Wonkbook: What a Nobel prize won’t get you
By Ezra Klein,
Jay Mallin BLOOMBERG
It's not entirely clear what Shelby thinks monetary policy actually does, but over the next couple of decades, managing labor markets and the pressure from pension policy is going be a pretty big part of the Fed's job. On Friday, the Bureau of Labor Statistics said that the economy had only created 54,000 jobs in March. If you average out the last three months of job growth, it'll take us 10 years to return to full employment. And if you look beyond 10 years, social insurance programs like Medicare and Social Security will be putting immense stress on the federal budget. By Shelby's admission, Diamond is a world-renowned expert on both topics. If he's what unqualified looks like, I'd love to see qualified.
What Shelby can't say is that he's blocking Diamond as payback for a Fed nomination that Bush made in 2007 and Democrats refused to act on until the 2008 election was decided. And that's politics, I guess. But it's remarkable that what Shelby thinks he can say is that Diamond is unqualified because his expertise lies in labor-market analysis. Unemployment is above 9 percent. Almost half of the 15 million workers who're looking for jobs and can't find them have been unemployed for six months or longer. We've got a jobs crisis is this country. And yet Shelby thinks it's self-evident that knowledge about the labor market isn't the sort of expertise that monetary policymakers need right now. If you wanted further evidence that Washington has stopped caring about jobs, there it is.
Five in the morning
1) Unemployment jumped up in May, report Brady Dennis and Neil Irwin: "Behind the hard numbers in Friday’s dismal report on the job market are scared small-business owners, slashed state budgets, dried-up federal stimulus funds and a lingering uncertainty that has taken hold from corporate boardrooms to factory floors around the country. Employers added 54,000 jobs in May, the Labor Department said Friday, down from 232,000 in April. The unemployment rate rose to 9.1 percent from 9 percent. That deterioration in the labor market marks only the latest in a slew of recent signs that the economic recovery is losing momentum. It is the second time that growth has stumbled; a similar scenario played out last summer, reflecting the long, uneven process of clawing out of a recession spurred by a financial crisis."
2) And the Fed doesn't look likely to help, reports Neil Irwin: "Almost as soon as Friday morning’s disappointing jobs report crossed the wires, the Wall Street chatter began: Will there be QE3?...The short answer to Wall Street’s question: Probably not. The long answer: Don’t expect the Fed to announce a QE3, but the weak outlook likely will push off the day when the central bank will start tightening monetary policy -- sucking money out of the economy -- to an even more distant horizon. The lousy unemployment report comes on the heels of other disappointing economic data, but Fed officials view the current situation as different from the conditions that led to last year’s bond-buying. The recent round of data is neither alarming enough nor definitive enough to make them reconsider the unconventional monetary policy."
3) A Nobel prize is apparently not enough of a qualification to serve on the Fed, writes Peter Diamond: "Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination. How can this be? The easy answer is to point to shortcomings in our confirmation process and to partisan polarization in Washington. The more troubling answer, though, points to a fundamental misunderstanding: a failure to recognize that analysis of unemployment is crucial to conducting monetary policy."
4) The anti-tax pledge is limiting Republican maneuvering on the debt, reports Lori Montgomery: "On Capitol Hill, Norquist has admonished Coburn (Okla.), Crapo (Idaho) and Chambliss (Ga.) for suggesting a tax option for tackling the debt: reducing credits and deductions worth an estimated $1 trillion a year. Although most of the cash would be used to lower tax rates for everyone, a portion would be dedicated to restoring national solvency. No good, says Norquist’s group, Americans for Tax Reform. Under the pledge, raising revenue in any way requires an equal tax cut elsewhere to avoid expanding the size of government...Norquist argues that equating tax breaks with spending 'is a threat to the modern Republican Party’s worldview.'"
