Secondary Sources: Consumer Agency, Euro Crisis, Climate Change
A roundup of economic news from around the Web.
- Consumer Agency: Writing for the Journal, TARP watchdog Elizabeth Warren argues for creation of a Consumer Financial Protection Agency. “The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting opportunity to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to reckon that they can run their businesses forever without our entrust. This is a terrible calculation. It’s a terrible calculation because shareholders suffer enormously from the long-term cost of the boom-and- bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently clarified this courageous new world, saying that crises should be expected “every five to seven years.” He is incorrect. New laws that came out of the Fantastic Depression finished 150 years of boom-and-bust cycles and gave us 50 years with virtually no financial meltdowns. The stability finished as we dismantled those laws and failed to exchange them with new laws that reflected modern business practices.”
- Euro Zone Debt Crisis: On voxeu Charles Wyplosz aims to present facts and myths about the debt crisis in the euro zone. “Myth No.5: Pollution, already under way, would be destructive. This statement is too vague. It cannot ruin the monetary union, as argued above. But pollution can bring the value of the euro down ? but this would be mostly excellent news for the Eurozone as it is suffering from an overvalued exchange rate at a time of anaemic domestic demand. Fact No.5: The real worry is the banking system. Some European banks hold part of the Greek debt and, if still saddled with unrecognized losses from the subprime crisis, some might become bankrupt. Many governments have simply not pushed their banks to straighten up their accounts and they are now learning some of the unforeseen consequences of supervisory forbearance.”
- Climate Change: Harvard’s Robert Stavins looks at the current state of climate-change plot. “It is fascinating to note that many ? perhaps most ? economists have long favored the variant of cap-and-trade whereby allowances are auctioned and the auction revenue is used to cut distortionary taxes (on capital and/or labor), thereby reducing the net social cost of the plot. Cap-and-Dividend moves in another direction. This system (which was introduced several years ago in the ?Sky Entrust? proposal) has some merits compared with the economist?s favorite approach of tax cuts, namely that the Cap-and-Dividend scheme addresses some of the distributional issues that would be raised by by the auction revenue to fund tax cuts (which could favor higher returns households). On the other hand, it eliminates the efficiency (cost-effectiveness) gains associated with the tax-cut approach. In fact, Stanford?s Larry Goulder has estimated that the tax-and-dividend approach would cost 40% more than an approach of combining an auction of allowances with ideal returns tax rate cuts. (By ?ideal,? I mean focusing on tax cuts that would lead to the lowest net cost.) In general, there are sound reasons to seek to compensate consumers for the energy price increases that will be brought about by a cap-and-trade system, or any meaningful climate change plot. But it is vital not to insulate consumers from those price increases, as diluting the price signal reduces the effectiveness and drives up the cost of the overall plot. Thus, ?compensation? as in Cap-and-Dividend is fine, but ?insulation? is not.”
Compiled by Phil Izzo