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Wisconsin recall shows labor isn't coming back. So what's next? #wonkbook

By Ezra Klein,

Last night, Scott Walker successfully resisted the recall effort in Wisconsin. And so, today, pundits everywhere are mining the election results for insight into the 2012 election. Ignore them.

DARREN HAUCK

REUTERS

Republican Wisconsin Governor Scott Walker celebrates his victory in the recall election against Democratic challenger and Milwaukee Mayor Tom Barrett in Waukesha, Wisconsin June 5.

Before the vote, the Real Clear Politics average of polls showed Walker up by 6.7 percent. He won by seven percent -- about the same margin he won by in 2010. That is to say, polling was a very good guide to this election. It's likely to be an even better guide to the national election, as there are more polls, conducted more frequently, with larger sample sizes. And right now, as you can see in the Wonkbook dashboard, the RCP average has Obama up by 2.8 percent. There's little reason to try to pick through Wisconsin to understand the national election when we have hard numbers that give us a daily snapshot of where it stands.

But the Wisconsin recall does have implications beyond 2012. Public-sector unions are a key part of the Democratic Party's coalition. They provide money, manpower, and votes. Which is why Henry Olson, a vice president at the American Enterprise Institute, frames Walker's legislation as a "defunding of the Democratic-party shock troops."

Wisconsin's new law won't, on its own, radically change the power of public-sector unions. But Walker's ability to withstand the recall will likely spur other governors to follow suit, and likely drain the enthusiasm of the opposition in other states. And even if it doesn't, labor's inability to win the recall is more evidence of their inability to reverse their own structural decline. They're not winning on worksites, as the share of the labor force that's unionized has been dropping for decades, and they're not winning at the ballot box.

If you step back, then, two things are happening simultaneously among the key interest groups in American politics. Labor is getting weaker. And corporations, in part due to Citizens United, are getting much stronger. The electoral effect of that is obvious: It favors Republicans. But the legislative effect is, perhaps, more significant: It favors corporate interests in Congress, as Democrats will have to be that much more solicitous of business demands in order to keep from being spent into oblivion.

For a long time, a lot of the energy has been devoted to the question of "how do you revive the labor movement?" The truth is, at this point, you probably can't. You can slow decline. And you can score isolated wins. But it's hard to see a real turnaround in labor's fortunes.

But if you take labor's decline as a given, then another question presents itself: How do you limit the resulting corporate power over elections and legislators? And that's much more possible, even in a post-Citizens United world. There's legislation, like the Fair Elections Now Act, that could publicly finance elections. There's legislation, like the DISCLOSE Act, that could force so much transparency on corporate spending that it ceases to be an attractive option.

Republicans have had great success arguing that organized labor has too much political power. So much success, in fact, that it seems clear that labor will soon have too little. But last night showed that Democrats aren't going to get very far simply disputing Republican claims on this point. Rather, they should argue that all interest groups have too much political power, and unite behind legislation that would weaken them.

Wonkbook dashboard

RCP Obama vs. Romney: Obama +2.8%; 7-day change: Obama +0.8%.

RCP Obama approval: 47.4%; 7-day change: -1.0%.

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Top story: Keep an eye on Europe's banks

Greece could be broke as soon as July. "As European leaders grapple with how to preserve their monetary union, Greece is rapidly running out of money. Government coffers could be empty as soon as July, shortly after this month’s pivotal elections. In the worst case, Athens might have to temporarily stop paying for salaries and pensions, along with imports of fuel, food and pharmaceuticals. Officials, scrambling for solutions, have considered dipping into funds that are supposed to be for Greece’s troubled banks. Some are even suggesting doling out i.o.u.’s. Greek leaders said that despite their latest bailout of 130 billion euros, or $161.7 billion, they face a shortfall of 1.7 billion euros because tax revenue and other sources of potential income are drying up. A wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes -- and growing incentive to avoid paying what they owe." Liz Alderman in The New York Times.

Spain's begging for bank aid. "Spain has made its most explicit call to date for European institutions to recapitalise the country’s banks amid concerns about its own ability to raise the billions of euros needed on sovereign bond markets. Cristóbal Montoro, budget minister in the centre-right government, sent jitters through financial markets on Tuesday when he admitted that the high perceived risk of Spanish sovereign debt meant Spain 'does not have the door to the markets open'. The comment startled analysts given that the Spanish Treasury plans to auction up to €2bn of bonds on Thursday." Victor Mallet and Peter Spiegel in The Financial Times.

