South By North Strategies, Ltd.

Around The Dial – June 16

Economic policy reports, blog postings, and media stories of interest:

• The N.C. Budget & Tax Center breaks down the House budget.
• Simon Johnson argues that policymakers are creating the next crisis.
• Ted Marmor traces the history of attacks on Social Security.
• Free Exchange documents declines in mobility rates among homeowners.

Tax Policy and Job Creation

The N.C. Budget & Tax Center critiques various state legislative proposals aimed at sparking private-sector job creation. Concludes the center:

Proposals in the Senate and House to stimulate growth by targeting small business will do little to create jobs because of fundamental problems with their design. Across the board tax cuts are very unlikely to generate new investments especially in the form of expanded payroll. And while tax credits provide a more targeted tax cut, the limited size of the credit and caps on available funds for the program are unlikely to motivate firms to expand.

Unwinding Monetary Stimulus

An Economic Letter from the Federal Reserve Bank of San Francisco argues that the federal funds rate is likely to to remain near zero until 2012. From the letter …

The additional stimulus from the Fed’s unconventional monetary policy implies that the appropriate level of short-term interest rates would be higher than shown …. That is, conventional policy (the funds rate) can do less because of the stimulus to growth from unconventional policy. In calibrating this effect, it is important to note that changes in long-term interest rates have much larger effects on the economy than equal-sized changes in short-term interest rates….  If the Fed’s purchases reduced long rates by ½ to ¾ of a percentage point, the resulting stimulus would be very roughly equal to a 1½ to 3 percentage point cut in the funds rate. Assuming unconventional policy stimulus is maintained, then the recommended target funds rate from the simple policy rule could be adjusted up by approximately 2¼ percentage points … and the recommended period of a near-zero funds rate would end at the beginning of 2012.

Around The Dial – June 15

Economic policy reports, blog postings, and media stories of interest:

• Calculated Risk explains the factors that are slowing GDP growth.
• Andrew Gelman of Columbia University asks if it is 1930.
• Dean Baker debunks some flawed “dependency ratio” math.
• Off The Charts blogs about “state fiscal crisis 101.”

Medicaid Expansion In North Carolina

Under the federal Patient Protection and Affordable Care Act, all individuals with incomes below 133 percent of the federal poverty level will be eligible for Medicaid. Because states and the federal government share the costs of the Medicaid program, program expansion will impose some costs on state budgets.

A recent study by the Kaiser Commission on Medicaid and the Uninsured estimated the state-by-state costs associated with the required expansion of Medicaid. The study reached three broad conclusions:

• The expansions will “significantly increase coverage and reduce the number of uninsured.”
• The federal government will cover “a very high share of new Medicaid costs in all states.”
• Additional state spending will be small “compared to increases in coverage and federal revenues.”

While the exact costs borne by states will depend on choices made during the implementation phases, North Carolina stands to do well. Depending on the assumptions used, the expansion will reduce the number of uninsured, low-income Tar Heels by between 47 and 72  percent. Meanwhile, state spending likely is to rise by between 3 and 5 percent. Overall, the federal government will cover between 93 to 95 percent of North Carolina’s expansion costs.