Wonkbook: Nice central bank you got here. Shame if something should happen to it.
By Ezra Klein,
On Tuesday, House Speaker John Boehner, Senate Minority Leader Mitch McConnell, and their respective number twos sent an extraordinary letter to Federal Reserve Chairman Ben Bernanke. "It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals," they say. "We write to express our reservations about any such measures."
Federal Reserve Board Chairman Ben Bernanke delivers remarks at the Federal Reserve Sept. 15.
And let's be honest. The implication of this letter is that Ben Bernanke backs off or political interference comes next. As Bernanke knows, Boehner and McConnell have a posse. Gov. Rick Perry has threatened to "treat him pretty ugly" if he engages in further monetary easing, and Gov. Rick Perry may soon be President Rick Perry. John Taylor, the most popular monetary economist on the right, is writing op-eds saying the Fed should be stripped of its dual mandate. Rep. Ron Paul, who wants to "end the Fed," was put in charge of the House Subcommittee that oversees the Federal Reserve.
So sure, this letter isn't threatening to do anything now. It's just making clear that the Republican leadership in Congress is strongly opposed to any further attempts to help the economy. It's the subtext that Bernanke and others will find threatening: The Republican Party is unified in its backlash to the Federal Reserve, and they may well be in power two years from now. Does Bernanke really want to provoke them? Is that really a good thing for his institution?
In other words: Nice central bank you got here. Shame if something should happen to it.
Of course, if Bernanke chose to by cynical about it, the irony of this letter is that it strongly underscores the political case for easing. The worse the economy is, the better Republicans will do in the 2012 election. If the economy is really bad, a hardliner like Rick Perry, rather than a presumed moderate like Mitt Romney, becomes a likely bet for the presidency. And if the economy is really, really bad, there will be the impetus to do something, anything, to show major action is being taken. "Mend the Fed" could quickly become a rallying cry among the newly dominant Republican Party.
That suggests Bernanke would be wise to do whatever he can to help the economy, and to do it quickly. But of course, that's his job anyway. So the fact that this letter, and its implied threat to his institution, will be lodged in the back of his brain isn't going to matter either way, right? Right? Bueller?
Five in the morning
1) GOP leaders have asked the Fed to refrain from further efforts to support the economy, reports Corey Boles: "Top Republican congressional leaders, in a rare effort to directly influence Federal Reserve policy, expressed reservations about the central bank taking additional steps to spur the recovery, saying further action could harm the economy. House Speaker John Boehner (R., Ohio), Senate Minority Leader Mitch McConnell (R., Ky.), and two other GOP leaders, in a letter Monday to Fed Chairman Ben Bernanke, urged Fed officials to 'resist further extraordinary intervention in the U.S. economy.' The four lawmakers wrote that it wasn't clear the Fed's earlier attempts to support the economy through large purchases of government bonds, called quantitative easing, had 'facilitated economic growth or reduced the unemployment rate.'...'This is a heavyhanded attempt to meddle in the Fed's independent stewardship of monetary policy,' said New York Sen. Charles Schumer, a member of the Democratic leadership team."
Read the full letter: http://on.wsj.com/mR6pOn
2) A dispute over disaster relief spending could cause a government shutdown, reports Suzy Khimm: "House Republicans are demanding spending cuts for Hurricane Irene relief, proposing a $1.5 billion cut to clean-energy loans in exchange for $3.5 billion emergency disaster relief in its stopgap budget. Democrats aren’t happy about the offset — or any offset at all, in fact. Traditionally, disaster aid has not been offset in the budget, and they worry about setting a new precedent. So last week, Senate Democrats passed a $6.9 billion bill to provide relief without strings attached. All this sets up confrontation between the House GOP and the Senate Dems that could balloon into another government shutdown fight."
3) Medicaid appears to be emerging from the deficit conversation unscathed, reports Sarah Kliff: "As Washington’s debate over deficit reduction ramped up a few months ago, Medicaid advocates panicked that the health insurance program for low-income Americans could quickly find itself on the cutting room floor. Everyone was searching for big spending cuts. Other entitlements, like Medicare, have a stronger lobbying presence on the Hill. Democratic lawmakers were vexingly quiet on the issue. As one worried Medicaid advocate said to Politico in June, 'The message has been Medicare, Medicare, Medicare.' Lately though, the balance between the entitlement programs seems to have shifted. Medicare, the health insurance program serving 50 million seniors, could face big cuts from the White House and Congress. Under the deficit reduction proposal that President Obama outlined yesterday, seniors would pay more for the Medicare benefits they currently receive. Obama also proposes cuts to Medicaid, which provides health insurance to 60 million low income Americans. But the spending reductions are much smaller than what Medicare saw and Medicaid advocates feared."