But Germany seems unmoved. "The parliamentary leadership of Germany’s ruling Christian Democrats - the majority party in Angela Merkel’s centre-right coalition government - has flatly rejected the use of eurozone rescue funds to recapitalise Spanish banks directly. Instead they called on the Spanish government on Tuesday to decide urgently whether it will seek money from the €440bn European Financial Stability Facility according to the fund’s normal rules, requiring agreement on a proper rescue programme negotiated with its European partners...Wolfgang Schäuble, German finance minister, held out the prospect on Tuesday of medium-term reforms, such as a 'banking union' to provide deposit insurance for cross-border financial institutions, and even jointly guaranteed eurozone bonds - but only once a fully fledged 'fiscal union' had been agreed for the whole eurozone." Quentin Peel and Gerrit Wiesmann in The Financial Times.

We think of the European crisis as a crisis of governments. But as Spain's plea shows, it's also a crisis of banks. "The roots of the economic crises in Greece, Ireland and Portugal were distinct, but the countries’ problems shared a common feature: In each, the financial fortunes of the government and the banking system were intertwined, and as one staggered, the other began to falter as well. Early on in the European crisis, analysts and organizations such as the International Monetary Fund recognized that the banks and governments in the euro zone were joined at the hip. Banks are heavy investors in government bonds, and governments provide the ultimate guarantees for the financial system. The two systems rise and fall together. Untying what the IMF has called a 'Gordian knot' has so far proved impossible, increasing the risk that the euro zone’s domino-like run of bailouts will continue...Spain’s problems are also driving Europeans toward a 'banking union' for the euro zone -- a step that would cut the cord between the euro region’s banks and its governments." Howard Schneider in The Washington Post.

Consequently, the European Commission wants more centralized control over banking. "Under growing international and financial market pressure to fix the region’s bank problems, European officials took a step on Tuesday toward surrendering a cherished national prerogative by proposing to knit banking systems together more closely. If endorsed by European leaders, the plan by the European Commission could spread the cost of bank rescues and demonstrate that governments are willing to cede power to the strong, centralized institutions that many economists say are needed to stabilize the currency union...The plan will not do much to help the banks in Spain and Portugal that require immediate assistance. The proposals would require formal approval from European governments and the European Parliament, and one of the most important measures would not be expected to go into force until 2018." Jack Ewing and James Kanter in The New York Times.

WOLF: Panic, at this point, is rational. "What would happen if a country left the eurozone? Nobody knows. Might even Germany consider exit? Nobody knows. What is the long-run strategy for exit from the crises? Nobody knows. Given such uncertainty, panic is, alas, rational...Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events. Perhaps the panic will vanish. But investors who are buying bonds at current rates are indicating a deep aversion to the downside risks. Policy makers must eliminate this panic, not stoke it. In the eurozone, they are failing to do so. If those with good credit refuse to support those under pressure, when the latter cannot save themselves, the system will surely perish. Nobody knows what damage this would do to the world economy. But who wants to find out?" Martin Wolf in The Financial Times.

PORTER: Obama's future is in the hands of Angela Merkel. "The recent downshift in the economy has dealt a powerful blow to President Obama’s chances of re-election in November. But perhaps most worrying for the president is just how little sway he retains over where the economy goes from here. His attempts to convince voters as he stumps around the country that Europe’s financial mess and Republican obstruction are largely to blame for the faltering economy only underscore how his destiny hinges on decisions by other people, notably the German chancellor, Angela Merkel." Eduardo Porter in The New York Times.

ORSZAG: Stimulus then deficit reduction is still the way to go. "Europe stands on the brink of economic disaster, which at its worst could easily trigger another outright recession in America. Foreign deposits in Spanish banks amount to about 500 billion euros ($622 billion). It isn’t difficult to imagine those depositors changing their minds about such an asset allocation. That could prompt deposit flight in other southern-tier banking systems, which the European authorities couldn’t contain. The U.S. desperately needs more fiscal insurance against such a shockwave. The right policy, which also happens to be the only one with any hope of being adopted in the foreseeable future, is a barbell approach, with more stimulus on one side and, on the other, more deficit reduction enacted now to take effect over time...If we could enact such a dual plan immediately...it would give us much-needed credibility in our efforts to urge the Europeans to act on their own problems before it’s too late." Peter Orszag in Bloomberg.

But even if Congress doesn't act, further stimulus might come from the Fed. "Disappointing U.S. economic data, new strains in financial markets and deepening worries about Europe's fiscal crisis have prompted a shift at the Federal Reserve, putting back on the table the possibility of action to spur the recovery. Such action seemed highly unlikely at the central bank's April meeting, when forecasts for growth and employment were brightening. At their policy meeting this month, Fed officials will weigh whether the U.S. economic outlook is deteriorating enough to justify new measures to boost growth, according to interviews and Fed speeches...Their options include doing nothing and continuing to assess the economic outlook--or more strongly signaling a willingness to act later if the outlook more clearly worsens. Fed policy makers could take a small precautionary measure, like extending for a short period its 'Operation Twist' program, in which the Fed is selling short-term securities and using the proceeds to buy long-term securities." Jon Hilsenrath in The Wall Street Journal.

