Dow down - the bigger picture

In light of the Dow's "biggest loss since '03" yesterday (Washington Post, Feb. 28), the release of testimony today on economic volatility by Peter R. Orszag, Director of the Congressional Budget Office (CBO), is timely. His testimony covers macroeconomic volatility; workers' earnings and households' income; and risk sharing, income fluctuations, and taxation. Orszag's conclusion:

The U.S. economy has become less volatile: Macroeconomic fluctuations are now much milder than they were in the past. At the same time, however, households continue to experience substantial variability in their earnings and income, and that variability may now be greater than in the past--perhaps contributing to anxiety among workers and families. The tax system can help to smooth fluctuations in income not only at the macroeconomic level but also at the level of workers and households. The income insurance provided as a result may be quite valuable but needs to be weighed against the other effects of the tax system.

Economic Volatility (pdf, 15pp/120kB), Feb. 28, 2007