Wonkbook: Should we try everything? Or try nothing?
If you take the two parties at their word, Congress is currently gridlocked because Democrats and Republicans can't agree on the cause of our problems, which means they can't agree on the nature of their solutions. But that leaves them with two options: Try everything, or try nothing. And one is clearly superior to the other.
Republicans have converged around a critique of stimulus spending that focuses on its temporary nature. As Senate Minority Leader Mitch McConnell said in dismissing the Democrats' proposal for further state aid, this is "the same temporary stimulus spending that's failed to solve our jobs crisis." The implication is that the economy isn't recovering because workers simply aren't suited to the jobs that are out there and businesses are worried about the long-term, and so only policies that look to change the workforce and allay businesses concerns about, say, tax rates in 2019, can change behavior right now. You can't solve structural problems with cyclical policies.
In his column today, the Wall Street Journal's David Wessel tries to referee the structural vs. temporary debate, and he comes down today, and he concludes the bulk of our problems are temporary -- at least for now. He quotes Harvard economist Lawrence Katz saying, "We don't see rapid wage growth almost anywhere, which is what you would expect if firms were bidding up the wages of qualified workers and were unable to find qualified workers among the unemployed."
Katz is right. If we were simply in a moment of economic transition, you might expect to see, say, college graduates doing very well and high-school drop outs doing worse than ever. But as Wessel notes, "unemployment is up across ages, occupations, industries and years of schooling."
But there's also a school of thought, popular among conservative economists more than conservative politicians, that sees our current problems as partly long-term, but clearly exacerbated by temporary and unusual problems located in household debt rather than, as most Democrats would have it, consumer demand. That's what Glenn Hubbard, who chaired George W. Bush's Council of Economic Advisers, is getting at when he proposes a mass refinance program to ease the burden on homeowners. It may be that not every worker in the American workforce is well prepared for today's economy, but the fact that there's $700 billion in negative equity crushing down on households can't be helping.
The truth is that everyone can have a piece of the answer here -- and a piece of the solution. These are great tastes that go great together. With the fiscal space provided by low interest rates -- in fact, the federal government can still borrow at negative real interest rates, which is to say, the market will pay us to keep their money safe for seven years -- we could try out all the theories: Congress could pass legislation reducing the long-term deficit, boosting demand through increased infrastructure spending and payroll tax cuts, and easing household's debt burdens by directing Fannie Mae and Freddie Mac to start a mass refinancing program.
And if it turns out any one group was wrong about the nature of our current problems, so what? The country got a tax cut and repaired its crumbling infrastructure? We cleaned out the tax code? We got people into less onerous mortgages? If the "supercommittee" were to truly live up to the gravity of the moment, this is what it would return with: a package in which we try everything. Instead, it seems more and more likely that we will try nothing, at least until 2013. That would be a terrible mistake. Because as Wessel says, temporary unemployment can become permanent unemployment if workers' skills erode and the long gaps in their resumes begin to unsettle potential employers. To head that off, we need to be trying everything we can think of until some combination of efforts works. We can't simply agree to disagree.
1) Rick Perry wants a flat tax, reports Rachel Weiner: "Texas Gov. Rick Perry is making a bold grab for the conservative heart of the GOP with his decision to propose a flat tax as a core component of his economic recovery plan. A flat tax has been an elusive dream of conservative Republicans for decades, occasionally springing up on the fringes of presidential campaigns, most recently in Steve Forbes’s White House runs in 1996 and 2000. Perry may be the most viable presidential candidate to advocate the idea. His proposal comes on the heels of a warm early reception for Herman Cain’s '9-9-9' plan, a flat-tax proposal that has made Cain a favorite among some conservative voters. In a speech to the Western Republican Leadership Conference in Las Vegas on Wednesday, Perry previewed the broad outlines of a tax plan that he said he will present in six days."
2) Harry Reid wants a partial jobs plan vote this week, reports Seung Min Kim: "Senate Majority Leader Harry Reid said Wednesday he’s ready for a vote on a $35 billion jobs bill benefiting teachers, cops and firefighters - the first part to be broken off from President Barack Obama’s defeated jobs package. The Senate will 'vote on our bill this week,' the Nevada Democrat told a crowd of hundreds gathered at a Capitol Hill rally. Reid filed cloture on the Teachers and First Responders Back to Work Act on Wednesday night, setting up a key procedural vote by Friday before the Senate leaves on a planned weeklong recess. Backers of the legislation, to be financed by a new 0.5 percent surtax on millionaires, say it would save or create 400,000 jobs for teachers, police officers and firefighters."
