A roundup of economic news from around the Web.
- Economic Politicization: Edward Harrison lament the politicization of economic problems. ” There is more than just a whiff of economic nationalism in the air. Is this not exactly the same spectacle we witnessed in the 1930s? I see all of this as an inevitable consequence of the first truly synchronized global recession since the 1930s. After two plus years of economic stagnation, weve reached a point everywhere it seems where policy making is increasingly dominated by domestic political concerns. People are fed up with the status quo. They want no more economic pain. And theyre willing to throw the bums out unless this ends. Politicians respond to this sort of thing. And its my feeling that this has led people to crawl back into their ideological positions and hold firm.”
- Greenspan and Low Rates: Barry Ritholtz lists 10 bullet points on the effects of low rates leading up to the crisis. “While these rates had myriad effects, lets focus on just two: The impact on Housing, and on global bond managers. Since homes are (typically) a leveraged credit purchase, lowering the cost of that credit has an inverse effect on prices i.e., cheaper mortgages = more expensive houses. Since most people budget monthly, carrying costs are more important than actual purchase prices. Hence, a big drop in interest rates can cause a spike in home prices, with monthly payments remaining fairly similar. Bottom line: Ultra low rates were the initial fuel sending home prices higher.”
- Taxes and Profits: On the Tax Policy Center’s TaxVox blog, Rosanne Altshuler notes that pharmaceutical companies are earning more profits from abroad and taxes play a big role. “In a recent working paper, Treasurys Harry Grubert considers five possible explanations for the dramatic increase in profits abroad: 1) the globalization of sales; 2) the growth in domestic losses; 3) the decrease in taxes abroad and consequent pressure to shift income to low-tax locations to take advantage of those lower rates; 4) the higher growth rate of companies already doing more business abroad at the beginning of the period than other other companies; and 5) changes over the period in how the U.S. taxes international income. Harrys analysis suggests that its taxes and not the globalization of sales that play an important role in explaining the jump in the foreign share of U.S. companies profits. Low and falling average tax rates abroad — they fell by about 5 percentage points between 1996 and 2004 — have led U.S. companies to shift their profits overseas. And U.S. tax policy has also played a role.”
Compiled by Phil Izzo