Finance

Today’s New York Times has a nicely-reported piece on India’s gigantic biometric ID project, detailing its potential to spur economic growth and cut down on corruption through enabling electronic delivery of payments via mobiles and smartcards. As Nandan Nilekani, who is directing the initiative, puts it, the project is like building “a road that in some sense connects every individual to the state.”

In today's Huffington Post, Bruce Jentleson, a policy wonk, and Jay Pelosky, a seasoned global investor, argue that the public and private sectors in the United States must cooperate if the country is to "revitalize domestically and compete globally."

The First FDIC-Insured Bank Designed just for Young People Turns 24 Years Old

The research on young people’s savings points to early access to basic financial services to improve young people’s life outcomes, including things like improved financial and educational outcomes. Just to give a few examples, research by William Elliott and colleagues finds that young people who have their own savings accounts are significantly more likely to attend and graduate from college. Some of my own research finds that young people are significantly more likely to continue saving later in life when they have access to savings accounts early in life. Given the apparent importance of young people’s savings for improving their life outcomes, financial institutions have a role to play in including young people in basic financial services.

Congress uses the tax code to promote a broad range of policy objectives. Rather than directly spend government revenue on policy programs—or implement new regulation—Congress has enacted a series of tax provisions that effectively subsidize certain politically and socially desirable activities.

These “tax expenditures” take the form of deductions, exemptions, or credits to taxpayers who engage in the targeted activity. From a budgeting perspective, they are treated as foregone government revenue, rather than increased government expenditure.

-- This is a guest post by Jay Pelosky, Principal, J2Z Advisory, LLC --

The economic and investment outlook for the second half of the year is rocky.  The European debt crisis, U.S. fiscal woes, and inflation in emerging economies remain a problem, and in some cases have taken a turn for the worse. Risks are rising of a major drop in stocks and possibly bonds (resulting in rising yields). The implication could well be a shrinking world economy.

The economic environment in America today is more dire than most of us have ever known. We are in the midst of an unemployment emergency, in essence a jobless recovery: notwithstanding recent marginal upticks in official U.S. jobs numbers, there will be no fundamental improvement in the unemployment picture unless major new national economic strategy initiatives are taken. Who will step up to drive them forward?

The federal government's response to the financial crisis has been to bailout and stabilize the largest banks and financial institutions, with too  little assistance for everyone else, in hopes of restoring private lending to pre-crisis levels. This is reminiscent of the trickle-down approach of the Hoover administration at the start of the Great Depression, and as in the 1930s, this policy has failed to achieve a strong and sustainable recovery. Our Next Social Contract Initiative recently released a paper by Timothy Canova* of Chapman University School of Law which discusses how the creation of public banking institutions, along with the leveraging of the Troubled Asset Relief Program (TARP), can fill the unmet need for credit that resulted from the failures of private banking. This idea is being implemented currently in the Great State of North Dakota. The Bank of North Dakota has operated continuously, at a profit, and according to conservative banking principles since 1919. It is a model for other states in a number of respects. Canova notes:

The state deposits its tax revenues in the Bank which in turn ensures that a high portion of state funds are invested in the state economy. In addition, the Bank is able to remit a portion of its earnings back to the state treasury – more than $300 million in the past decade. Thanks in part to these institutional arrangements, North Dakota is the only state that has been in continuous budget surplus since before the financial crisis and it has the lowest unemployment rate in the country.

Other states should look into this model and even Congress should take a close look at some of the upsides of establishing a public bank at the federal level, such as being able to finance costly but productive infrastructure projects.

*An earlier version of this post identified a fictitious co-author. In reality, Tim Canova wrote this paper alone but he is the Betty Hutton Williams Professor of International Economic Law at the Chapman University School of Law.

Things are not working. Two years after the National Bureau of Economic Research (NBER) declared the recovery underway, it is clear that things are not working, at least not in the sense that most Americans expect. The U.S. economy is like an aging sports car running on three cylinders, fouled spark plugs and a flat tire.

-- This is a guest post by Jay Pelosky, Principal, J2Z Advisory, LLC --

GLOBAL BACKDROP

Treasury just announced that Sendhil Mullainathan is the new Assistant Director for Research at the CFPB.  He will lead the work in its Office of Research.  This is big news for anyone interested in behaviorally informed policymaking.  Mullainathan is a well-respected Harvard economist in behavioral economics and is known for conducting research and applying the findings to actual international development programs and d