Economic Gangsters from Paradise

The lavish lifestyle of the former head of the tiny island nation of Maldives;

Gold Plated Toilets


Over 8 million dollars!


Private island retreat with a cricket pitch


The Palace, cost unknown, staff 300

It is good in Down Under

Four year net policy decisions included in each Budget and Growth in government operating expenses


A new architecture for infrastructure


Corporate tax rates in Australia and the OECD 2008

Making provision for future priorities

IMF gives an A+ to Australia's economic management;

10. Fiscal policy focused on medium-term sustainability has delivered a sequence of surpluses that has eliminated commonwealth net debt. This leaves Australia with a strong fiscal position, an enviable situation by international standards. We support the strategy in the latest budget to save the revenue windfall from the commodity driven boom and thereby allow automatic stabilizers to support monetary policy. Saving some of the revenue from the commodity price boom in three new funds will take pressure off monetary policy in the near term and enable increased infrastructure investment over the medium term.

11. The reduction in public spending growth in the latest budget illustrates the government's commitment to help reduce inflation. With the upside risks to the outlook for inflation, more public spending restraint could be required and we encourage the authorities to identify areas where additional spending cuts could be implemented. In addition, positive revenue surprises should be saved to assist monetary policy until it is clear that inflation will decline. Given the uncertainty about how much of the increase in commodity prices will be permanent, saving the additional revenue in the near-term may avoid sharp changes in taxes and spending in the future.

12. The states have increased capital spending and their budget balance has shifted to a small deficit in aggregate, thereby adding stimulus to the economy. This highlights the importance of maintaining restraint at the commonwealth level.

13. To the extent that the improvement in the budget balance is structural, associated with permanently higher commodity prices, this should provide scope to reduce taxes or increase spending over the medium term. The governments' intention to achieve a positive balance over the medium term should increase public net worth, further strengthening the fiscal position. Our analysis suggests that a combination of lower labor and capital income taxes, along with increased public investment, will generate the largest economic gains. The gains from other options such as lower consumption taxes or higher public consumption are not as large. Despite the expected structural improvement in the medium term, significant long-term fiscal challenges remain, particularly in the area of healthcare spending, and early adjustments will be key to preserving fiscal sustainability.

Doctoroff's Law

Doctoroff's Law;

Difficulty of Getting Project Approved = 2*a + 4*b + 50*c + infinity if its a stadium for the New York Jets

where:

a = # of city entities involved

b = # of state entities involved

c = whether u have to go thru legislature

via Global Projects Blog

World Bank talks to IMF

Daniel Kauffman of World Bank writes a comment on the IMF's PFM blog;

Your warm and kind welcome to my governance blog is much appreciated. Your blog is very useful to us, in fact. One area of potential synergy between both blogs relates to PFM databases. In that context, it may be of interest to the PFM and broader governance community to have your recommended list of empirical databases on PFM issues that permit cross-country comparisons, as well as those datasets that monitor and assess in-depth a country over time. For instance, do you provide access to the IMF's 'ROSC' Fiscal Transparency database? To the World Bank's PEFA database? Also in this context check out the relevant Open Budget Index (www.openbudgetindex.org) constructed by the International Budget Initiative NGO. Your assessment of the pros and cons (and what each one is best suited for)in each one of these and other such PFM empirical assessment databases would be very valuable to many, as well as having access to references to review articles evaluating these data initiatives.

It is heartening to see that IFIs are talking with each other across the blogs. I wonder weather World Bankers themselves read each other's blogs as much as they should. Let us hope that the World's most important development agency is not compartmentalized as it appears from the blogosphere.

The Garden State's financial mess- would other states learn?

New Jersey Governor wants your input to cut spending;

Governor Corzine welcomes the opportunity to consider your recommendations for spending cuts for the Fiscal Year 2009 Budget.

For Comment: What do you think about the 'Management Efficiencies' (chapter 3 of the budget).

Related;
New Jersey’s Dilemma: Raise More Revenue or Cut Spending?

Forced to choose among an array of unpopular methods for raising new revenue — New Jersey is already one of the nation’s highest-taxed states — Mr. Corzine put forth a plan that relied on truly massive toll increases. It ran into heated opposition from lawmakers of both parties in this heavily car-dependent state.

