Tuesday Takeaway

Weekly Market Commentary – May 3, 2016

Posted on May 03, 2016

“…The benefits of sanitation, better health care, and the comforts of heating or air-conditioning meant that GDP growth almost certainly understated the true advance in living standards in the decades after the Second World War. But at least the direction of travel was the same. GDP grew rapidly; so did quality of life. Now GDP is still growing (albeit more slowly), but living standards are thought to be stuck. Part of the problem is widening inequality: median household income in America, adjusted for inflation, has barely budged for 25 years. But increasingly, too, the things that people hold dear are not being captured by the main yardstick of value.”

Whether it accurately reflects growth in the United States or not, U.S. GDP gained 0.5 percent during the first quarter of 2016. Barron’s reported investors were not encouraged by the less-than-robust growth rate or by the fact GDP growth in the Eurozone (0.6 percent) exceeded GDP growth in the United States during first quarter. Weak corporate earnings also influenced market performance last week. So far, 62 percent of companies in the Standard & Poor’s 500 Index have reported their results, and the numbers show first quarter earnings have declined by 7.6 percent, year-over-year. That is better than expected, according to FactSet, but nothing to write home about. table-5-3

When Someone Says, “Federal Budget,” Do Your Eyes Glaze Over?

Apparently, enough folks tune out when the budget is mentioned that the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution developed a digital game to make the matter more palatable. ‘The Fiscal Ship’ gives players a chance to choose tax and spending policies for the United States and see how those choices affect the country. These dollars-and-cents decisions aren’t simple. The actions taken increase or reduce the country’s debt and also help determine the kind of nation we’ll be living in three decades from now. The game’s description explains:

“America is looking at a permanent, growing mismatch between revenues and spending, and policymakers are faced with difficult decisions about how to reconcile important government priorities…with the tax revenues that the current tax code will yield…So your mission is to pick from a menu of tax and spending options to reduce the debt from projected levels over the next 25 years. Small changes to spending and taxes won’t suffice. The choices are difficult, but the goal is achievable…To win the game, you need to find a combination of policies that match your values and priorities AND set the budget on a sustainable course.”

Before you select policies, you’ll be asked to choose the issues that are most important to you, such as: Shrink Government, Strengthen the Social Safety Net, Invest in the Future, Strengthen National Defense, and others. Once you’ve prioritized the issues, you’ll be given a laundry list of policy choices. That’s when the tough decisions get made. As you develop your plan, you’ll be shown how the decisions you’re making affect revenue, spending, and the nation’s debt as well as issues that are important to you. You can find the game at https://fiscalship.org/ reflections-5-3]]>

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