4) The IMF is warning another global slowdown could be at hand, reports Howard Schneider: "The IMF warned that the global economy was in a 'dangerous new phase' of slowing growth and eroding confidence -- partly because of Europe’s inability to solve a set of problems arising from high public debt, a weakened financial system and slow economic growth...The IMF’s latest forecast shows the Greek economy contracting by 5 percent this year, with the recession continuing through the end of 2012. That’s a significant change from July, when the agency projected a downturn of only 3.75 percent and said the Greek economy would expand slightly next year...In its semiannual World Economic Outlook, the IMF said concerns about a possible Greek default are already affecting the world economy. Coupled with the economic slowdown in the United States and the impact of the Japanese earthquake, Europe’s debt crisis is putting the global recovery at risk, the IMF said.
5) Cuts to Medicare providers could hurt patients too, reports Robert Pear: "President Obama and some members of Congress assert that, in cutting Medicare and Medicaid, they can whack health care providers while protecting beneficiaries. But experts say it is not so simple. Experience, they say, shows that some cuts in payments to providers hurt beneficiaries, as more doctors refuse to take Medicaid patients or limit the number of new Medicare patients they will accept. Hospitals curtail services. Beneficiaries may have more difficulty getting therapy services after a stroke, traumatic brain injury or hip fracture. By contrast, the experts say, other cuts force health care providers to become more efficient, saving money for beneficiaries, taxpayers and the government...Even some of Mr. Obama’s allies said his Medicaid proposals could harm beneficiaries."
Music video interlude: Washed Out's "Amor Fati."
Got tips, additions, or comments? E-mail me.
Want Wonkbook delivered to your inbox or mobile device? Subscribe!
Still to come: Republicans are attacking Dodd-Frank on the stump; other countries are raising taxes on the rich; Medicaid doesn't come in for major cuts under Obama's debt plan; liberals and Tea Partiers are teaming up against an immigration enforcement program; the EPA is okaying more offshore drilling in the arctic; and a monkey wrestles a dog.
Republicans are frequently attacking Dodd-Frank on the campaign trail, reports Edward Wyatt: "On the stump, words like 'Obamacare' roll off the tongue. 'Swap execution facility,' not so much. That has not stopped Republican presidential candidates from using the Dodd-Frank Act, the sprawling regulatory effort to address the causes of the financial crisis, as their newest anti-Obama target for what ails the economy. Republicans have repeatedly invoked the law’s 848-page girth -- and its rules on, among other things, trading derivatives and swaps -- as a symbol of government overreach that is killing jobs. But in trying to turn Dodd-Frank into the new Obamacare, the disparaging term that opponents use to refer to the new health care law, Republicans are largely ignoring the basic trade-off that the financial law represents, supporters say."
Other countries are raising taxes on the rich, reports David Kocieniewski: "President Obama’s proposal for a new tax on millionaires echoes a call in many countries struggling with budget deficits and overwhelming debts to make the wealthy pay more. Britain and France have imposed new taxes on their highest earners -- and Italy, Spain, Greece and Japan are considering similar moves, despite some protests...They are being promoted as a step toward economic fairness at a time when governments are cutting spending on social programs like pensions, health care and education...Whether a higher tax rate would stifle business and economic growth continues to be debated. Britain raised its top tax rate to 50 percent after the 2008 financial crisis, and a number of economists and others have said that it inhibited investment and hiring. They are asking that the issue be reconsidered if the additional money generated proves less than projected."
I am a job creator who creates no jobs, writes Dana Milbank. "I am not a job creator in the sense that I actually create jobs. I have never knowingly created a job, and my long-term business plan, approved unanimously by my board of directors, does not call for the creation of a single one. But I am a job creator in the sense Republicans mean when they say 'don’t tax our job creators more' (House budget committee Chairman Paul Ryan) or 'we cannot increase taxes on the job creators' (House Speaker John A. Boehner). This is because, in the eyes of the government, I am a small business — and, as the House Republicans like to say, 'small businesses are the job creators.' Like the overwhelming majority of small businesses, I am a one-man operation. And, like most small businesses, I would not hire anybody even if the government dropped my tax rate to zero."