How unpopular was Mr. Corzine’s proposal to boost tolls? A survey released last week by the Quinnipiac University Polling Institute showed 73 percent of New Jerseyans opposing it. Also taking a hit: Mr. Corzine’s approval rating, which has plunged to just 37 percent.

Mr. Corzine acknowledged last week that his toll hike plan does not have enough support to pass the state legislature.

Now, he seems to be changing course. Opponents of the toll hikes, especially conservatives, have been insisting that what the state really needs is not more revenue but cuts in government spending. In his budget message tomorrow, according to reports in The Times and numerous New Jersey newspapers, Mr. Corzine will give what they’re asking for.

Among the possible cuts: a shutdown of some state parks; spending rollbacks that would force tuition hikes at state colleges and universities; reductions in aid to hospitals; elimination of property tax rebates for middle income families; laying off 3,000 to 4,000 state employees; and the elimination of three cabinet-level departments.

Administration insiders say these cuts are needed just to bring next year’s budget into balance. But the cuts also carry a clear warning that more painful steps may be necessary if the legislature does not give Mr. Corzine at least a version of the revenue-raising package he wants.

A very rare budget speech;

It’s certainly not a budget designed to please … I can tell from the applause lines… but it is a prudent blueprint to meet difficult economic circumstances, correct past mistakes and it lays a foundation for a responsible future.

It doesn’t spend more than we have.

It doesn’t borrow to pay operating costs.

It doesn’t raise taxes.

It does contain the largest increase in school aid ever;

It does preserve property tax relief for the middle class; and it does protect the most vulnerable in our society.

It meets the public’s expectations that government live within its means.

Make no mistake -- this is a turning point … not the end point.

By itself, these cuts won't solve the problem. They can’t.

A long term answer requires deeper changes.

Book recommendation to the new governor

The importance of the upcoming budget negotiations for Mr. Paterson was apparent throughout the day. In a radio appearance Thursday morning, he said he had not been heavily involved in drafting Governor Spitzer’s budget and would have to work quickly to gain command of the issue.

“I kind of feel like the student who’s getting ready for the final exam but they didn’t attend any classes,” he said in a radio broadcast on Fred Dicker’s radio program on Talk 1300 AM in Albany.

Mr. Paterson said he had been involved in other tasks while Mr. Spitzer ironed out a budget proposal and said he would rely on “those who have done this before, including Majority Leader Bruno and Speaker Silver.”

Reaching a budget compromise is almost never easy in Albany, and the task could be particularly difficult this year with the state facing a $4.4 billion deficit. To some extent, the budget is moving forward under its own momentum. Assemblyman Herman D. Farrell Jr., the Manhattan Democrat who heads the Assembly budget committee, said the Senate and the Assembly have just passed their modifications to the governor’s budget proposal. Conference committees, which will iron out a compromise, are scheduled to begin on Monday.

“It’s not going to be easy because he has 40,000 things he has to deal with,” Mr. Farrell said of Mr. Paterson. But he said the incoming governor was familiar with the process from long experience as a legislator and “I am comfortable in that he can come up to speed on it.”

-Paterson Faces Early Test With State Budget

Memos to the Governor-Introduction to State Budgeting
Dall W. Forsythe, Foreword by Governor Mario M. Cuomo

Not Related;
How a Blind Man Will Lead a State

Mauritius Budget Reforms

IMF's PFM blog has an interesting post on budget classifications.

Just skimming through Mauritius' Ministry of Finance found the following Medium Term Expenditure Framework for 2005. In the most recent budget the MTEF has disappeared- and now it is a Programme-Based Budget.

I wonder whether it was on account of advise from the Fund.

Will this save the Communist Party

China Retools Its Government in Efficiency Push;

China announced Tuesday that it would reorganize the central government by creating five so-called superministries, including one responsible for improving environmental protection. But the plan stopped short of creating a single agency to oversee the contentious issue of energy policy.

The plan, submitted Tuesday during the annual session of the National People’s Congress, the legislature run by the Communist Party, is intended to streamline an overlapping array of government agencies, commissions and ministries around core issues: environmental protection; social services; housing and construction; transportation; and industry and information.