5) States are taking their time on passing health care exchanges, report Amy Goldstein and N.C. Aizenman: "As many legislatures around the country have finished their work for the year, fewer than one-fourth of states have taken concrete steps to create health insurance marketplaces, a central feature of the federal law to overhaul the U.S. health-care system...The furthest along are seven states that have adopted laws establishing their exchanges...Seven other states, including some with GOP leadership, have not passed any relevant legislation but have accepted federal grants...Nearly a dozen legislatures have defeated or allowed to expire bills that would have created an exchange, according to analyses by the National Conference of State Legislatures and the Center on Budget and Policy Priorities. At least 13 other states have not even considered such proposals."
Cover song interlude: Superchunk plays "Brand New Love" by Sebadoh.
Got tips, additions, or comments? E-mail me.
Still to come: Tim Geithner may have to back Christine Lagarde's bid to lead the IMF in order to keep an American in charge at the World Bank; advocates are worried Democrats will cut Medicaid; states are cutting safety net programs; 2012 presidential contenders are split on ethanol; and a Japanese soccer team plays 100 children all at once.
Tradition may bind Tim Geithner to back Christine Lagarde as the new IMF head, reports Sandrine Rastello: "U.S. Treasury Secretary Timothy F. Geithner says France’s Christine Lagarde and Mexico’s Agustin Carstens are both qualified to run the International Monetary Fund. He may have little choice but to support Lagarde. Under an unwritten agreement that dates back to the end of World War II, the IMF has always been led by a European while the World Bank has been headed by an American. Backing a non- European for the IMF could mean relinquishing U.S. control of the World Bank -- an outcome members of Congress who decide on funding for development banks are not ready to contemplate...'It is very important that the World Bank continue to be led by an American,' [said] Representative Nita Lowey of New York."
Alan Greenspan supports Clinton-era tax rates, reports Phil Izzo: "Alan Greenspan, a high-profile proponent of President George W. Bush's tax cuts, now says the U.S.'s debt troubles have become so worrisome that he would support going back to Clinton-era tax rates. 'The fact that I'm in favor of going back to the Clinton tax structure is merely an indicator of how scared I am of this debt problem that has emerged and its order of magnitude,' said the former chairman of the Federal Reserve in an interview Friday on CNBC...In 1993, Chairman Greenspan disappointed congressional Republicans by effectively endorsing President Clinton's tax increases to lend support to the new president's efforts to reduce the deficit. And in 2001, with the government running a surplus, Mr. Greenspan lent support to President Bush's tax cuts, to the consternation of Democrats."
The GOP balanced budget amendment is dangerous, writes Tom Daschle: "Right now, every Senate Republican is a co-sponsor of a proposed balanced budget amendment to the Constitution that would do nothing to solve our pressing fiscal problems. In fact, it could make them even worse. The proposed Republican amendment would limit total federal outlays to 18% of our economy--a level of spending last witnessed in 1966. There is no justification for this arbitrary cap. In fact, it would be dangerous given the enormous size and complexity of our economy today, and the demographic realities we face as our population ages. Tying the hands of lawmakers by restricting their ability to respond to changing economic conditions would be a disaster."
We should cut taxes on people under 30, writes Reihan Salam: "Matthew Weinzierl, an economist at Harvard Business School, recently made an intriguing theoretical case that age-dependent taxation could raise the efficiency of the tax system. The mechanics of such a reform are easy to imagine. The governments of Australia and Singapore already give a tax break to older workers, recognizing that they need a stronger incentive to remain in the work force. Giving a substantial tax break to the young would hardly represent a huge conceptual leap...There is, however, good reason to believe that it would yield significant economic dividends for everyone by giving young workers more disposable income that they can use to make investments in their future and, even more importantly, to encourage family formation."
