Today we are beginning a new series I am calling “Your MacroWallet” that I hope will bridge some personal finance advice with larger macroeconomic topics, politics, and more wonkish research on money and economics. Since pretty much all of government is inherently related to economic matters, and since even dense academic research is designed to have some basic insight into our personal economic lives and the operations of the economy, I am thinking this will be a rich and exciting series. I do hope you agree.
In followup to my article of a few days back on the fiscal cliff, there are more developments and insights into what might actually happen by the end of the year.
The Economist has an interesting article on the negotiations and why elections matter for economic policy. This report took a more skeptical view of a deal and also quotes research that higher marginal tax rates on the wealthy actually do little to impact their economic behavior. Another piece they have does a nice job of outlining parameters for a potential deal, suggesting the Democrats demand a progressive system that raises revenues, the GOP seems to agree, and now it is largely figuring how to get there. The paper also has some suggestions of their own about what would make the most sense here and here.
Also in macroeconomic news yesterday was a good report on housing and housing prices. The inventory of homes is down to pre-crisis levels and the price of homes is rising. Rarely do you see in one article such a vivid portrayal of the price system at work, as consumers get more wealthy and unemployment declines, demand rises. Combine this with less supply in the market after fewer housing starts and fewer foreclosed homes, and you have a recipe for a market in more sound shape. Few things could be as positive for our near terms economic improvement. However, this does not mean you should run out and buy a house unless it makes sense for you and your family. Housing prices are still a somewhat poor bet over the long term, averaging only .6% per year after accounting for inflation.