China’s complex bureaucracy is widely regarded as inefficient and often ineffective at carrying out policies that flow from Beijing, in part because agencies become enmeshed in turf battles or are focused on protecting their own entrenched interests.

“The reshuffling is aimed at resolving long-term problems and contradictions as China’s economy grows,” stated an explanation of the plan issued by the State Council, the government’s highest executive body.

Chinese state media quickly framed the plan, expected to be endorsed this week by the legislature, as a major bureaucratic reform that would improve the way national policies were carried out. But the practical impact is far from certain as China’s bureaucracy struggles to manage soaring energy demand, rampant pollution, rising inflation and an economy that some analysts say is perilously close to overheating.

“What does this do?” asked Arthur Kroeber, managing director of Dragonomics, an economic research consultancy in Beijing. “What it will accomplish is some incremental change in a couple of areas. But on the whole, I don’t see that this advances in any substantial way the coordination between different agencies.”

Despite three decades of market reforms, China’s economy is still heavily shaped by the government’s central planning agency, the National Development and Reform Commission. Some analysts had contended that the government could become more efficient by stripping away some of the commission’s responsibilities, including energy policy. Speculation had centered on whether an independent energy ministry would be established.

The new plan divides authority over energy. A new “high level” energy commission would develop national energy strategies. But an energy bureau under the central planning agency would control administration and oversight of the energy sector.

Yang Fuqiang, director of the Beijing office of the nonprofit Energy Foundation, said the creation of the two energy agencies represented a political compromise. He predicted that they would eventually be merged into a full ministry, but not for a few more years. “This is a first step,” Mr. Yang said.

The plan also puts the country’s food and drug regulatory agency under the control of the Ministry of Health. China’s regulatory system has come under heavy international criticism because of scandals involving contaminated or counterfeit ingredients in food and drugs. The Chinese state news media said the new arrangement “would make for better food and drug safety.”

Mr. Kroeber said one significant change in the restructuring plan was that the central planning agency would no longer have final approval on major construction projects. But he said that calling the new entities “superministries” overstated their power and that they seemed to represent a “half step.” He said the expanded ministry over transportation would oversee civil aviation and urban road transportation, but would not include the current Ministry of Railways, which lobbied strenuously to remain autonomous.

“They haven’t gotten all the way to a coordinated transportation ministry,” Mr. Kroeber said.

The new environmental ministry would seem further proof of the emphasis placed on fighting pollution by President Hu Jintao and Prime Minister Wen Jiabao. Environmentalists have complained that the State Environmental Protection Administration was easily steamrolled in bureaucratic turf battles because it did not rank as a full government ministry. The new plan elevates the agency to ministry status, presumably with greater clout inside the bureaucracy.

Yet it is unclear if that new status will also include an expanded budget for a larger staff to carry out regulatory policies. Currently, the agency has only a few hundred employees to coordinate and regulate environmental protection.

Lessons for the Day

DeLong Econ 210a Industrial Revolution Slides

Inflation and Unemployment

A cartoon model of the crisis (more serious wonkery)

Another Lesson in Econometrics

The Industrious State

Conflicting Employment Figures

Myth #1: Developing world hopelessly corrupt; Industrialized countries in Nirvana?

A Hitchiker's Guide to Budget Classification....

Asking too much of monetary policy

Engineering of the rupee

What's holding India back?

Total Economy Database on Output and Labor Productivity

Functions of the female orgasm

Leave Us Alone

Leave Us Alone: Getting the Government's Hands Off Our Money, Our Guns, Our Lives

Grover Norquist

Fun with STATA

From Heavy Lifting- On Congressional Salaries

With the outlier thrown out, the monthly increases in per-capita income is slightly larger than monthly increases in Congressional salaries, which is also reflected in the annualized increases. Congress is increasing their wages at a slower annual growth rate than that of per-capita income, which explains why the relative salary level has been falling so much over time.

I think I want to interpret this as a good thing. The fact that Congress increases their wages is often held to be a bit odoriferous, but the reality is that Congress has not stolen as much as they might have. I assume Congress increases their wages as much as they feasibly can politically, that is, the electorate hold the Congressional pay raises in check by the threat of voting the "thieves" out.

