Subject: Shrinking US GDP; Russias hold on energy; probability calculation that IRS emails disappeared

(AEI Economics Ledger)

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US GDP shrank by 2.9 percent in Q1
Time to forget about 3 percent US growth. John Makin: The third estimate of the first quarter GDP
growth rate, based on more complete source data, according to the Commerce Department, was
reported June 25th

to be minus 2.9%. Current dollar GDP also fell at a 1.7% percent pace. Thats a
Japan-Lost-Decade style number. Q1 prices rose at a tepid 1.3% pace. These are extraordinarily weak
numbers, especially given two facts. Early this year confident predictions abounded of 3-4% growth in
2014. Right up to the initial release of the Q1 growth rate at 0.1% forecasters had been calling for 2-3%
growth.
Whats wrong with the economy? Jim Pethokoukis: Two thoughts: first, slow-growth economies are
especially susceptible to recessions, as Federal Reserve research has shown. It doesnt take much of a
bump to turn slow, to sputter, to stall. Second, the stumble shows an economy lacking both momentum
and resilience. Hardly what one would hope to see five years into a supposed recovery.
And so the Fed parties on. Desmond Lachman: Instead of removing the Fed's punch bowl, [Yellen]
chooses to continue with the policy of bloating the Federal Reserve's $4 trillion balance sheet by
additional U.S. Treasury and mortgage bond purchases, albeit at a somewhat reduced pace.
Is the retirement crisis real?

What to make of dire retirement headlines. Andrew Biggs and Sylvester Schieber: The story of the
retirement crisis has often been sold as much as told. Sometimes this selling is entirely well-intentioned,
moved by a desire to get Americans to save more. In other cases, there may be selfish motives: Ask
yourself, what are the chances the financial-services industry will tell me I'm saving too much for
retirement? In yet other cases, the motives are political: By arguing that America's private retirement-
savings system has failed, progressives pave the way to eliminate tax incentives for retirement saving
and expand Social Security to take its place.

Around the world

Russia drives European energy policy. Desmond Lachman: Fast-moving events in Ukraine and the
Middle East highlight the need for Europe to improve its energy policy. In particular, they underscore
Europes excessive dependence on Russian energy supply, which poses a major risk to its economic
growth prospects. That dependence also constitutes a serious impediment to Europes foreign policy,
limiting its ability to maneuver, as has been all too clear during the recent U.S. attempt to impose
meaningful economic sanctions on Russia for its activities in Crimea and eastern Ukraine.
ICYMI: AEI EVENT Russian gas, European energy security, and US policy
The World Cup continues. Why soccer is an American sport. Stan Veuger: I have demonstrated
before that soccer is certainly not a socialist sport when it comes to its industrial organization: unlike the
NFL, it is not a cesspit of bailouts, revenue sharing, or affirmative action for underperformers. Yet some of
the critics of soccer base their attacks my apologies for the awkward phrasing, for these attacks are
baseless on features of the sport itself, not on its off-field organization. They are misguided as well, for
it is soccer, not football, that celebrates freedom, creativity, and the ability of the individual to shape his
own future in practically every game.
Call for sanctions on China. Michael Strain and Ramesh Ponnuru: Oren Casss argument for
threatening trade sanctions against China (Fight the Dragon,June 23) begins to go wrong from its very
first words. He allows that the standard economic model of trade is correct in holding that all countries are
better off if all practice free trade, but he says the model does not account for the fact that a country that
refuses to practice free trade can reap benefits at other countries expense. Free trade thus presents a
prisoners dilemma.
The probability of lost IRS emails
Crashed IRS computers and hungry unicorns. Stan Veuger: The latest development in the IRS
controversy is that crucial emails have conveniently gone missing is there any reason to believe that it
is, as the administration claims, a mere accident? Of the 82 IRS employees tied to the targeting
operation, 7 had their email disappear, or 8.5%. According to IRS commissioner John Koskinen, the
industry standard is 3 to 5%. Under reasonable statistical assumptions, that makes the IRS scandal
disappearance rate about as likely as the emails having been eaten by unicorn, with a probability far
smaller than 1%.
In other news
How big government influences fertility. James Pethokoukis: Considerable academic research
suggests social insurance programs, such as Social Security and Medicare, reduce fertility rates in
advanced economies. Thanks to these government-funded safety nets, parents have less incentive to
produce kids to care for them in old age. This is not just a problem that parents should care about.
America's childless ought to care a lot about the kid gap.
Teeth whitening at the center of patent control debate. James Glassman: A drama is unfolding that
could cause serious trouble for huge companies used to winning aggressive patent-infringement lawsuits
against their smaller competitors. The huge company in this case is Procter & Gamble, which dominates
the market for home devices that make your teeth whiter.
ICYMI Guru Sri Sri Ravi Shankar discusses human flourishing during an AEI event

Mark your calendar

7.1 AEI EVENT: Copyrights and innovation: Understanding the debate
7.3 June employment data released.
7.3 Weekly jobless claims data released.
7.4 Independence Day (Markets closed)
7.15 AEI EVENT: Can committees create financial stability?

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