Wonkbook: The supercommittee's real failure isn't on the deficit
Barring some truly unexpected developments, the supercommittee has failed. Peter Suderman tweeted it right: "Super Committee is apparently one of those newfangled indie comic books where the heroes think they have powers but don't."
The supercommittee was dedicated to deficit reduction, and so naturally, their failure is being seen as a failure to achieve deficit reduction. But that's not the failure that matters. Rather, it's the failure to extend -- and perhaps strengthen -- the unemployment support and tax cuts propping up our fragile recovery that threatens to have the most immediate and devastating economic impact.
As of Friday, the federal government could borrow for five years at a real interest rate of -0.7 percent. Have you ever heard a bank quote you a real interest rate of -0.7 percent? Of course not. It would mean that once inflation is taken into account, the bank is paying you to borrow money. That just doesn't happen. But right now, it's happening for the United States government. The rest of the world -- cough, Europe, cough -- is considered so risky that the markets are begging us to keep their money safe.
Despite the overheated rhetoric in Washington, the markets are giving us plenty of space. So though deficits will eventually prove a problem, they're not our most pressing concern. Not right this second. That distinction goes to growth. We need more of it, and now. At the very least, we don't want to do anything to harm it.
The supercommittee was widely expected to extend the payroll tax cut and the expanded unemployment benefits. Those policies alone are expected to add 1-2 percentage points to growth next year. Some of the proposed deals included further stimulus measures like increased infrastructure spending, which would have given the economy a further boost. There was also talk of patching Medicare's payments to doctors and the Alternative Minimum Tax, neither of which is specifically a stimulus measure, but both of which would hurt the economy if allowed to expire now.
The supercommittee's failure throws those deals into doubt. Many Republicans are balking at extending the payroll tax cut altogether. Sen. Jeff Sessions, for instance, "said he was uneasy about extending the payroll tax holiday, calling the national debt 'a greater threat to us' than the weak economy." (Think he'll insist any extension of the Bush tax cuts is fully paid for?). Other Republicans are hoping to tie unemployment insurance and the payroll tax cut to a bill lifting the defense cuts in the trigger -- a strategy that might lead to a wholly different kind of showdown. Either way, the passage of these items is now in doubt, and that means the growth picture for next year is dimming.
If growth falls by 1-2 percentage points next year, that could well mean we're only growing by one percent or so. If events in Europe take a turn for the worse, it could mean we're back in recession. That, and not our deficit, is the immediate threat. And it's one the supercommittee made worse.
1) The supercommittee will admit defeat, reports Paul Kane: "Admitting gridlock was at hand, lawmakers on the so-called supercommittee cast blame and pointed fingers at one another Sunday as the panel’s leaders prepared to formally acknowledge their failure early this week, bracing for the reaction from financial markets...The failure of the Joint Select Committee on Deficit Reduction, as the supercommittee is formally known, comes amid bipartisan talk of turning off portions of the trigger of automatic cuts...With failure imminent, members on both sides of the aisle sought to blame the other for the lack of a deal. Hensarling argued that 'it’s not about assigning blame, but we are unaware of any Democratic offer that didn’t include at least a $1 trillion tax increase on the American economy.'"
2) The decision follows Democrats' rejection of Republicans' final offer, report Jennifer Steinhauer and Robert Pear: "Members of a joint Congressional committee remained at a deep impasse on Friday after Democrats rejected a new Republican proposal devised with the help of Speaker John A. Boehner...Republicans and Democrats provided radically different descriptions of the Republicans’ latest offer, intended to reduce budget deficits by $643 billion over 10 years. Republicans said their proposal called for $229 billion in new revenue and fees, including taxes on owners of corporate jets, and $316 billion in cuts in spending, including $100 billion from the Defense Department...Democrats said the amount of tax revenue in the Republicans’ plan -- $3 billion from owners of corporate jets -- was laughable."
3) The House rejected a balanced budget amendment, reports Seung Min Kim: "The House voted 261-165 on Friday to reject a balanced-budget amendment to the Constitution -- falling short of the two-thirds majority needed. The balanced-budget amendment that failed to pass was similar to the version voted on in 1995, which passed the House by 300-132 but fell short by one vote in the Senate. It required a simple majority to raise taxes and a three-fifths vote to raise the nation’s debt limit. Most Democrats opposed the balanced-budget amendment, but a handful of Republicans joined them, including House Budget Committee Chairman Paul Ryan (R-Wis.), who argued this version wasn’t tough enough...Many conservative House Republicans had pushed for a tougher balanced-budget amendment that would require a two-thirds majority to raise taxes as well cap spending at 18 percent of GDP."