The economy is only going to get worse if policymakers don't do something, writes Dean Baker: "Even taking the last three months together yields an average growth rate of just 160,000. At this pace, it would take more than a decade to get back to normal levels of unemployment. Moreover, there are more factors pointing to slower growth than faster growth going forward. In addition to the state and local cuts kicking in next month, the new fiscal year for the federal government begins October 1. This is also likely to involve further cuts in spending. And the payroll tax cut is scheduled to end 3 months later, as is the extension of unemployment benefits. At some point, the pain of high unemployment across the country may lead to some new thinking in Washington, but until that time, welcome to the second Great Depression. "
Meanwhile, in Japan interlude: An (adult) Japanese soccer team plays against 100 children.
Advocates are worried Democrats will sell out Medicaid, reports Jason Millman: "Medicaid faces numerous GOP efforts to slash program spending as states grapple with massive deficits and leaders in Washington try to hammer out a budget deal. Republicans have pushed block grants and easing maintenance-of-effort requirements as their preferred methods of controlling Medicaid costs. Last year’s health care reform law raised the stakes for Medicaid even higher, because the program is expected to add 16 million to its rolls in 2014. While advocates say Democrats have drawn a clear line against the GOP’s Medicare plan, they’re less certain of the party’s stance on Medicaid. At this point, they’re unsure what will come out of the Biden negotiations on the debt ceiling, but they believe cuts are on the way."
States are seeking private funding for health care, reports Christopher Weaver: "Short on cash and time, officials in California and at least a dozen other states have turned to philanthropies to help pay for the extra work required under the federal health law. Nowhere do the ties between private health foundations and state government run deeper than in California, where Democratic Gov. Jerry Brown’s administration is grappling with a projected $10.8 billion deficit in 2012, leaving little money for implementing the law. Three major foundations - the California HealthCare Foundation, the Blue Shield of California Foundation and the California Endowment - have stepped into the breach with money for actuaries, economists and other consultants...The Robert Wood Johnson Foundation, based in New Jersey, is spending up to $10 million over a year to assist 10 other states."
A bipartisan bill would give health benefits of same-sex domestic partners the same treatment as that of married spouses: http://on.wsj.com/joXDbx
Ryan's Vouchers are not Medicare, writes Paul Krugman: "Start with the claim that the G.O.P. plan simply reforms Medicare rather than ending it. I’ll just quote the blogger Duncan Black, who summarizes this as saying that 'when we replace the Marines with a pizza, we’ll call the pizza the Marines.' The point is that you can name the new program Medicare, but it’s an entirely different program -- call it Vouchercare -- that would offer nothing like the coverage that the elderly now receive. (Republicans get huffy when you call their plan a voucher scheme, but that’s exactly what it is.)...And most seniors wouldn’t be able to afford adequate coverage. A Congressional Budget Office analysis found that to get coverage equivalent to what they have now, older Americans would have to pay vastly more out of pocket under the Paul Ryan plan than they would if Medicare as we know it was preserved."
We must end Medicare "as we know it", writes Robert Samuelson: "It is only a slight exaggeration to say that unless we end Medicare 'as we know it,' America 'as we know it' will end. Spiraling health spending is the crux of our federal budget problem. In 1965 — the year Congress created Medicare and Medicaid — health spending was 2.6 percent of the budget. In 2010, it was 26.5 percent. The Obama administration estimates it will be 30.3 percent in 2016."
More than half of states are cutting the safety net, reports Sara Murray: "At least half the states have begun to rein in safety-net programs that swelled during the downturn, even as high unemployment and slow job growth persist. States offer a range of assistance programs such as tax credits for the working poor, unemployment benefits for the jobless and cash for low-income mothers and children. Governors from both parties have begun to make or propose cuts to these programs as they face another year of yawning budget gaps. The reductions come as the demand for social services remains high but the ability and willingness to pay for them reach their limits. Some critics of these programs see the cuts as a necessary pullback from the welfare state amid high deficits. But defenders worry about the effect on the needy at a time when the economy is losing steam."
