last month the Peterson Institute for International Economics released a new study that projected the impact of the Trans-Pacific Partnership (TPP) on the U.S. economy. The study projected that when its effects are fully felt by 2030, the economy will be 0.5 percentage points larger than if we did not have the TPP. It also showed that annual exports would be $387 billion higher as a result of the deal.

These projections were widely reported in major media outlets and seen as evidence that the TPP would be a good deal for the United States and American workers. Unfortunately, a closer analysis of the Peterson Institute study indicates considerably less grounds for celebration.

The Federal Reserve Board and the Elections

Millionaires Get Their Valentine from Social Security: Those Making $1,000,000 a Year Stopped Paying Into Social Security on February 14th

Social Security, the program that provides retirement, disability, and survivor benefits to millions of Americans just gave a valentine to those making $1,000,000 a year.

Many people do not realize that the taxes that fund Social Security only apply to the first $118,500 of wage income in 2016. Income above the cap is not subject to the tax and workers do not pay into Social Security on that income. That means that the vast majority of the population (those making under $118,500 a year) pay the 6.2 percent Social Security payroll tax for the entire year, but the wealthy don’t. It also means that the wealthy have a lower effective tax rate.

For example, someone making $1,000,000 paid into Social Security on every day in 2016, up until and including February 13th. On the 14th — Valentine’s Day — their income was no longer subject to the payroll tax, and their paychecks for the rest of the year became heftier.

Bernie Sanders, Hillary Clinton, and the Money

Bernie Sanders has made the corrupting role of money in politics a centerpiece of his campaign. He has argued that because campaign contributions by the rich pay for political campaigns, they are able to control the political process. This gives us a political system that is very effective at serving Wall Street and the insurance and pharmaceutical industries. It is much less effective at serving the needs of ordinary people.

The Congressional Budget Office and the Reemergence of the Deficit Hawks

It is often said that in Washington, no bad idea stays dead for long. This is certainly true for the crazy paranoia we see around the budget deficit and idea that it is going to bankrupt the country and leave our children impoverished. The moral of this story is usually that we need to cut and/or privatize Social Security and Medicare.

Today, Federal Reserve Board Chair Janet Yellen will go before Congress to report on the economy and monetary policy. A key topic of discussion will be the Fed's decision in December to raise the federal funds interest rate by one-quarter of a percentage point. This was the first time that the Fed had raised interest rates since the beginning of the recession in December 2007.

The Fed appears to have acted prematurely. Since the Fed announced its rate hike, we've received nothing but sobering economic news. Last week, the Commerce Department reported that the economy grew at just a 0.7 percent annual rate during the fourth quarter of 2015, down from a 2.5 percent rate for the previous two years. Similarly, the labor market added just 150,000 jobs in January, down over a third from the monthly average of 230,000 jobs for 2015.

The Fed has a dual mandate to constrain inflation and maximize employment. The Fed has interpreted the inflation side of this mandate as meaning that it should try to have an average annual inflation rate of 2 percent. In balancing these goals, the Fed raises rates when it wants to push down inflation at the cost of lowering employment; when the Fed wants to raise employment at the cost of higher inflation, it lowers rates.

Financial Reform: It’s About Improving the Financial System, Not 2008

As the Democratic presidential race heats up, the debate on financial reform has taken a bizarre twist. Somehow the measure of a good reform is its ability to prevent another 2008-type financial crisis.

While it is reasonable to subject a reform agenda to the 2008 test, this should be at most a side issue. After all, it is virtually certain that our next crisis will not look our last crisis. Financial reform first and foremost is not about preventing the last crisis, but rather about designing a financial system that more effectively serves the rest of the economy.

Market Turmoil, the Fed, and the Presidential Election