@justinwolfers: When Jon Hilsenrath says Fed stimulus is coming, it's because he knows something you don't. It's coming.

Top op-eds

1) STIGLITZ: The American dream is a myth. "America likes to think of itself as a land of opportunity, and others view it in much the same light. But, while we can all think of examples of Americans who rose to the top on their own, what really matters are the statistics: to what extent do an individual’s life chances depend on the income and education of his or her parents? Nowadays, these numbers show that the American dream is a myth. There is less equality of opportunity in the United States today than there is in Europe - or, indeed, in any advanced industrial country for which there are data...In the 'recovery' of 2009-2010, the top 1% of US income earners captured 93% of the income growth. Other inequality indicators - like wealth, health, and life expectancy - are as bad or even worse. The clear trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom." Joseph Stiglitz in Project Syndicate.

2) SALAM: Progressive consumption taxes may be the key to tax reform. "What if there were some way to create a progressive VAT? That is the idea behind the X tax, which was first devised by the late economist David Bradford and has more recently been championed by Robert Carroll and Alan Viard in their new book, 'Progressive Consumption Tax.' The X tax works by separating the VAT into two parts. Businesses pay taxes on their value added as they would under a VAT, but they subtract wage payments from their taxable income. Taxes on wages are paid by households on a progressive basis. Like a VAT, the X tax is very growth-friendly. Unlike a VAT, it can guarantee that the rich pay more than everyone else. The beauty of the X tax is that it offers a way for conservatives and liberals to get what they want from tax reform: Liberals will get a tax code under which the rich will bear a heavier burden than the middle class and the poor, while conservatives will get a tax code that is much friendlier to savings and investment." Reihan Salam in The Daily.

3) THOMA: The unemployment crisis is a case of neglect. "The high unemployment rate ought to be a national emergency. There are millions of people in need of jobs. The lost income as a result of the recession totals hundreds of billions of dollars annually, and the longer the problem persists, the more permanent the damage becomes. Why doesn’t the unemployment problem get more attention? Why have other worries such as inflation and debt reduction dominated the conversation instead? As I noted at the end of my last column, the increased concentration of political power at the top of the income distribution provides much of the explanation. Consider the Federal Reserve. Again and again we hear Federal Reserve officials say that an outbreak of inflation could undermine the Fed’s hard-earned credibility and threaten its independence from Congress. But why is the Fed only worried about inflation? Why aren’t officials at the Fed just as worried about Congress reducing the Fed’s independence because of high and persistent unemployment?" Mark Thoma in The Fiscal Times.

4) KAUFMAN: The future isn't big banks. "Today, a mere 10 highly diversified financial institutions are responsible for 75% of total financial assets under management. Not only are they too big to fail, if the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act works as intended, they are supposed to become more stable going forward. Many observers therefore assume that these behemoths will dominate into the foreseeable future. Or will they? The same crisis that shrank the number of leading players also exposed many of their frailties...The financial conglomerates need to shed some of their activities and become more focused. That strategy would bring several major benefits, for the firms as well as for our financial markets and our economy. It would reduce their operations to manageable proportions. It would declassify them as 'too big to fail.' It would lessen the role of government in the marketplace. And, in a win-win dynamic, it would enhance stockholder value significantly." Henry Kaufman in The Wall Street Journal.

Posthumous release interlude: Michael Jackson's "Don't Be Messin' 'Round."

Got tips, additions, or comments? E-mail me.

Still to come: Long-term outlookmentum; it will take work for exchanges to spur competition; paycheck fairness is blocked again; light bulb standards are taking heat in the House; and walruses are lazy.

Economy

The CBO released its latest long-term budget outlook. "While the year-end burst of tax hikes and spending cuts known as Taxmageddon promises to be messy, it would set the nation on a course to smaller budget deficits and lower debt, the nonpartisan Congressional Budget Office said Tuesday. So, policymakers looking to preserve the current low tax rates should be prepared to cover the cost, the CBO said, or pay a steep price in the form of a rapidly soaring debt that could ignite a European-style crisis on this side of the Atlantic. 'The aging of the U.S. population and the rising costs for health care mean that the combination of budget policies that worked in the past cannot be maintained in the future,' the CBO said with uncharacteristic bluntness in a long-term budget outlook released Tuesday...Lawmakers have focused their deficit-reduction efforts on a relatively abstract portion of the budget known as discretionary spending. But future spending growth is driven almost entirely by popular entitlement programs for the elderly, the CBO said." Lori Montgomery in The Washington Post.

Read the report: http://1.usa.gov/LyEwRY.

The budget outlook in one graphic: http://wapo.st/JViUlP.

@petersuderman: Woo new CBO long-term budget outlook!

House appropriations bills are targeting funding for Dodd-Frank. "Republicans on the House Appropriations Committee on Tuesday unveiled two spending bills that target funding for President Obama’s Wall Street reform law. The 2013 Financial Services bill contains a provision that would make the new Consumer Financial Protection Bureau (CFPB), created by the Dodd-Frank law, subject to the appropriations process starting in fiscal year 2014, rather that allowing it to receive money from the Federal Reserve. 'This will allow for increased accountability and transparency of the agency’s activities and use of tax dollars. The legislation also requires quarterly reports on CFPB’s activities and spending, and allows Congress to review any funding transfers the agency receives from the Federal Reserve,' a summary of the bill states. The 2013 Agriculture bill, meanwhile, provides $128 million less in funding than the Obama administration said would be necessary for the Commodity Futures Tradition Commission (CFTC) to carry out Dodd-Frank." Erik Wasson in The Hill.

Timothy Mayopoulos is Fannie Mae's new CEO. "Government-backed mortgage giant Fannie Mae on Tuesday announced that it had tapped Timothy J. Mayopoulos, the firm’s general counsel and chief administrative officer, as its new chief executive. For Mayopoulos, a 53-year-old former Bank of America executive who joined Fannie Mae in 2009, the promotion comes with an odd twist: a significant pay cut. Beginning in January, Mayopoulos will get an annual salary of $600,000, part of a promise made on behalf of the company’s federal regulator to scale back executive pay at taxpayer-funded firms. But the Federal Housing Finance Agency, which oversees Fannie Mae and its companion firm Freddie Mac, will allow him to receive the remainder of his 2012 compensation package, valued at $2.66 million...Mayopoulos succeeds Michael J. Williams, who in January announced his intention to step down. The appointment comes a month after Freddie Mac also hired a new chief executive -- 62-year-old Donald Layton." Brady Dennis in The Washington Post.

@NickTimiraos: New Fannie CEO Mayopoulos to WSJ: "I don't believe we need principal reduction"

More high school graduates than ever are unemployed. "For this generation of young people, the future looks bleak. Only one in six is working full time. Three out of five live with their parents or other relatives. A large majority -- 73 percent -- think they need more education to find a successful career, but only half of those say they will definitely enroll in the next few years. No, they are not the idle youth of Greece or Spain or Egypt. They are the youth of America, the world’s richest country, who do not have college degrees and aren’t getting them anytime soon. Whatever the sob stories about recent college graduates spinning their wheels as baristas or clerks, the situation for their less-educated peers is far worse, according to a report from the John J. Heldrich Center for Workforce Development at Rutgers University scheduled to be released on Wednesday...For this group, finding work that pays a living wage and offers some sense of security has been elusive." Catherine Rampell in The New York Times.

The Treasury Department will sell its stakes in seven banks. "The Treasury Department Tuesday said it would sell stakes it holds in seven banks that received bailout funds at the height of the financial crisis, continuing the slow process of winding down the Troubled Asset Relief Program. More than three years after TARP's launch, the federal government still owns stakes in 343 banks. Most are smaller, community institutions that are unable to fully pay back the government. To recoup its investments, the Treasury said it would auction shares of Ameris Bancorp of Moultrie, Ga.; Farmers Capital Bank Corp. of Frankfort, Ky.; First Capital Bancorp Inc. of Glen Allen, Va.; First Defiance Financial Corp. of Defiance, Ohio; LNB Bancorp Inc. of Lorain, Ohio; Taylor Capital Group Inc. of Rosemont, Ill.; and United Bancorp Inc. of Ann Arbor, Mich...More announcements on further auctions are expected in the coming weeks." Jeffrey Sparshott in The Wall Street Journal.

World record interlude: Romanians release 12,740 floating paper lanterns.