4) Republicans offered far less on taxes than they have in recent decades, reports Catherine Rampell: "Republicans on the deficit-reduction supercommittee have offered a deal with 24 cents of every dollar in savings coming from tax increases, and the other 76 cents from spending cuts...In the five fiscal grand bargains of the 1980s and early 1990s, tax increases accounted for an average of 61 cents of every dollar saved. In fact, in President Reagan’s 1982 and 1984 budget-trimming deals, more than 80 percent of deficit reductions came from tax increases. What’s more, the deals passed with majority support from both parties. Mr. Reagan may be remembered as an antitax hero, but he actually raised taxes 11 times over the course of his presidency, all in the name of fiscal responsibility."
1) Liberals disappointed in Obama have absurd expectations, writes Jonathan Chait: "Maybe there is something to learn from the frequent (anguished) comparisons liberals make between Obama and FDR. Part of the reason Roosevelt’s record looms so large from a distance is because historians measure these things differently from political activists.Activists measure progress against the standard of perfection, or at least the most perfect possible choice. Historians gauge progress against what came before it. By that standard, Obama’s first term would indeed seem to qualify as gangsta shit...Of the postwar presidents, only Johnson exceeds Obama’s domestic record, and Johnson’s successes must be measured against a crushing defeat in Vietnam...So, if Obama is the most successful liberal president since Roosevelt, that would make him a pretty great president, right?"
2) The NBA lockout is a microcosm of the economy's problems, writes Steven Pearlstein: "Like the NBA, the economy got too big and too rich. A flood of cheap credit drove revenues, prices, wages and asset values to unsustainable levels, creating an economic bubble that made everyone feel richer, and act like they were richer, than they really were. Now that bubble has burst, and we are all in the midst of a long and painful set of negotiations over how to distribute the losses and apportion the pain of adjusting to new economic realities. In the case of the NBA, that means owners paid too much for their franchises, players were overpaid, tickets were overpriced, there got to be too many teams playing too many games to satisfy networks that paid too much for broadcast rights. All of these prices reflect an unsustainable demand for the NBA product and an unrealistic expectation that robust growth rates would extend into the future."
3) It's time for central banks to act aggressively, writes Adam Posen: "The right thing to do right now is for the Federal Reserve and the European Central Bank to engage in further monetary stimulus. Having lowered short-term interest rates, they should buy (or in the case of the Fed, resume buying) significant quantities of government securities to help push down long-term interest rates and encourage investment. If anything, it is past time for the Fed and its European counterpart to act. The economic outlook has turned out to be as grim as forecasts based on historical evidence predicted it would be, given the nature of the recession, the cutbacks in government spending and the simultaneity of economic problems across the Western world. Sustained high inflation is not a threat in this environment."
4) Today's technocrats are just bad at being technocrats, writes Paul Krugman: "Let me single out in particular the European Central Bank (E.C.B.), which is supposed to be the ultimate technocratic institution, and which has been especially notable for taking refuge in fantasy as things go wrong...With Europe in crisis -- a crisis that can’t be contained unless the E.C.B. steps in to stop the vicious circle of financial collapse -- its leaders still cling to the notion that price stability cures all ills....Just to be clear, this is not an anti-European rant, since we have our own pseudo-technocrats warping the policy debate. In particular, allegedly nonpartisan groups of 'experts' -- the Committee for a Responsible Federal Budget, the Concord Coalition, and so on -- have been all too successful at hijacking the economic policy debate, shifting its focus from jobs to deficits."
5) Occupy shouldn't close up shop, writes EJ Dionne: "Ongoing violent demonstrations will simply not help the cause, and the Martin Luther King Jr.’s lessons on nonviolence are useful here. This movement is about something much bigger than 'occupying' a particular space. Occupations proved to be a shrewd tactic. They are not a cause or an end in themselves...More important, the movement should remind itself of its greatest innovation, its slogan: 'We are the 99 percent.' This is an affirmation that it is trying to speak for nearly everybody. Its tactics should live up to this aspiration by building support among the vast number of Americans who will never show up at the encampments. It should also want to help political figures such as Warren, who understood far earlier than most the costs of inequality and of the abuses of financial power."
Festival interlude: Radiohead play "2+2=5" live at Reading.
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Still to come: The European Central Bank won't be stepping in to save the continent; health groups are mobilizing for post-supercommittee battles; one third of Americans are under 150% of the poverty line; Congress has killed the National Climate Service; and a panda sleepover.
The head of the European Central Bank isn't eager to take up a bigger role, reports Howard Schneider: "European Central Bank President Mario Draghi said Friday that it was up to Europe’s politicians to resolve the region’s debt crisis and rejected calls that the bank take on greater risks to make sure Italy and other countries don’t default. His remarks came amid an intensifying debate over the bank’s role in the 17-nation euro zone, where major countries are seeing their borrowing costs rise toward unsustainable levels. At issue is the question of whether anyone else could step in with the hundreds of billions of dollars that Italy, Spain and other euro-zone governments would need in coming months to fund themselves if private investors continue to turn away from European bonds for fear of a national default."
