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51. It's Only Going to Get Worse

Author:
Lawrence B. Lindsey
Publication Date:
06-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
America has not had a nationwide housing crash since the 1930s. At one point during that calamity, an estimated 60 percent of all mortgages were in technical default. The rather primitive housing credit system of the time, which relied on five-year balloon mortgages, certainly exacerbated the problem, but the bulk of the problem was related to the general economic downturn. There have been some regional housing crashes that were short and relatively mild, most notably in California, Texas, and New England in the late 1980s and early1990s. Most of those were caused by declines in key local industries: oil in Texas, aerospace and defense in Southern California and Massachusett.
Topic:
Economics and Markets
Political Geography:
United States, California, and England

52. Popping the Tuition Bubble

Author:
Frederick M. Hess and Kevin Carey
Publication Date:
06-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
What if, instead of borrowing, students could arrange for investors to pay their college bills in exchange for a fixed percentage of their future income? In this article, Kevin Carey and AEI's Frederick M. Hess answer this provocative question. The time has come, they say, to think more creatively about financing college, especially because Congress seems more inclined to pour more money into loans and grants.
Topic:
Economics and Education

53. Obama Turns FDR Upside Down

Author:
Lawrence B. Lindsey
Publication Date:
06-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
Two AEI scholars have recently assessed the merits of Senator Barack Obama's approach to fixing the Social Security system's problems. In a March On the Issues, Andrew G. Biggs argued that the senator's plan would not fix the system's long-term problems and would impose significant costs on the economy as a whole. To read Biggs's article, visit www.aei.org/publication27704/. In June, Lawrence B. Lindsey wrote that requiring higher-end workers to pay additional taxes without getting additional benefits linked to their extra contributions would be “a big step toward turning Social Security from a contributory pension scheme into just another welfare program.” Below, Lindsey spells out the details.
Topic:
Economics, Political Economy, and Politics
Political Geography:
United States

54. The Consumer Burden of a Cap-and-Trade System with Freely Allocated Permits

Author:
Aparna Mathur, Kevin A. Hassett, and Gilbert E. Metcalf
Publication Date:
12-2008
Content Type:
Working Paper
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
In discussions over how best to implement mandatory restrictions on carbon, the most commonly discussed option is a cap-and-trade system. One critical economic question surrounding cap-and-trade is how to distribute the permits. The two main competing mechanisms are free allocations to polluters (usually based on past emissions levels, output levels, or carbon intensity) and the auction of permits.
Topic:
Climate Change, Economics, Environment, and Markets

55. Tipping Point

Author:
John H. Makin
Publication Date:
08-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The annual report of the Bank of International Settlements (BIS)—the central bankers' central bank—which appeared in late June, was somewhat schizophrenic. On the one hand, the BIS called for world interest rates to rise in order to deal with a “clear and present threat” from global inflation while, on the other hand, it warned that the global economy may be close to a “tipping point” into a “slowdown severe enough to transform the current period of rising inflation into a period of falling prices.” The simultaneous rise in oil prices and the fall in yields in government securities occurring as the BIS released this ambivalent statement captured well the tensions inherent in the stagflationary crosscurrents facing the global economy. Against this ominous background, the release of the BIS report coincided with the onset of a global bear market in equities.
Topic:
Economics, Markets, Oil, and Political Economy
Political Geography:
United States

56. Risk and Systemic Risk

Author:
John H. Makin
Publication Date:
09-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
Speaking on August 22 at the Federal Reserve Bank of Kansas City's Annual Economic Symposium in Jackson Hole, Wyoming, Federal Reserve chairman Ben Bernanke entitled his important address “Reducing Systemic Risk.” Bernanke outlined three key elements of the Fed's response to what he described as “one of the most challenging economic and policy environments in memory.” First, the Fed has eased monetary policy, cutting the federal funds rate from 5.25 percent to 2 percent. Second, the Fed has expanded its liquidity support by developing new special lending facilities to mitigate “very severe strains in short-term funding markets.” The third and, as yet, unfinished element of the Fed's strategy involves “a range of activities and initiatives undertaken in our [the Fed's] role as financial regulator and supervisor.”
Topic:
Economics, International Trade and Finance, Markets, and Political Economy

57. Panic

Author:
John H. Makin
Publication Date:
09-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The credit crisis that followed the collapse of the housing bubble turned into a financial panic on Wednesday, September 17, 2008. There was a run by households out of money-market funds and into safe Treasury bills, pushing their yields to zero for the first time since the Great Depression. There was a liquidity trap in the interbank market, in which banks that are supposed to lend to each other hoarded cash for fear of runs by their depositors and the insolvency of other banks. Financial markets simply froze in the midst of chaos.
Topic:
Economics, Markets, and Political Economy
Political Geography:
Middle East

58. More Panic

Author:
John H. Makin
Publication Date:
10-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
Over the past several months as central banks and treasuries have struggled to manage a financial panic and avoid or diminish its soon-to-appear devastating impact on the global economy, I have often thought about the efforts of two great economists to understand the lessons of the Great Depression. John Maynard Keynes's monumental General Theory of Employment, Interest and Money, published in 1936, showed how a failure to understand the nature of the demand for money contributed to the Great Depression. “The importance of money essentially flows from being a link between the present and the future,” Keynes said.
Topic:
Economics, Markets, and Political Economy
Political Geography:
United States

59. Print Money and Cut the Payroll Tax

Author:
John H. Makin
Publication Date:
12-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
President-elect Barack Obama faces the most difficult economic challenge confronting an incoming American president since the election of Franklin Delano Roosevelt seventy-six years ago in 1932. When he assumes office on January 20, Obama will need to act decisively with heretofore unprecedented fiscal policy steps, in conjunction with measures by the Federal Reserve to increase the money supply and lower long-term interest rates. All of this must be done to help contain and reverse the accelerating global slowdown by halting the rapidly deepening American recession. We can only hope that other national leaders and central banks will follow suit.
Topic:
Economics, Markets, and Political Economy
Political Geography:
United States and America

60. Fine in 2009 (Not So Great in 2008)

Author:
John H. Makin
Publication Date:
01-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The good news about the problems in the financial sector and the larger economy in the United States emanating from the persistent drop in house prices is that they will eventually end, and the underlying resiliency of the U.S. economy will reemerge. The bad news about these problems is that they are going to continue for some time and get worse before they improve. Efforts to address them so far have been ineffective because they have been aimed at containing a subprime credit crisis, not at containing a rapidly spreading primecredit, solvency crisis that is leading the U.S. economy into recession.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States