There are better ways to tax the rich than Obama's proposed hikes, writes Reihan Salam: "It should be obvious that we want to encourage savings and investment and discourage excessive consumption...But the current tax code does the opposite, and the president’s proposals could make matters worse...Economists from the left, like Robert Frank of Cornell University’s Johnson School of Management, and from the right, like Mitt Romney adviser and Columbia Business School professor Glenn Hubbard and Alan Viard of the American Enterprise Institute, have called for a progressive consumption tax that would eliminate taxes on savings and investment. Rich spendthrifts, who spend every dollar they have in the present, will wind up paying taxes on their total income, as per usual. Rich penny-pinchers, who use their hard-earned money to help grow new businesses, will only pay taxes on what they actually spend."
Obama's debt reduction plan is hardly balanced, writes Keith Hennessey: "It appears Team Obama wants you to conclude that there is no difference between the President and Congressional Republicans on the amount of proposed deficit reduction, and that the President wants a prospective deficit reduction approach balanced between spending cuts and tax increases. Both conclusions are false. The policy changes the President is proposing are significantly less deficit reduction than that proposed by (House) Republicans, and almost all of the President’s new proposed deficit reduction comes from tax increases...It’s a legitimate liberal policy position to propose new net deficit reduction of about $1.4 T over the next ten years, almost all of which comes from tax increases on the rich. That is the President’s policy...[Team Obama] are instead pretending to propose $4T of deficit reduction over the next ten years, balanced between 'real, serious spending cuts' and tax increases."
Our economic pain is just starting, writes John Judis: "Today's recession does not merely resemble the Great Depression; it is, to a real extent, a recurrence of it. It has the same unique causes and the same initial trajectory. Both downturns were triggered by a financial crisis coming on top of, and then deepening, a slowdown in industrial production and employment that had begun earlier and that was caused in part by rapid technological innovation...in contrast to the usual post-World War II recession, our current downturn, like the Great Depression, is global in character...When the recession is global, you get what John Maynard Keynes called the 'paradox of thrift' writ large: As all nations cut their spending and attempt to devalue their currencies (which makes their exports cheaper), global demand shrinks still more, and the recession deepens."
Adorable animals doing battle interlude: A monkey wrestles a dog.
States aren't happy with federal proposals for "partnerships" on health exchanges, reports Sam Baker: "A meeting of state and federal health officials turned tense this week as state regulators raised objections to the Obama administration’s proposals for insurance exchanges. A person who attended the two-day meeting said states complained about proposals for a “partnership” model in which states and the federal government would jointly operate some exchanges...Among states’ objections: They were told that a partnership might technically have to be considered a federally run exchange. Although HHS clearly wants states to handle as much of their own exchanges as possible, a partnership would legally be considered a federal exchange. And that’s not how conservative governors want to describe the exchange to their constituents."
Liberals and Tea Partiers are teaming up against an immigration enforcement program, reports Miriam Jordan: "Conservative, tea-party and libertarian groups have joined liberals in fighting a signature Republican bill in Congress that would crack down on illegal-immigrant workers. The legislation, they argue, would hurt businesses and employees while expanding government regulation. The bill, by Judiciary Chairman Lamar Smith (R., Texas), would require all employers to use E-Verify, an electronic government database that checks whether new hires are eligible to work in the U.S...Last week, a coalition of regional and national groups that champion less government, privacy protection and small-business interests wrote a letter to members of Congress urging them to vote against the bill...Judson Phillips, founder of Tea Party Nation and one of the letter's 27 signatories, said that his movement strongly opposed illegal immigration but that 'it's not private enterprise's job to enforce immigration.'"
Google is facing antitrust scrutiny, reports Jia Lynn Yang: "Google dominates Internet searches, online advertising and now mobile devices. But one of the biggest threats to the tech juggernaut these days isn’t another competitor. It’s Washington. Enter Eric Schmidt, Google’s former chief executive and the man tasked Wednesday with reassuring lawmakers on the Senate Judiciary antitrust subcommittee that the search company is not illegally abusing its power, even as government antitrust officials have begun investigating the firm. Getting grilled on Capitol Hill has become a rite of passage for many big companies that draw scrutiny. The moment is a very public test for Google, which has largely worked behind the scenes in recent years to build up its presence in Washington. This will be Schmidt’s first time testifying on the Hill, but in many ways, Schmidt, a Washington native, is hardly a political neophyte."