3) Congress is way behind on appropriations, reports David Rogers: "With 30 days left before the government runs out of money again, the House is on recess this week, the Senate leaves next and just trying to make it across the floor before Friday is a $182 billion, multiheaded spending bill resembling Dr. Doolittle’s famous Pushmi-Pullyu. Any hope of Congress avoiding another stopgap spending resolution on Nov. 18 has all but vanished...So it goes in Congress these days as lawmakers learn the lost art of doing their job and processing the dozen appropriations bills needed to keep the government operating. Only half have cleared the House thus far; just one has passed the Senate; and the leadership is now resorting to moving three-in-one legislative packages in hopes of making up for lost time."
4) Obama's getting plenty of financial sector cash, report Dan Eggen and T.W. Farnham: "Obama has brought in more money from employees of banks, hedge funds and other financial service companies than all of the GOP candidates combined, according to a Washington Post analysis of contribution data. The numbers show that Obama retains a persistent reservoir of support among Democratic financiers who have backed him since he was an underdog presidential candidate four years ago. Obama’s fundraising advantage is clear in the case of Bain Capital, the Boston-based private-equity firm that was co-founded by Romney, and where the Republican made his fortune...Obama has outdone Romney on his own turf, collecting $76,600 from Bain Capital employees through September -- and he needed only three donors to do it."
1) Most unemployment isn't structural, writes David Wessel: "The Labor Department counts 14 million unemployed and 3.1 million job openings, or 4.6 jobless workers per job opening. Before the recession, the ratio was 1.5. If every opening were filled instantly, there would still be many unemployed. Wages aren't rising. 'We don't see rapid wage growth almost anywhere, which is what you would expect if firms were bidding up the wages of qualified workers and were unable to find qualified workers among the unemployed,' said Harvard University's Lawrence Katz. Unemployment is up across ages, occupations, industries and years of schooling. 'We had a fast-advancing economic decline with layoffs and hiring freezes in a broad range of sectors of the economy. That is not consistent with an increase in structural unemployment being the big explanation,' Mr. Tarullo said."
2) Ron Wyden's a model of how Senators should operate, writes Ezra Klein: "Imagine you sat down a Martian with a copy of the Constitution and asked him to describe how our government works...To the Martian, it would be pretty clear how our system works: Congress drives the action, and the president weighs in. The reality is the opposite. The president acts, and Congress reacts...But Wyden’s office is a small outpost where the natives imagine how Congress would behave in a parallel universe. In Wyden’s office, health-care reform began late in the Bush presidency and wasn’t associated with the leadership of either party. In Wyden’s office, tax reform isn’t a matter left to the presidential candidates, it’s a policy pursued as if, as senators and Congress members have said over and over, it’s something they actually want to achieve."
3) Support Occupy Wall Street? Then you should want universal pre-K, writes Nicholas Kristof: "Occupy Wall Street is shining a useful spotlight on one of America’s central challenges, the inequality that leaves the richest 1 percent of Americans with a greater net worth than the entire bottom 90 percent. Most of the proposed remedies involve changes in taxes and regulations, and they would help. But the single step that would do the most to reduce inequality has nothing to do with finance at all. It’s an expansion of early childhood education. Huh? That will seem naïve and bizarre to many who chafe at inequities and who think the first step is to throw a few bankers into prison. But although part of the problem is billionaires being taxed at lower rates than those with more modest incomes, a bigger source of structural inequity is that many young people never get the skills to compete."
4) There's plenty the government could do to boost the housing market, writes Alan Blinder: "Most economists see principal reductions as central to preventing foreclosures. That takes money, of course--plus ignoring the Rick Santelli rant. Perhaps the cost to taxpayers could be reduced by giving the government--or even private investors--some of the upside when house prices finally start climbing. One encouraging sign is that settlement talks between the government and the five biggest mortgage servicers (Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co.) are reportedly coming around, at last, to principal reductions. Many vacant houses could be converted into rental units by enterprising developers. The government could make such investments more attractive."
Festival interlude: The Gaslight Anthem play "Casanova, Baby!" live.
