Subject: Before the year ends, this needs to happen (AEI Economics Ledger) If you have trouble reading

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Holiday cheer from the AEI archives (2006). Kevin Hassett: Fortunately for those who love Christmas presents, some of the most interesting work at the frontier of economic research suggests that holiday gift giving may be far more beneficial than economists had previously believed.

Before the year ends

Unemployment benefits should be extended. Michael Strain: We shouldnt let emergency federal benefits expire because the same fundamental logic that led to their being (correctly) enacted still holds today: The labor market is still in bad shape, the economy is still weak, there are three times as many unemployed workers as job openings. Ryan-Murray should be celebrated. Stan Veuger: It removes some of the uncertainty introduced by Congress policymaking approach of the last few years, under which tax rates are set 20 minutes before they kick in, the government is funded on a day-by-day basis, and a global financial crisis is regularly only days away. Professor Daniel Shoag of Harvards Kennedy School of Government and I have estimated that such uncertainty contributed between one and two percentage points to unemployment rates. Janet Yellen awaits confirmation. John Makin: Yellen understands well the extraordinary challenges facing the Fed as it navigates back toward a more predictable, more sustainable path for monetary policy. She has the support of an FOMC and a Fed staff that are well aware of her considerable talents. We all wish her well. A great deal is riding on her ability to succeed in the face of formidable challenges. MORE AEI scholars talk tapering, Fed, Yellen

Brink of bankruptcy
NEW RESEARCH Pension risk has increased ten-fold. Andrew Biggs: The risks that public pensions pose to taxpayers and government budgets have multiplied by a factor of 10 over the past four decades. While elected officialsincluding a number of Democratic mayorsare pushing for reforms, even they may not be aware of how much pension risk government budgets are truly bearing. Public-pension funds have never been riskier. Andrew Biggs: The threat that public-employee pensions pose to state and local government finances is well knownwitness the federal ruling earlier this month that Detroit's pension obligations are not sacrosanct in a municipal bankruptcy. NEW RESEARCH FHA remains undercapitalized. Ed Pinto: For the fifth year in a row, the Federal Housing Administration (FHA) violated federal law by failing to meet its minimum capital standard of 2 percentequal to about $22 billion on its $1.1 trillion book of insurance in force. The 2013 Actuarial Study found that the FHA had an economic net worth of $8 billion.

Special announcement
Introducing AEIs new International Center on Housing Risk, www.housingrisk.org. The recent surge in mortgage defaults, which had devastating consequences for financial markets and millions of

households, largely stemmed from a failure to understand the build-up of housing risks. The Center aims to equip lenders, borrowers, and policymakers with the critically important information they need to more accurately assess housing market risks and act to mitigate them. The Center is codirected by AEIs Edward Pinto and Stephen Oliner. MORE Edward Pinto and Stephen Oliner answer questions about the center

Financial reform found wanting

NEW RESEARCH Dodd-Frank regulations impact credit. Paul Kupiec, Claire Rosenfeld, and Yan Lee: We find bank funding costs and supervisory monitoring intensity to be the most important determinants of loan growth followed by loan portfolio performance and bank profitability. Bank capital and liquidity ratios have limited impacts, suggesting that macroprudential regulations are unlikely to be effective. What problem is Volcker trying to solve? Phillip Swagel: Just as the London Whale did not nearly threaten to sink JPMorgan Chase, neither did proprietary trading appear to have been an especially important factor behind the recent financial crisis. . . . There is a sense, then, in which the Volcker Rule is a solution in search of a problem. Still, it is the law. No new ideas for insurance. Peter Wallison: For more than two years, Congress, the insurance industry and insurance consumers have been waiting for the report of the Federal Insurance Office (FIO) an agency set up within the Treasury Department by the Dodd-Frank Act. The report was supposed to make recommendations for the modernization of U.S. insurance regulation, and it finally arrived last week, landing with a thud on desks in Washington and elsewhere. Volcker, GSE reform wont end too big to fail. James Pethokoukis: Reining in Fannie, Freddie, and Feddie is an incomplete, although ideologically comfortable, financial-reform agenda for the GOP. Next year would a good time to add ending Too Big to Fail to that list.

Free trade
IN CASE YOU MISSED IT AEI EVENT: Opening markets, unlocking opportunity: Senator Jeff Flake on trade promotion in Congress Valuing imports over exports. Sita Slavov: The real benefit from trade comes from importing, not exporting. Indeed, consumers can benefit from lowering our trade barriers even if other countries do not reciprocate. This implies that our current approach to trade is contrary to the broad national interest. Rather, it represents the interests of small but powerful groups of domestic producers. TESTIMONY Opening up trade to Asia. Derek Scissors: The matter of open American markets to many Asian countries, and the lack of reciprocal openness in some cases, has been subject to extensive political debate in the U.S. In one important respect, the debate is misguided: the large trade deficits the U.S. runs with Asia as a whole, and China in particular, do not necessarily represent lost American jobs.

In other news
NEW RESEARCH Carbon taxes are regressive. Aparna Mathur and Adele Morris: This paper analyzes the distributional implications of an illustrative $15 carbon tax imposed in 2010 on carbon in fossil fuels. We analyze its incidence across income classes and regions, both in isolation and when combined with measures that apply the carbon tax revenue to lowering other distortionary taxes in the economy. Consistent with earlier findings, we find that a carbon tax is regressive.

Mark your calendar

12.25 Markets closed for Christmas

1.1 Markets closed for New Years 1.14 AEI Event with Alan Greenspan: The map and the territory: Risk, human nature, and the future of forecasting

Happy Holidays! The Ledger will resume the first full week of January. Keep up with AEIecon
Get up-to-the-minute updates on Twitter @AEIecon Read more from the American Enterprise Institute economic policy team at www.aei.org/economics. Contact Abby at abby.mccloskey@aei.org if you have questions for the economics team. Sign up for a weekly copy of the LEDGER here. If you were forwarded this message, click here to subscribe to AEI newsletters. Click here to unsubscribe or manage your subscriptions. American Enterprise Institute for Public Policy Research | 1150 Seventeenth Street, NW, Washington, DC 20036 | 202.862.5800 | www.aei.org