Some Senators want the supercommittee to revive the line item veto, reports Scott Wong: "Sens. John McCain (R-Ariz.) and Tom Carper (D-Del.) have tried unsuccessfully for years to give the president line-item veto authority to cut wasteful spending. Now, they believe the congressional supercommittee trying to hatch a massive deficit reduction plan presents a new opportunity for their cause. McCain, Carper and Sens. Dan Coats (R-Ind.) and Mark Udall (D-Colo.) delivered a letter Tuesday to the supercommittee’s co-chairmen, urging the 12-member bipartisan panel to consider the line-item veto. The Reduce Unnecessary Spending Act, backed by 40 senators, would give the president the authority to cut earmarks, duplicative programs and other non-entitlement spending from appropriation bills sent to him by Congress. The president’s changes then would get a vote in Congress."
Milestone interlude: Jack Strouss, a gay World War II veteran, commemorates the end of Don't Ask Don't Tell.
Solyndra executives are taking the Fifth on the Hill, report Steven Mufson and Joe Stephens: "Solyndra’s two top executives plan to invoke their Fifth Amendment rights and refuse to answer questions when they testify Friday before a House Energy and Commerce Committee panel investigating the failed solar panel maker, which received more than $500 million in federally backed loans. But in a statement, the company asserted that it “is not aware of any wrongdoing by Solyndra officers, directors or employees in conjunction with the [Energy Department] loan guarantee.” Solyndra said it is cooperating fully with a criminal investigation by the U.S. Attorney for the northern district of California. The Solyndra executives had been asked to testify last week but delayed their appearance, saying they would cooperate this week and promising not to invoke their rights to avoid self-incrimination."
The debate over Solyndra hasn't grappled with the policy behind Solyndra, writes Brad Plumer: "Ever since Solyndra went bankrupt in August, there’s been a pseudo-debate in Washington over loan guarantees for energy projects. It’s a pseudo-debate because neither party really believes that energy should be left to the whims of the free market. The GOP has long backed loan guarantees for nuclear power plants, and, as the New York Times reports today, key Republicans such as Sen. Mitch McConnell (R-Ky.) have been begging the Energy Department for loans for clean-energy projects in their own districts. In practice, the Solyndra squabble is more about scoring a political hit on the Obama administration than a genuine policy dispute. Still, it’s worth revisiting the underlying question: Why should the federal government back risky energy projects?"
The EPA is allowing expanded Arctic offshore drilling, reports Ben Geman: "The Environmental Protection Agency on Monday granted Royal Dutch Shell air pollution permits the company needs to begin drilling in Arctic waters off Alaska’s coast next year. The permits allow the company to operate the Discoverer drillship and supporting icebreakers, oil spill response vessels and other ships in the Beaufort and Chukchi Seas, according to EPA. The permits follow the Interior Department’s conditional approval of Shell’s exploration plan for the Beaufort Sea in August, bringing the oil giant closer to drilling in the region that environmentalists argue should be off-limits. The company still needs various other federal approvals, such as Interior Department drilling permits, to begin exploration next year. EPA is also still weighing a permit Shell needs to operate its Kulluk drilling rig in the Beaufort Sea next year."
Environmental regulations can actually be good for economic growth, reports Josh Boak: "The liberal-leaning Economic Policy Institute has found the compliance costs for all of the administration’s new Environmental Protection Agency regulations represent just 0.1 percent of the economy -- a burden for some but not the job-killing death blow that many Republicans complain about...Laurie Johnson, chief economist at the Natural Resources Defense Council, said improved rules for ozone pollution might have actually spurred industrial demand across the economy. If better standards were in place, she estimates that businesses sitting on $2 trillion in cash reserves would have bought and installed new equipment, possibly generating tens of thousands of jobs...A 2010 EPA analysis said the tighter standards should cost $19 billion to $25 billion, while generating economic benefits of up to $37 billion."
Congress needs to mandate flex-fuel cars, write Robert McFarlane and James Woolsey: "A solution is at hand; it lies in Detroit’s making more flex-fuel cars -- cars able to use gasoline, ethanol, methanol or any mixture of these. And because this flex-fuel option costs less than $100 per car, making such a change is not exorbitant. Indeed, some 90 percent of all cars sold in Brazil last year are flex-fuel cars, and many of them were made by Ford, Chrysler and General Motors...Although the American manufacturers have stated publicly their willingness to make flex-fuel vehicles up to 50 percent of their production, they’re just not doing it. Hence the need for Congress to require that new vehicles allow the use of alternative fuels. In some corners of Washington, that raises a cry against 'mandates.'...Doing nothing is equivalent to mandating a monopoly by a single fuel (whose price is set by a foreign cartel)."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.