An interesting dissertation would be estimating the elasticity of candidate supply - looking at the change in actual candidates for Congress (those running in primaries) after a change in nominal and real salaries.

Assorted

"Fisking" Modern Monetarism

Tabulating the Credit Crunch's Effects: One Educated Guess

UK vs US taxes

Did you say “decoupling”?

Real interest rates are now negative

Why public opinion polls are garbage

Separating Good Polls From Bad

What the Unemployment Rate Misses
Unemployment and the Unemployment Rate
Labour isn't working
A very long post about labor force participation that you should read anyway

The Citizen's Guide to the 2007 Financial Report of the United States Government

Institutions and Development: The Second Wave

Fed Officials Downplay TIPS Inflation Signal


CBO analysis of the President’s budget

If the President’s proposals were enacted, the federal government would record deficits of $396 billion in 2008 and $342 billion in 2009. Those deficits would amount to 2.8 percent and 2.3 percent, respectively, of gross domestic product (GDP). By comparison, the deficit in 2007 totaled 1.2 percent of GDP.

Think about it

Which has more value added: college or prison?

Vermont tops the list of states that spend more money on prisons than on higher education, according to a report released Thursday.
more stories like this

The state spends $1.37 on corrections for every $1 spent on public universities and community colleges, according to the Pew Center on the States' Public Safety Performance Project.

Gov. Jim Douglas called it "a dubious distinction. I'm proud of being number one in things like cleanest and safest state in America and the healthiest and smartest, but not in areas like that."

More on India's budget

Finance Minister Palaniappan Chidambaram's budget speech on Friday once again reflected the government's mounting concern that a vast majority of Indians are not benefiting from the economic boom. The budget was laced with populism, involving giveaways systematically targeted at major vote banks. Spending hikes were announced in education, health care and a rapidly expanding employment guarantee program. Tax concessions were thrown in to keep the middle class engaged, and the manufacturing sector also got some relief in the form of a 2% reduction in the value-added tax.

But this budget will be most remembered for a massive $15 billion loan waiver that covers a large part of all outstanding farm loans -- and constitutes 3% of the entire banking system's credit portfolio. Apart from being the single biggest write-off in recent memory, this one measure also reveals a lot about the government's current mindset. It shows how eager the government is to reach out to a vote bank of 40 million workers at any economic cost and also demonstrate how keen it is to co-opt the communist parties' slogan of "compassion" towards the poor.

More importantly, the loan waiver suggests that the few reformers at the helm of economic affairs can no longer keep out bad ideas. From the outset of this government's formation in May 2004, it was clear that the main agenda of the reformers in power -- and the finance minister has to count as one of them -- was to prevent spending from spinning out of control rather than to usher in any new reforms. This is partly because of the way the last national election results were interpreted. Just because the then-ruling Bharatiya Janata Party's "India Shining" campaign line didn't work with voters in 2004 -- the first year of a step-up in India's growth trajectory -- the political class impulsively came to the conclusion that economic performance doesn't matter.

The strident call from political quarters following that election was to engage in a tax-and-spend policy mix. Mr. Chidambaram was largely able to keep spending under control by repackaging old plans, giving the impression to his political masters that the government was indulging in pursuing more inclusive growth. Consequently, India's total fiscal deficit continued to narrow to 7% last year, from a peak level of 10% in 2002. Such consolidation was largely achieved by strong revenue growth of 25% over the past four years, running well above the nominal gross domestic product growth of 14%.

But over the past year, fiscal discipline began to show signs of some serious cracking, and the biggest sign of slippage was this Friday's budget. Even though Mr. Chidambaram projected a decline in the central government's headline deficit to less than 3% of GDP, it has become routine in India to fund oil, food and fertilizer subsidies outside of the budget by issuing separate government bonds and not including them in the budget calculations. Subsidies on these items have been rising rapidly due to the sharp increase in international prices. The government has only passed a small part of the price increases to the consumer. By most estimates, the budget deficit would be higher by more than 2% of GDP after incorporating these off-budget subsidies.