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Still to come: The Fed's relationship with banks is under scrutiny from a government watchdog; the CLASS Act's few supporters are up at arms; Rand Paul is single-handedly holding up No Child Left Behind revamp discussions; Harry Reid is against the Keystone pipeline; and a cat who wants to play basketball.
The Fed's relationship with banks is under scrutiny, reports Zachary Goldfarb: "Top executives from Goldman Sachs, J.P. Morgan Chase, General Electric and other firms sat on the boards of regional Federal Reserve banks while their firms benefited from the central bank’s policies during the financial crisis, creating an appearance of a conflict of interest, a federal watchdog said Wednesday. At least 18 board members of the Fed’s regional banks were affiliated with companies that tapped emergency Fed programs during the financial crisis, according to the Government Accountability Office. But though there was an appearance of a conflict, the watchdog found that none of these firms received special treatment. The GAO recommended that the Fed better explain the role of these executives in their operations and be more transparent about the role of directors when there is an appearance of a conflict."
Social Security's COLA increase doesn't mean inflation is at hand, reports Suzy Khimm: "Social Security benefits are increasing for the first time since 2009, rising 3.6 percent after cost-of-living adjustments. The increase was largely fueled by a spike in energy and food prices. But economists say they don’t expect that inflation will be a major problem in 2012. The marked increase in the cost of living partly comes as prices are still recovering from the peak of the recession, when low housing and fuel prices had a dampening effect, according to Jeet Dutta, a senior economist at Moody’s Analytics...But Dutta said that he doesn’t believe that inflation will continue to rise unchecked in the near future, as energy and commodity prices have already receded. The troubles in the global economy are also likely to keep rising prices in check, he said."
Whether Dexia's collapse is a beginning or end of a financial crisis is unclear, reports Howard Schneider: "The collapse of Dexia Bank has been rationalized by European and bank officials as a last act of the 2008 financial crisis, a slow-bleeding casualty whose complicated structure and investment portfolio couldn’t be rearranged effectively enough to survive when new problems hit. To that extent, they say, it holds few lessons for Europe’s banking system as a whole. But as officials meet this weekend to take yet another stab at fixing the euro region’s financial crisis, the Dexia meltdown looms. While some of its problems were unique, others are common to the European banking system, potentially making Dexia the canary in the coal mine of a crisis to come."
A Fed official is open to QE3, report Luca di Leo and Jon Hilsenrath: " Federal Reserve official said the central bank should consider purchasing more securities, including mortgage-backed securities, to boost the economy if it weakens or is hit by a shock. Eric Rosengren, president of the Federal Reserve Bank of Boston, made his comments Wednesday...just hours after a Fed report showed the economy picked up a little in recent weeks. The Fed's 'beige book,' based on anecdotes collected from business contacts and economists across the nation, showed all its 12 bank regions reporting stronger economic activity than in the last survey, released Sept. 7. The report will be used at the central bank's next decision-making meeting Nov. 1-2. Fed officials are expected to leave their easy-credit policies in place and discuss whether there is anything else they can or should do to spur growth or clarify their plans to the public."
Obama's picked a new FHA head, reports Alan Zibel: "U.S. President Barack Obama said Wednesday he would nominate Carol Galante, an administration official since early 2009 and a former affordable-housing developer, as commissioner of the Federal Housing Administration. The FHA doesn't make loans directly, but guarantees them against default in exchange for insurance premiums paid by homeowners. It backs nearly $1 trillion in mortgages and has seen its market share soar dramatically since over the past three years as private lenders fled the U.S. mortgage market. As a result, the FHA commissioner's job is now one of the most prominent posts in the housing industry. The previous commissioner, David Stevens, left the administration in March to become chief executive of the Mortgage Bankers Association."
Performance art interlude: Tehching Hsieh took a photo of himself every hour on the hour for a year.
The CLASS Act's backers are upset, reports Brett Norman: "The death of health reform’s long-term care insurance program was so unceremonious that its supporters -- among the Obama administration’s closest allies on health issues -- got about 30 minutes’ notice of the funeral. On Friday afternoon, the Department of Health and Human Services released a report that said there was 'no viable path forward' to implementing the CLASS Act, a major -- if little-advertised -- piece of the administration’s signature Affordable Care Act. The news was a slap in the face to CLASS advocates, who knew a report was imminent but did not suspect it would be a death certificate. 'I don’t know what happened,' said Rep. Frank Pallone (D-N.J.), a champion of the program. 'I didn’t find out until a half an hour before it came out.'"
