LOS ANGELES —Josh Rauh of Northwestern University outlines the consequences of the state and local pension mess in the latest Milken Institute Review. He believes that implementing proper accounting standards is the first in a series of necessary, albeit difficult reforms.
"The first step that state and local governments need to take is to acknowledge the scale of the problem by changing the accounting standards that got us where we are today," he writes.
Rauh also explores the case for a federal bailout with strings attached: "The federal government has a major stake in a soft landing, which provides good reason to create incentives for pension reform. The key idea is that some portion of federal aid should be contingent on the states and localities getting their off-balance-sheet liabilities under control."
Also in this issue:
Joel Slemrod of the University of Michigan searches for the middle ground in the debate over the tax conservatives love to hate. "The value-added-tax is not quite as simple, efficient and self-enforcing as good-government types hope and starve-the-government types fear," he explains. "Experience abroad suggests that a broad-based single-rate VAT could involve considerably lower enforcement and compliance costs than the current income tax. But the VAT does pose some tricky implementation issues of its own."
Philip Martin, an economist at the University of California, Davis, takes a cool look at yet another hot-button issue: immigration reform, where he finds useful comparisons with the British Migration Advisory Committee model. "The debate in the United States seems to be stuck. Arguably, the way to break the stalemate is to go with a commission approach — one that forces the debate away from ideology and toward compromise."
Karen Dynan of the Brookings Institution explains why many economists fear deflation more than inflation. "Inflation has been trending down, and the risk of it slipping into negative territory seems higher than at any time since the 1930s. Deflation could leave policymakers with little practical means to stimulate the economy, stalling the economic recovery or even triggering a second dip into recession. Indeed, even positive but exceptionally low inflation could further slow what has been a phlegmatic upturn."
The latest edition also includes Lena Edlund of Columbia on why the pace of economic development turns on a woman′s right to choose her own spouse; Jim Barth (Milken Institute), Rita Chiang (Claremont Graduate University) and Tong Li (MI) on the promise and perils of industrial loan banks; Matt Kahn of UCLA on why some long-suffering cities will ironically get a big boost from global warming; and Timur Kuran of Duke on why the flourishing pre-modern economies of the Islamic world fell into decline as Western Europe rose.
The Milken Institute Review is sent quarterly to the world′s leading business and financial executives, senior policymakers and journalists. Its editor is Peter Passell, former economics columnist for The New York Times.