Secondary Sources: Fed Postmortem, Transparency, Obama and Taxes

June 26th, 2008 | Wall Street Journal

A roundup of economic news from around the Web.

Fed and Rates: On its editorial pages the Financial Times warns that the Federal Reserve needs to be mindful of global inflation. “The Fed sets interest rates for Asian countries because, explicitly or not, they manage their exchange rates against the dollar. If US interest rates are low, countries targeting the dollar are obliged to follow, because otherwise investors will sell dollars to buy their currency. The result is that Asian countries have been notably slow to tighten monetary policy in response to the rapid rise in commodity prices.” Meanwhile, on his blog Robert Reich still thinks growth is the bigger risk, arguing the Fed should have cut rate yesterday. “The Fed blew it. Consumer confidence is plummeting. Employment is falling. 1.2 million homes are already foreclosed upon, and banks are tightening the noose around a trillion dollars of credit-card debt. The Fed could have helped a small bit by cutting rates and sending a clear signal it would continue to do so in order to avoid recession. But it didn’t. I fear we’re in for a bad one.”

Central Bank Transparency: Writing for the voxeu blog, Ellen E. Meade and David Stasavage argue that transparency can stifle debate among central banks. “Central banks are increasingly transparent but is the spotlight is stifling? Analysis of FOMC transcripts before and after Committee members knew that they would be published shows how transparency deadened the debate and reduced the number of challenges to Greenspans position.”

Who Pays Taxes?: On the Tax Policy Center’s TaxVox blog, Bob Williams explains how Barack Obama’s plan would raise taxes on an elderly couple by $150, despite a pledge to eliminate taxes for elderly households with income under $50,000. Obama’s plan “increases corporate income taxes, which indirectly affects the elderly (and others who own assets). And that gets to part two of the answer, what economists call tax incidence — who actually pays a tax. We assume that the incidence of the corporate tax falls on people who own assets by lowering their pre-tax rates of return. This assumption is controversial. Clearly, somebody must pay the tax. It could fall on shareholders, employees, customers, or a combination of the three. It could even affect asset income or wages more broadly, cutting returns for investors who own non-stock assets or reducing compensation for workers at firms outside the corporate sector.”

Compiled by Phil Izzo