The supercommittee's failure makes renewal of the Bush tax cuts an issue again, reports Peter Wallsten: "The imminent failure of the congressional deficit 'supercommittee,' which had a chance to settle the nation’s tax policy for the next decade, would thrust the much-contested Bush tax cuts into the forefront of next year’s presidential campaign...President Obama, who campaigned on repealing the breaks for the wealthy, angered his base last year when he agreed to extend all the tax cuts beyond their original expiration, at the end of 2010. This time, the president has vowed to veto any effort to extend the tax breaks on upper-income Americans...That makes December 2012 the next critical deadline in the budget wars, with Obama, safely reelected or acting as a lame-duck president, wielding a veto pen with the power to return tax rates to Clinton-era levels."
The Commodity Futures Trading Commission could cut staff, reports David Rogers: "Just when it was ramping up to implement Wall Street reforms, the Commodity Futures Trading Commission could face personnel cuts now as a result of its budget approved last week by Congress. It’s a remarkable situation that underscores the relentless guerrilla war the White House faces in trying to get the resources it wants to take on the multitrillion-dollar derivatives market. It also puts the House Appropriations Committee in a pickle at a time when conservatives already accuse its Republican leadership of being too responsive to President Barack Obama’s demands. Indeed it was the House GOP negotiators -- opposed to the Dodd-Frank financial reforms enacted last year -- who drove the CFTC budget bargain and held the 2012 appropriation to $205.3 million, a virtual freeze at 2011 levels and a one-third cut from Obama’s request."
Work sharing is working in Rhode Island, reports Justin Lahart: "Rhode Island is among the 22 states and the District of Columbia that offer some form of 'work sharing,' programs in which employees work fewer hours and receive partial unemployment insurance to lessen the blow to their incomes...Five states have enacted programs since 2009, and President Barack Obama has included a national work-sharing plan as part of his jobs package...Rhode Island, which adopted work sharing in 1992, is one of the few states were it has been widely embraced. The state processed more than 12,000 initial claims for work sharing in 2010. The state's unemployment is 10.4% but would be higher without work sharing, according to the state's labor department. In 2009 and 2010 work sharing averted a total of 9,550 layoffs, the department calculates. Rhode Island lost 14,400 jobs in the same period--3% of the state's work force."
We must do better at tackling inequality, writes Lawrence Summers: "Why has the top 1 per cent of the population done so well relative to the rest? The answer probably lies substantially in changing technology and globalisation. When George Eastman revolutionised photography, he did very well and, because he needed a large number of Americans to carry out his vision, the city of Rochester had a thriving middle class for two generations. By contrast, when Steve Jobs revolutionised personal computing, he and the shareholders in Apple (who are spread all over the world) did very well but a much smaller benefit flowed to middle-class American workers both because production was outsourced and because the production of computers and software was not terribly labour intensive...There is scope for pro-fairness, pro-growth tax reform."
Adorable animal who thinks he's people interlude: A dog tags along on the backseat of a bike.
Health groups are mobilizing for a post-supercommittee cut fight, report Marilyn Weber Serafini and Mary Agnes Carey: "Regardless of whether Congress’s supercommittee meets its deadline for finding ways to reduce the federal deficit, budget and policy experts are braced for Washington to soon face the painful task of finding even more savings -- and they anticipate that health spending, which makes up more than a fifth of the federal budget, will be a main target. Some health-care leaders are already laying the groundwork to redirect a debate they’re expecting in 2013, after the 2012 election...America’s Health Insurance Plans is advocating to rapidly expand coordinated care. Some experts are promoting plans to protect doctors and hospitals from medical malpractice lawsuits as long as they follow best practices and the establishment of specialized health-care courts to hear malpractice cases."
Georgia is going ahead with a health exchange despite misgivings about the law authorizing it, reports Guy Gugliotta: "In Georgia, like many other Southern states, opposition to the new federal health-care law runs deep. Yet a conservative committee of experts has, without rancor, outlined a plan to give the state a health insurance exchange, a cornerstone of the legislation enacted last year. The panel had the blessing of Republican Gov. Nathan Deal, a former congressman who describes himself as the first House member to denounce the health-care law as unconstitutional. Georgia has joined 25 other states in a legal challenge to the legislation that is now on the Supreme Court’s schedule...In Alabama, Gov. Robert Bentley, a physician, also opted to set up a committee to plan for an exchange and fought his legislature’s decision to scale back Medicaid after enhanced federal funding expired."
The FDA pulled a popular cancer drug's approval, reports Rob Stein: "The Obama administration revoked approval on Friday of the top-selling cancer drug Avastin for treating advanced breast cancer, despite appeals from distraught women, some patient advocates and the company that makes the drug. Food and Drug Administration Commissioner Margaret A. