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Wonkbook: Athenian democracy

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Ezra is on vacation until November 7th.

Top Stories

1) Greece's proposed bailout referendum is throwing a wrench in European negotiations, report Howard Schneider and Michael Birnbaum: "Europe’s newly crafted plan to stem its debt crisis was in turmoil Tuesday, a day after Greek Prime Minister George Papandreou unexpectedly called for a national referendum on the emergency measures meant to keep his country from defaulting. His move immediately put his government at risk amid harsh criticism at home and from foreign leaders, who said he was taking a gamble that puts the world economy at peril. European leaders, who had produced a rescue plan last week after a series of marathon meetings, hastily scheduled a meeting for Wednesday with Papandreou to contain the damage -- to their plan, their credibility and global markets."

YIORGOS KARAHALIS

REUTERS

Greece's Prime Minister George Papandreou arrives for a cabinet meeting inside the parliament in Athens November 1, 2011.

2) China is cautious about helping rescue Europe, reports Keith Richburg: "China’s leaders will contribute to Europe’s bailout fund, economists and other analysts here said. But they are doing so mainly because they have little choice, since a continued economic crisis in Europe is bad for China, too...China’s ability to assist Europe -- and to bankroll the U.S. debt through the purchase of Treasury securities -- comes from its huge surpluses. The European Union, China’s largest export market, has a trade deficit with China of about 168 billion euros ($230.08 billion). China’s leaders also are moving cautiously because they are acutely aware that Chinese public opinion is firmly against helping bail Europe out of its debt crisis...For China’s netizens, Europeans enjoy a rich lifestyle with lavish early-retirement packages and several weeks of paid vacation each year, while the majority of Chinese can barely earn enough to make a living."

3) Conservatives lost a Senate spending battle, reports David Rogers: "Rural and anti-Wall Street politics came together for a moment Tuesday as the Senate approved an estimated $182 billion spending bill after rejecting conservative demands for still deeper appropriations cuts beyond the August debt limit agreement. Smelling defeat, Republicans pulled their amendment to slow the pace of financial reforms being implemented by the Commodity Futures Trading Commission. And Democrats appeared emboldened, even welcoming the next round of the same Wall Street fight when the CFTC and Securities and Exchange Commission budgets come before the Senate later this week. In this budget season dominated by spending cuts, both agencies are promised double-digit increases under a $21.7 billion financial services bill approved by the Senate Appropriations Committee over Republican opposition."

4) Erskine Bowles presented the supercommittee with a possible "big deal", reports Lori Montgomery: "Erskine Bowles, the former White House chief of staff who has worked for months to tame the national debt, bluntly warned members of a congressional panel Tuesday that they will 'fail the country' if they do not break the impasse over taxes that is blocking a far-reaching agreement...Bowles then surprised the committee by laying out a path to compromise that would split the difference between the competing debt-reduction proposals each side offered last week. He challenged Democrats to accept deeper cuts to federal health programs and Republicans to embrace $800 billion in new taxes, as House Speaker John A. Boehner (R-Ohio) did during this summer’s negotiations over the federal debt limit."

Top Op-eds

1) Europe needs to double down on integration, writes Steven Rattner: "The initial misstep by European leaders, of course, was lashing their nations to a common currency without integrating other critical policies, such as government borrowing and regulation...By having a single fiscal policy and regulatory framework, the United States has experienced far fewer internal stresses and strains. Our federal budget includes 'automatic stabilizers' that, without further congressional action, shuttle money to hard-hit areas...Europe should move forward with much greater speed toward true integration. To be sure, greater flexibility in labor markets cannot be achieved by mandates. However, nothing prevents the adoption of a single fiscal policy (including transfer payments) and a harmonized approach to competitiveness except the tortuous politics of national pride and a fear of German domination."

2) The world's poor shouldn't bear the cost of deficit reduction, writes Bill Gates: "Aid is targeted to fill specific gaps in development. The most important of these gaps is innovation. When the private sector doesn’t have incentive, and poor governments don’t have the money, smart aid pays for breakthrough solutions. The green revolution that fed a billion people in the 1950s and ’60s never would have happened without advanced agricultural science funded by U.S. aid...Development isn’t just good for people in poor countries; it’s good for all of us. It used to be that the world was, roughly speaking, one-third rich and two-thirds poor. Now, the number of dynamic, healthy, highly educated countries is much higher, which is a recipe for prosperity...the United States is not doing development alone. We spend about 1 percent of our total budget on aid, as do dozens of donor countries."

3) Nominal income targeting isn't a monetary policy cure-all, writes Greg Ip: "An NGDP target has some advantages over an inflation target, especially in responding to supply side shocks. But it could dangerously complicate policy making in more normal times. As inflation rises, the Fed tightens to keep nominal GDP on track; output then falls, but then so does inflation; the Fed must quickly loosen again. In a model developed by Larry Ball in 1996, NGDP targeting produces systematic over- and under-shooting of both inflation and output. It is 'not just inefficient, but disastrous. It causes both output and inflation to wander arbitrarily far from their long-run levels.' There is, of course, one rather unseemly advantage to NGDP targeting, that Paul Krugman alludes to here: it is a surreptitious way of temporarily raising the inflation target without the toxic politics of doing so explicitly."

4) American meritocracy is being threatened, writes Luigi Zingales: "Two powerful forces are threatening to drive America from a meritocratic equilibrium to a nonmeritocratic one. Recall that to survive in a democratic country, a meritocracy must enjoy a welcoming culture and offer large, widespread benefits to citizens. In the United States, both of these factors are being challenged: the first by a spreading belief that markets are a bad method of rewarding the meritorious; the second by a reduction of the benefits that most people derive from those markets...Intragenerational mobility seems to be decreasing, most notably at the bottom of the income distribution. The Economic Policy Institute finds that during the 1990s, 36 percent of those who started in the second-poorest 20 percent of the income distribution were still there a decade later, compared with 32 percent during the 1980s and 28 percent during the 1970s."

Animated band interlude: Gorillaz plays "Dare" live in Manchester.

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

Still to come: Bank of America is dropping its debit card fee; how a ruling against the individual mandate could make health reform as a whole more popular; food stamps are set to get cut even as hunger rises; Obama will decide the fate of the Keystone pipeline himself; and twin babies' "Top Gun" costume.

Economy

Bank of America is dropping its debit card fee, reports Ylan Mui: "They called it the fee that went too far. For the past month, consumers have been railing against a new Bank of America charge requiring customers to pay $5 a month to use their debit cards for purchases. More than 300,000 people signed an online petition to stop the planned fee. More than 21,000 people pledged to close their Bank of America checking accounts. One cable news anchor cut up her card on the air. It was a classic David-and-Goliath fight, fueled by the growing populist outrage against the nation’s financial system. On Tuesday, the little guy won: Bank of America announced that it was abandoning the fee...Its plan became public a month ago, just as the Occupy Wall Street protests began to gain national momentum."

Up to four million homeowners could be eligible to have their mortgages reviewed, reports Brady Dennis: "More than 4 million borrowers who have faced foreclosure since early 2009 will have the chance to have their cases reviewed for potential wrongdoing, federal regulators and some of the nation’s largest mortgage servicers announced Tuesday. The reviews stem from a deal forged earlier this year in which 14 servicers agreed to hire independent consultants to evaluate whether borrowers suffered financial injury during the foreclosure process. If a review finds errors or abuses by the financial firms, the consultants will determine what recompense wronged homeowners deserve. On Tuesday, servicers began mailing letters to the estimated 4 million borrowers whose loans were in the process of foreclosure between Jan. 1, 2009, and Dec. 31, 2010, detailing how to request a review of an individual case."

The Fed is getting more pessimistic about the economy, reports Luca di Leo: "Federal Reserve officials are poised to downgrade their outlook for the U.S. economy, a shift that will play an important role in the debate about whether the Fed should do more to spur growth. Officials don't seem ready to do more just yet. They are more likely to spend much of their two-day policy-making meeting, which ends Wednesday, discussing what measures they might take if the economy falters again, as it did this summer. The Fed's new economic projections, to be released after the meeting, will compare with forecasts from mid-June, before the economy stumbled. Officials are likely to lower their projections for growth through 2013 and to predict that unemployment could remain high--possibly above 7.0%--through 2014."

Corgis are excellent interlude: Yuki the corgi won't play fetch without his towel.

Health Care

Democrats may actually benefit from the Supreme Court overturning the individual mandate, reports Jennifer Haberkorn: "For Democrats, it would be a more clear-cut victory if the court upholds the mandate -- the ultimate vindication against a nearly two-year chorus of health reform opposition and claims that it is unconstitutional. But if it falls, some strategists who support the law say it could be a new opportunity for health reform -- despite the embarrassment of such a high-profile loss -- because what’s left of the law would have much stronger public support. A March poll by the Henry J. Kaiser Family Foundation found that 67 percent of people want to repeal the provision. Only 27 percent favored keeping it."

Domestic Policy

Congress may cut food stamps even as food prices rise, reports Josh Boak: "The red-hot debate over cutting the federal budget deficit could literally spill into the nation’s supermarket aisles and onto its kitchen tables. Food costs are now forecast to increase this year by a stunning 3.5 percent to 4.5 percent -- nearly double the core inflation rate -- while the food stamp program that helps more than 44 million Americans is facing a congressional chopping block. All of this has led policymakers to search for new ways to curb the rising costs, lawmakers to consider changes to the food stamp program and regulators to target speculation in the commodities markets. The annual budget for the Supplemental Nutrition Assurance Program has doubled since 2007 to $70 billion."

Math scores are improving, reports Stephanie Banchero: "Elementary-school students notched the highest scores ever on national math exams this year, continuing a 20-year trend of improvement, but reading scores remained lackluster, according to data released Tuesday. Results from the 2011 National Assessment of Educational Progress showed that eighth-graders' reading scores rose slightly from 2009 but fourth-grade scores didn't budge. Schoolchildren have shown minimal progress in reading since the current exam, administered by the U.S. Department of Education, was first given in 1992. David Driscoll, chairman of the board that oversees the test... said the higher math scores are 'undoubtedly' a sign of the success of math instruction in classrooms, because that is where children largely learn the subject."

Adorable children in costume interlude: Eight month old twins as Goose and Maverick from "Top Gun".

Energy

Obama will decide on the Keystone pipeline himself, reports Juliet Eilperin: "President Obama said Tuesday that he will decide whether to approve or deny a permit for a controversial 1,700-mile Canadian oil pipeline, rather than delegating the decision to the State Department. The proposal by the firm TransCanada to ship crude extracted from a region in Alberta called the 'oil sands' to Gulf Coast refineries has become a charged political issue for the White House. Labor unions and business groups argue that it would create thousands of jobs...Environmentalists...say the extraction of the oil will accelerate global warming and the pipeline itself could spill...The president said he would weigh the Keystone XL pipeline’s potential economic benefits against its possible environmental consequences."

Mitt Romney's environmental record is under fire from the right, reports Darren Samuelsohn: "While the former Massachusetts governor often touts his decision not to sign up for a regional cap-and-trade compact, he also glosses over a six-year-old set of carbon dioxide rules that his aides touted at the time as the first in the country for electric utilities. Under Romney’s regulations, finalized in September 2006, Massachusetts’s six largest power plants faced mandatory CO2 limits with several market-friendly compliance options designed to help keep the costs down. Democrats and environmentalists panned Romney’s rules as weak tea...

Closing credits: Dylan Matthews is a student at Harvard and a researcher at The Washington Post. Wonkbook is compiled and produced with help from Michelle Williams.

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