Rand Paul is stalling Senate action on No Child Left Behind, reports Lyndsey Layton: "A Senate committee debate on a bipartisan bill to overhaul a key education law came to an abrupt halt Wednesday after Sen. Rand Paul (R-Ky.) invoked a little-used procedural rule that forced a temporary adjournment. Sen. Tom Harkin (D-Iowa), chairman of the Health, Education, Labor and Pensions Committee, who had worked for more than a year with the ranking Republican, Mike Enzi of Wyoming, to revamp the No Child Left Behind law, was visibly irritated...The Senate rule, which can be used by any senator, says no committee can meet without unanimous consent once the Senate has been in session for two hours. The rule originated when there were few states and it was important for lawmakers to spend time on the Senate floor."
The supercommittee still fundraised as it was being selected, reports T.W. Farnham: "Despite calls to hold off on their political fundraising, congressional members on the deficit-reduction panel, or 'supercommittee,' raised a collective $3.4 million during the third quarter, as they were chosen for the committee. New reports filed with the Federal Election Commission show that although fundraising is down for most of the 12 members, all of them accepted some campaign money between July and September...The authority invested in the panel has brought calls for a higher ethical standard for its members: Watchdog groups want political fundraising to stop while the committee meets. Other lawmakers have crafted legislation that would require panel members to publicly disclose all contacts with lobbyists and any campaign contributions as they occur."
A border fence would be pricey, reports Julia Preston: "Border security appears to be an area where some Republican candidates are ready to set aside their priority on fiscal discipline, since security analysts say very little research is available on how much a border-length fence would cost. Based on what studies do exist, the analysts say that building and maintaining a fence through the remote or hostile terrain along the border would run into billions of dollars, with no documented impact on diminishing illegal crossings. So far border authorities have built 650 miles of hard fence along the southwest border, including about 299 miles of vehicle barriers. In 2009, the Congressional Search Service reported that the Department of Homeland Security had spent roughly up to $21 million per mile to build a primary fence near San Diego."
Adorable animal being athletic interlude: A cat wants to play basketball.
Harry Reid is against the Keystone pipeline, reports Juliet Eilperin: "Senate Majority Leader Harry M. Reid (D-Nev.) wrote to Secretary of State Hillary Rodham Clinton on Oct. 5, saying he had 'serious concern' about allowing TransCanada to construct and operate a 1,700-mile-long pipeline between Hardisty, Alberta, and Port Arthur, Tex. 'The proponents of this pipeline would be wiser to invest instead in job-creating clean energy projects, like renewable power, energy efficiency or advanced vehicles and fuels that would employ thousands of people in the United States rather than increasing our dependency on unsustainable supplies of dirty and polluting oil that could easily be exported,' Reid wrote. The letter marked the first time that Reid weighed in on the question of whether the pipeline should go forward."
Rick Perry and Ron Paul took advantage of energy subsidies they oppose, reports Paul Kane: "Two Republican presidential candidates who have spoken out against federal subsidies for energy projects tried to obtain such benefits three years ago. Texas Gov. Rick Perry and Rep. Ron Paul (Tex.) pressed the energy secretary in 2008 to approve a federal loan guarantee to help an energy company hoping to expand a nuclear facility in Texas. NRG Energy was among the many firms vying for a slice of $18.5 billion in federal loan guarantees set aside for nuclear production, according to letters obtained by The Washington Post. That led to a rush of appeals from Congress members and other elected officials, including Perry and Paul, hoping to win support for their projects. In recent candidates debates, the two have criticized federal energy loan programs."
US solar manufacturers are targeting Chinese firms for trade abuses, reports Steven Mufson: "SolarWorld Industries America and six other U.S. manufacturers of solar cells and panels plan to file dumping charges against Chinese cell and panel makers, seeking U.S. import duties to offset what they say are illegal subsidies by the Chinese government...The companies complain that China has aided its solar companies with low-interest loans, cheap land deals and lax environmental standards that lower costs. In addition, they say that China’s currency, which is generally believed to be 10 to 35 percent undervalued, makes Chinese exports cheaper than they should be. Moreover, they allege that many of the Chinese companies are losing money on their U.S. sales, a tactic designed to grab market share and drive U.S. competitors out of business."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.