The budget deficit is likely to come under further pressure if India's growth rate moderates even slightly in line with global trends. The torrid pace of expansion over the past few years has led to robust corporate profitability and in turn strong revenue growth. Typically, corporate revenues tend to be very sensitive to cyclical changes in GDP growth. Given the prospect of a global slowdown, the finance minister would have served the local economy and finances better by cutting India's corporate tax rate, which at a peak level of nearly 34% is much higher than levels in East Asia.

The economy could have also done with some further supply-side stimulus to ease infrastructure bottlenecks with a cut in customs duties. A spirited supply-side response is the best antidote to stagflation -- the whiff of which is currently in the air across the world. As in many other emerging markets, Indian monetary authorities are more consumed with fighting inflation, leaving the onus of ensuring continued economic momentum to other policy tools.

It would have been helpful to buy some insurance against the souring of global business sentiment caused by all the negative news emanating from the United States. Mr. Chidambaram could have kept alive the animal spirits by announcing further economic liberalization. Interestingly, the finance ministry released its annual economic survey just a day before the budget. The document listed many potential reform measures for the government, ranging from private participation in coal mining to further opening up retail and insurance sectors to foreign investors.

-Budget Binge

How Far Will America's Subprime Virus Infect Europe?

How Far Will America's Subprime Virus Infect Europe?

Related;
Intergovernmental Finance System Reform in Germany
Summary Germany Article IV Consultation

Geopolitical Implications if the US $ Loses Its Role as Top International Currency
Interview with Bundesbank President Axel Weber

India's Budget Highlights

Budget Speech

Links and coverage
The Economic Times

See also Ajay Shah's, Amol Agrawal's blogs and Indian Economy blog

IMF's views on Indian Economy

Econ Talk of the Day

Leijonhufvud Says Fed's Power `Limited' in Credit Crisis

Stiglitz interview on the real cost of Iraq War

The economist Joseph Stiglitz on what the Iraq war has really cost (podcast will not be available for long- so download now)

Related;
The Three Trillion Dollar War: The True Cost of the Iraq Conflict
by Joseph E. Stiglitz , Linda J. Bilmes

Iraq’s 100-Year Mortgage

March 19 marks the fifth anniversary of the U.S. invasion of Iraq. The American death toll—nearly 4,000 soldiers in Iraq and almost 500 in Afghanistan—is well known. Much less attention has been paid to the enormous number of troops who have survived and returned home with serious injuries. Here, the numbers are truly staggering. More than 70,000 have been wounded in combat, injured in accidents, or airlifted out of the region for emergency medical care. More than a third of the 750,000 troops discharged from the military so far have required treatment at medical facilities, including at least 100,000 with mental health conditions and 52,000 with post-traumatic stress disorder. According to a recent U.S. Army estimate, as many as 20 percent of returning soldiers have suffered mild brain injuries, such as concussions. More than 20,000 troops have survived amputations, severe burns, or head, spinal, and other serious injuries.

These numbers are largely due to the extraordinary advances in battlefield medicine in recent years. Far more soldiers are surviving even grievous injuries than in previous conflicts. The ratio of wounded in combat to killed in Iraq is 7 to 1; in Vietnam, it was 2.6 to 1, and in World War II, 2 to 1. If all injuries are included, such as those from road accidents or debilitating illnesses, Iraq has produced 15 wounded for every single fatality. This higher survival rate is, of course, welcome news, but it leaves the United States with a legacy of providing medical care and paying disability benefits to an enormous number of veterans and their dependents for many decades to come. During the past six years, more than 1.6 million troops have been deployed to Iraq and Afghanistan. Even in the most optimistic scenario, assuming that the majority of U.S. troops are withdrawn by the end of 2009, the cost of providing for Iraq War veterans will match what we have spent waging the war: approximately $500 billion. If U.S. forces remain deployed at a higher level, the cost of caring for veterans will eventually exceed $700 billion.