Health Care

Exchanges may not spur competition. "States and the federal government will have to work hard to make sure that new insurance exchanges in President Obama's healthcare law actually create more competition, a new study says...Exchanges are similar to the Federal Employees Health Benefits Program (FEHBP), which allows federal workers to choose from a range of health plans. Plans can only participate if they meet certain minimum standards. But some areas of the country don't have many competing FEHBP plans, so workers in those areas don't reap the same benefits from competition among insurers, according to a study published in Health Affairs. The same thing could happen with exchanges unless states and the federal government take proactive steps to avoid it, the study says. Rural areas with low populations tend to have less competition among insurance companies...The Health Affairs study says people in those areas generally pay higher out-of-pocket costs than people in more populated areas with greater competition." Sam Baker in The Hill.

Domestic Policy

Republicans blocked the Paycheck Fairness Act again. "A bill that would pave the way for women to more easily litigate their way to pay equality failed to clear a procedural hurdle in the Senate on Tuesday as Republicans united against the measure for the second time in two years. As Lilly M. Ledbetter, the woman whose name was attached to a 2009 law that ensured equal pay for women, watched from the gallery, the Senate voted, 52 to 47, to open debate on the legislation, 8 votes short of the 60 required...The bill would have built on the 2009 Ledbetter legislation, which adjusted the statute of limitations on equal pay lawsuits. Tuesday’s bill sought to bar companies from retaliating against workers who inquire about pay disparities and open pathways for female employees to sue for punitive damages in cases of paycheck discrimination. In 2010, the same bill failed a procedural vote in the Senate when no Republican supported it." Jennifer Steinhauer in The New York Times.

The White House rejected a GOP plan to pay for student loans. "The Obama administration on Tuesday brushed off a recent Republican proposal to pay for the $6 billion extension of the reduced-rate student-loan program, which expires July 1. Addressing reporters, Vice President Biden said the White House was open to listening to offers but suggested that he did not take the GOP offer seriously, adding that he thought Republicans were playing games. GOP House leaders last week sent the president a set of proposals to cover the cost of the extension that included increasing the amount paid by federal employees for their retirement and limiting the ability of states to recoup Medicaid costs through taxes on providers...Both the administration and GOP leaders want to freeze the interest rate at the current 3.4 percent and avoid an average fee hike of $1,000 per student when the rate doubles to 6.8 percent. But the two sides remain deadlocked over how to pay for the plan." David Nakamura and Rosalind Helderman in The Washington Post.

Lazy animals being lazy interlude: A walrus colony is content to just lie down.

Energy

The House voted to block energy efficient light bulb standards. "The House approved two amendments to a 2013 spending bill late Tuesday night that would prohibit the government from enforcing federal lightbulb standards that Republicans say are too intrusive. In a voice vote, the House approved an amendment to the Energy and Water spending bill for 2013 that would prevent the Department of Energy from spending money to enforce a 2007 law that sets bulb standards. The law bans the sale of 100 watt incandescent bulbs, and will ban the sale of 75 watt traditional bulbs in July 2013...The House also approved an amendment from Rep. Chip Cravaack (R-Minn.) that would prevent the Department of Energy from spending money to enforce current language that requires universities and other recipients of department grants of $1 million or more to replace all their bulbs with energy efficient bulbs." Pete Kasperowicz in The Hill.

Two Senators delivered their highway bill proposal to the House. "In a rare conciliatory gesture, two U.S. senators -- one a conservative Republican, the other a liberal Democrat -- hand-delivered a critical transportation funding plan to their colleagues in the House on Tuesday. Their symbolic mission was intended as a show of good faith in a Congress where trust has been in short supply. But it underscored the growing desperation of some legislators and construction industry leaders, who have predicted disastrous consequences if funding issues are not resolved before a June 30 deadline...Diplomacy required that the thick document delivered by Sens. Barbara Boxer (D-Calif.) and James M. Inhofe (R-Okla.) be called a proposal rather than a bill, to indicate that it was negotiable. In fact, it was a bill passed by the Senate that they said had been modified to incorporate some issues raised by the House." Ashley Halsey III in The Washington Post.

The House rejected cuts to nuclear and fossil fuel subsidies. "The House rejected two amendments Tuesday evening that would have sliced more than $1 billion from the 2013 Energy and Water spending bill, in votes that split Republicans just as similar votes did last week. Rep. Tom McClintock (R-Calif.) proposed ending all nuclear energy research subsidies to private companies, which would have saved $514 million and used that money to lower the deficit. But the House rejected that amendment in a 106-281 vote that divided Republicans 91-134. McClintock also proposed language cutting fossil energy research subsidies, which would have saved $554 million. But the House killed that amendment 138-249, as Republicans split again 102-123. McClintock has proposed cutting a total of $2.5 billion from the Energy and Water bill, H.R. 5325, which would spend a total of $32.1 billion in 2013. The House rejected his proposal to cut $1.45 billion in renewable energy research last week." Pete Kasperowicz in The Hill.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

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