The State Department is investigating a mess-up in the visa system, reports Miriam Jordan: "The State Department's Inspector General is reviewing the government's green-card lottery after this year's results were scratched and thousands of people who had been told they won a chance for a U.S. resident visa were later notified they would have to re-enter the drawing. A record 15 million people from around the world submitted entries to the so-called diversity visa program lottery, which each year offers a quick path to permanent U.S. residence for 50,000 people selected by random draw. Under the lottery program, visas are made available to applicants from countries with low rates of immigration to the U.S. Lottery winners have a chance at moving to the U.S. without a family member or an employer as a sponsor, the most common routes to obtaining a green card."
Some Boeing employees are joining its fight against labor regulators, reports Melanie Trottman: "Another group has mobilized against the National Labor Relations Board’s attempt to force Boeing to move a production line to Washington state from South Carolina: Boeing Co. workers in South Carolina who say they’ll 'almost certainly' lose their jobs if the federal agency wins its case. The group of three Boeing employees filed a motion Wednesday night to intervene in the NLRB's complaint against the aircraft maker, saying they have a 'direct and concrete stake' in the outcome and 'relevant evidence' to present in Boeing’s defense. The NLRB, run by Obama administration appointees, has alleged that Boeing retaliated against union workers in Washington by adding the nonunion plant in South Carolina to assemble additional 787 Dreamliner planes."
More retirees should buy annuities, writes Richard Thaler: "Although people like Dave who have them tend to love them, old-fashioned 'defined benefit' pensions are a vanishing breed. On the other hand, people like Ron -- with defined-contribution plans like 401(k)s -- can transform their uncertainty into a guaranteed monthly income stream that mirrors the payouts of a traditional pension plan. They can do so by buying an annuity -- but when offered the chance, nearly everyone declines. Economists call this the 'annuity puzzle.' Using standard assumptions, economists have shown that buyers of annuities are assured more annual income for the rest of their lives, compared with people who self-manage their portfolios. One reason is that those who buy annuities and die early end up subsidizing those who die later."
A new movement in psychology can help us understand poverty, writes Jamie Holmes: "The core of the breakthrough is that resolving conflicts among choices is expensive at a cognitive level and can be unpleasant. It causes mental fatigue. Nowhere is this revelation more important than in our efforts to understand poverty. Taking this model of willpower into the real world, psychologists and economists have been exploring one particular source of stress on the mind: finances. The level at which the poor have to exert financial self-control, they have suggested, is far lower than the level at which the well-off have to do so. Purchasing decisions that the wealthy can base entirely on preference, like buying dinner, require rigorous tradeoff calculations for the poor."
Ma Bell is back, writes Steven Pearlstein: "It was 30 years ago that lawyers from the Justice Department first went into court to ask a federal judge to break up AT&T, and much has happened since then. The breakup of the Bell system into long distance and the regional 'Baby Bells.' The rush of new competition and the resulting drop in prices. The decline of wire-line service, and the explosion of voice and data over wireless broadband. The irony is that after all that entrepreneurial energy and technological innovation and fierce competition, the telephone market once again threatens to consolidate back into the hands of two national giants, AT&T and Verizon, which are direct corporate descendants of Ma Bell. That is the context to keep in mind as the Justice Department and the Federal Communications Commission consider AT&T’s proposed $39 billion acquisition of T-Mobile."
Animated short interlude: Scott Thierauf's "Gumball Wars".
2012 contenders are splitting on ethanol subsidies, reports Darren Goode: "It sure sounds like GOP contenders are talking tough: Tim Pawlenty has turned on his old buddy, ethanol, and Sarah Palin called this week for cutting all energy subsidies, setting a tea-party-like marker that others may feel pressured to emulate. But in fact, the declared and potential presidential candidates are all over the map -- and by no means fleeing en masse from their traditional support for subsidies. Mitt Romney still supports ethanol subsidies. So do Newt Gingrich and Rick Santorum, sort of. And the Republicans still oppose President Barack Obama’s idea of getting rid of subsidies for the oil industry. The focus on the campaign trail thus far has been on continued federal help for corn-based ethanol -- understandable as it remains an important commodity in Iowa."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.