When we think about the costs of war, we tend to focus on the here and now. But in what is already the second-most expensive conflict in U.S. history, after World War II, the costs of Iraq will persist long after the last shot is fired. Benefits were still being paid to World War I veterans until January 2007, when the last veteran receiving compensation died, nearly 90 years after the war ended. The United States pays more than $12 billion each year in disability benefits to Vietnam veterans, a figure that continues to climb, 35 years after the U.S. pullout. If these past wars are any guide, Americans will undoubtedly be paying for Iraq for at least the next 50 years.

Reports Watch

Europe in a Globalised World

Chapter 1
The European Economy: Macroeconomic Outlook and Policy
Chapter 2
How much real dollar depreciation is needed to correct global imbalances?
Chapter 3
The effect of globalisation on Western European jobs: curse or blessing?
Chapter 4
Industrial policy
Chapter 5
Global warming: The neglected supply side

Hedge Funds: Regulators and Market Participants Are Taking Steps to Strengthen Market Discipline, but Continued Attention Is Needed

Since the 1998 near collapse of Long-Term Capital Management (LTCM), a large hedge fund--a pooled investment vehicle that is privately managed and often engages in active trading of various types of securities and commodity futures and options--the number of hedge funds has grown, and they have attracted investments from institutional investors such as pension plans. Hedge funds generally are recognized as important sources of liquidity and as holders and managers of risks in the capital markets. Although the market impacts of recent hedge fund near collapses were less severe than that of LTCM, they recalled concerns about risks associated with hedge funds and they highlighted the continuing relevance of questions raised over LTCM. This report (1) describes how federal financial regulators oversee hedge fund-related activities under their existing authorities; (2) examines what measures investors, creditors, and counterparties have taken to impose market discipline on hedge funds; and (3) explores the potential for systemic risk from hedge fund-related activities and describes actions regulators have taken to address this risk. In conducting this study, GAO reviewed regulators' policy documents and examinations and industry reports and interviewed regulatory and industry officials, and academics. Regulators only provided technical comments on a draft of this report, which GAO has incorporated into the report as appropriate.

Under the existing regulatory structure, the Securities and Exchange Commission and Commodity Futures Trading Commission can provide direct oversight of registered hedge fund advisers, and along with federal bank regulators, they monitor hedge fund-related activities conducted at their regulated entities. Since LTCM's near collapse, regulators generally have increased reviews--by such means as targeted examinations--of systems and policies of their regulated entities to mitigate counterparty credit risks, including those involving hedge funds. Although some examinations found that banks generally have strengthened practices for managing risk exposures to hedge funds, regulators recommended that they enhance firmwide risk management systems and practices, including expanded stress testing. Regulated entities have the responsibility to practice prudent risk management standards, but prudent standards do not guarantee prudent practices. As such, it will be important for regulators to show continued vigilance in overseeing hedge fund-related activities. According to market participants, hedge fund advisers have improved disclosures and transparency about their operations since LTCM as a result of industry guidance issued and pressure from investors and creditors and counterparties (such as prime brokers). But market participants also suggested that not all investors have the capacity to analyze the information they receive from hedge funds. Regulators and market participants said that creditors and counterparties have generally conducted more due diligence and tightened their credit standards for hedge funds. However, several factors may limit the effectiveness of market discipline or illustrate failures to properly exercise it. For example, because most large hedge funds use multiple prime brokers as service providers, no one broker may have all the data necessary to assess the total leverage of a hedge fund client. Further, if the risk controls of creditors and counterparties are inadequate, their actions may not prevent hedge funds from taking excessive risk. These factors can contribute to conditions that create systemic risk if breakdowns in market discipline and risk controls are sufficiently severe that losses by hedge funds in turn cause significant losses at key intermediaries or in financial markets. Financial regulators and industry participants remain concerned about the adequacy of counterparty credit risk management at major financial institutions because it is a key factor in controlling the potential for hedge funds to become a source of systemic risk. Regulators have used risk-focused and principles-based approaches to better understand the potential for systemic risk and respond more effectively to financial shocks that threaten to affect the financial system. For instance, regulators have collaborated to examine some hedge fund activities across regulated entities. The President's Working Group has taken steps such as issuing guidance and forming two private sector groups to develop best practices to enhance market discipline. GAO views these as positive steps, but it is too soon to evaluate their effectiveness.

The Laffer Curve- Part 2