Daily Dish

Good Morning –

Yesterday DHE wrote about the government’s refusal to sell its shares of GM merely because it would reveal that the taxpayers lost money. WSJ echoes that sentiment today, writing that “Treasury may be waiting until after the election, when losses on any sale won’t affect electoral votes in Michigan or Ohio. Such a sale might be financially wise, because while GM may have come back from bankruptcy with the help of your tax dollars, its future profitability is far from guaranteed.” 

It is also worth nothing that just yesterday “the U.S. filed a World Trade Organization complaint accusing China of illegally subsidizing exports of automobiles and car parts to the tune of $1 billion between 2009 and 2011.” But the NY Times writes that the case “will have little immediate impact on jobs and companies in the United States.”

As the AP explains it, “dealing with China goes beyond economics. It’s about how the U.S. manages the rise of an Asian superpower.”

On our radar: Q2 US International Transactions from BEA at 8:30 AM; Treasury International Capital at 9 AM; Employee Tenure from BLS at 10 AM; NY Fed President William Dudley speaks at 11:30AM.

Doug’s Daily Economic Outlook

A Fed research paper released yesterday indicated that policy uncertainty was responsible for 1 to 2 percentage points of unemployment since 2008.  Since it takes roughly 2 percentage points of faster GDP growth to lower the unemployment rate by 1 percentage point, this suggests that over 4 years growth must have been slowed from 0.5 to 1.0 percentage points on average — and a bit more if one concentrates the faster growth into the 3 years of recovery. Put differently, the growth rate would have been nearly double what we are experiencing today. Seems worth pursuing to say the least.

How, then, to lower policy uncertainty?  Certainly (pun intended) it is a no-brainer to do tax reform to generate a stable, pro-growth tax environment.  And durable, bi-partisan reform of the health programs that cap the taxpayers' exposure to more spending would limit the potential for higher future taxes.  And a disciplined regulatory regime would certainly help at the margin.  But perhaps the biggest, and conceptually most difficult, issue is how to switch from recovering from post-bubble recessions using vast discretionary (and unknowable) monetary, financial regulatory, and fiscal policies to a regime of "automatic" stabilizers.  Such automatic stabilizers were a key part of the anti-business cycle policies of the past.  Can they be re-tooled to deal effectively with the bubble-induced recessions of the 21st century?

What We’re Reading

Uncertainty is adding to U.S. jobless rate: Fed paper – Uncertainty over the economic outlook has added between one and two percentage points to the U.S. unemployment rate since 2008, according to an estimate from the San Francisco Federal Reserve Bank. The finding, published on Monday in the regional Fed bank’s latest Economic Letter, quantifies for the first time the drag that uncertainty has had on the economy since the Great Recession. (Reuters)

States Seek a Middle Ground on Medicaid – A handful of states are considering only partially expanding their Medicaid programs under the federal health-care overhaul – a new twist on how states are interpreting the Supreme Court’s ruling on the law. Indiana, New Mexico and Wisconsin are among the states asking the federal government to let them omit from the Medicaid expansion residents whose incomes put them just above the poverty level. The states hope to take advantage of provisions in the Affordable Care Act that offer a federal subsidy to help these residents buy private insurance, starting in 2014. (WSJ)

NOTE: AAF research following the Supreme Court’s ruling anticipated this.

FHFH to ready GSE counterparty contingency plans by early 2013 – Fannie Mae and Freddie Mac will receive guidance from their regulator on developing contingency plans for failed lenders and services by the first quarter of 2013. Both government-sponsored enterprises indentified 300 counterparties that either sell home loans to them or service mortgages on their behalf as of September 2011. The GSEs stopped doing business with more than 40 of them, according to a report from the Federal Housing Finance Agency Inspector General. (Housingwire)

Court hearing set for Wednesday, after union vote – Chicago Public Schools students will miss a seventh day of classes Tuesday as Mayor Rahm Emanuel’s attempt to get the courts to quickly end the teachers strike did not produce immediate results. Instead, a judge opted to hear arguments on the mayor’s request Wednesday from the school district and the Chicago Teachers Union. By then, the legal matter could be irrelevant. Union leadership could decide at its Tuesday meeting to end the walkout in anticipation of a vote by teachers down the road on a new contract proposal that was hammered out during marathon negotiations last week. (Chicago Tribune)

Fight Over Tech Worker Visas in Congress – A vote in the U.S. House of Representatives this week intended to increase the number of visas for workers in fields like engineering and science is turning into an election-year fight amid concerns over the impact on other immigrants. House Republicans last week assembled a group from the high-tech and manufacturing industries in an effort to build support for their legislation, which creates a new type of green card for science, technology, engineering and math graduates who have received doctorates from U.S. universities. (WSJ)

The Collapse of Startups in Job Creation – The state of entrepreneurship in the United States is, sadly, weaker than ever. There are fewer new firms being formed today than two years ago when the recession ended…Job creation at new firms was at an all-time low in 2009 of 2.8 million, then fell again a year later by 250,000 jobs…This study aims to answer two questions. First, what has been the long-term pattern of startup job creation per capita?.. Second, this study will update the data to the nearest date possible, including interpolation of data through 2011. (Hudson Institute)

Also From the Forum

$16 Trillion and Counting – In a time when gross debt is spiraling out of control and about to breach $16 trillion, an assessment of the regional distribution of federal indebtedness is appropriate. Distributing this individual share of the national debt provides a more localized perspective on the magnitude of the national debt, and necessarily, the urgent need to address its unsustainable growth.  (Full breakdown here)

Debt and Deficits: The Obama Factor – The total Public Debt stands at over $16 trillion, with FY2011’s $1.3 trillion deficit, 8.7 percent of GDP, having contributed significantly to our nation’s credit card bill. (More Debt Facts here)