The problem of Citigroup Orszag (Atlantic)

Daniel Indiviglio - Daniel Indiviglio is an editor at the Atlantic, where he wrote on the credit markets regulation, policy monetary & tax, taxes, banking, trade, markets and technology. Before joining the Atlantic, he wrote to Forbes. He has also worked as an investment banker and a consultant. Daniel Indiviglio is a publisher of blogger and partner for the Atlantic Business Channel, where he provides insight, analysis and advice on the intersection of business, finance, economy and politics. Among its specific interests of writing: markets, regulators, policy monetary & tax, tax, banks, markets and credit technology. Before joining the Atlantic, he wrote to Forbes. Front of journalism, Daniel has spent several years as an investment banker and consultant for financial services companies. Prior to this, he gets graduated from Cornell where he triple lags in economics, philosophy and physics. He resides in Washington, D.C. metro area. December 2010 15, 4: 48 PM ET

In case you missed the news last week, former Office of management and Director Peter Orszag budget took a gig of millions of dollars in Citigroup. Some critics of the trajectory of the European Union between Washington and Wall Street, including James Fallows the Atlantic own condemned the move. Of course, the decision of the Orszag is regrettable public policy perspective: Citi was one of the largest bailout recipients and Orszag can have input on the aspects of his rescue during his tenure in the White House. But how to avoid this problem?

On one level, it is hard Orszag to blame. After all, he was peanuts OMB head with his big salary of Citi, and now he can buy this brilliant car sport, it is always sought and a picturesque apartment in Manhattan. Of course, it would have been nice to take a job in a company which was not a recipient laid siege to the rescue of Government during his time working for the President. And since the revolving door remains active, conviction public only obviously isn't slow it much.

Modelling behavioural Economist Karl Smith has a suggestion. He says that we must pay more competitive officials:

I hope that economically oriented folks are not suggesting that we use the moral suasion to bribery of Government control. People respond to incentives. If you do not want to sell you you have to pay more.

Indeed, if Orszag had a 7 million per year at the head of the OMB salary, it can still be used. Or it may still have left. It is possible that the money was not much to do with it. He may have found too stressful job and monotonous work. Or perhaps that he could not hold his boss. For these or other reasons, a salary of multimillion-dollar Government may not have kept him around.

The big move of the Orszag complaint isn't that seek greener pastures, but that particular grazing where he eventually stunk of conflict of interest. Better compensation not is not the clearest solution to this problem - a better would simply limit the employees of the Government to walk this path.

These prohibitions may be written into contracts of employment of these workers. This would be similar to how some companies prohibit their employees to take jobs with their customers for a certain period of time after their departure from the company. If Orszag had such deduction, was may not work at Citi, but instead of it might have settled for a job at a fund coverage or firm. Still, he could make more money, but avoids the unfortunate conflict.

The other problem with pay more competitive Government employees is simply the multi-million dollar concept of dozens of officials from high wage level. This would certainly help our misadventures of tax expenditures. And do we really want to attract money hungry people who may not care about public service away from the private sector to work for the Government?

We have sort of those in the field of public service to be the type of persons of concern than their wages. Questions of encouragement, but he matches just money - it is based on a broader measure of utility. It's a complex equation that should take a number of variables into account, and usefulness of each individual is different. In particular, the utility a job allows a person better cutting for the public service should depends on step entirely on how much money it offers: the impact in the world, they feel that they are of should also their importance. If Orszag was only out of money, while he was in the area of bad to begin with, and we should be grateful that he has left.

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Will be highly reactive growth in 2013? Don't bet on IT (Atlantic)

Last week, Washington has been buzzing to talk about reducing additional tax extensions and stimuli. Unemployment continued to double-digits, decision-makers think it is wise to delay deficit reduction until after retrieves the US economy. So that additional measures will be implemented to decrease the rate of unemployment and promote the activity of the company. But that happen once the economy stabilizes finally close to full employment? Prepare for a period of very slow growth.

Think about how unfold the best possible future. Assuming that Congress gets its act together for the two years of tax rates will remain low and employment increase slowly. If everything goes to plan, at the end of 2012, we see a little less than 8% unemployment. At this time, with the labour market steadily but slowly improving, Washington turn to the reduction of the deficit and the Federal Reserve will feel is no longer the need to engage in an expansionary monetary policy. Consider two effects.

Fiscal tightening

In 2013, we can expect a few things to arrive on the fiscal plan. First of all, Washington will finally have obtain the deficit seriously. Very high unemployment will allow Congress to postpone the serious debt reduction policy until then. But when the recovery is clearly underway and unemployment starts constant fall, the Government must stop so greatly to spend money.

Higher taxes

The first obvious step in 2012 will have to increase taxes. It is likely that we will see a tax reform which will include higher cross rates. Taxing the rich only cannot close the gap completely, so the bourgeoisie will also have to pay more.

Less expenditure = law reform

In addition to an increase in taxes, expenses will also be more controlled. To curb spending significantly from the Government, you must reform entitlements. Social security and Medicare could become less generous, for example. What amount of money the Government saves payments will convert less than dollars spent by the United States.

Two of these changes will be eventually mean the same thing: Americans will have less money to spend and save. As a result, revenue and investment with the two companies decline. This does not mean that a new recession strike, but this does not mean that strong growth will be more difficult with less money spent and invested.

Monetary tightening

Government taxation and spending is only a way in which Washington affects the economy, however. The US Federal Reserve took measures extremely aggressive to maintain stability and economic growth over the past few years. The federal funds rate was almost zero since the end of 2008. Reserve US Federal has also engaged in several quantitative easing efforts to maintain long term low and interest rates.

But in 2013, or perhaps even a little earlier, when the economy seems to be on more solid footing, Central Bank must tighten monetary policy to prevent the runaway inflation. To do this, it will have to sell the bulk of the assets of his inflated balance and raise interest rates.

Once again, that the US Federal Reserve began to increase interest rates, this slow further economic activity. Companies will face more expensive loans if they hope to develop. Americans will be discouraged to move to the record will increase interest rates. Real estate purchases, a wind will face also face as mortgage interest rates increase at levels not seen for years.

Yet once it not necessarily cause a recession, but there will be a more difficult to achieve real GDP growth rate.

Irrational expectations?

Yet, the wisest economists on earth do not appear to see this unavoidable. Here the most recent estimates of growth of the GDP of the US Federal Reserve.

You can see that their 2013 estimates vary between 3% and 5% and concentrated between 3.5% and 4.6%. How could this happen with higher taxes, less money rights affecting the economy and environment rising interest rates? The presence of aggressive fiscal measures and monetary tightening will be very difficult to achieve growth.

Still have been taken to history when taxes and interest rates were relatively high, and they have managed to grow rapidly. A good example is the end of the 1990s. Yet, who was a time that included the rise of an important new technology - Internet - provided a much higher growth that was normal. So if another unexpected new advance strikes from 2013, then he could propel United States high growth. But, assuming that the economy hums along at their normal pace, maintain high growth won't be easy.

In the decade or so after 2013, you'll probably get the same. There is at least a decade, not only a few years to reduce the deficit and the broader national debt by a significant amount. And the balance of the Federal Reserve has grown so large there to sell assets in the years to reduce to a manageable size, while maintaining high interest rates for an extended period avoid inflation. Long term above of 2.4% and 3.0% estimate is a bit more reasonable, but can still be optimistic. It is quite difficult to see how the us can really hope to achieve much higher than 2% growth in the kind of economic environment that will be necessary after 2012.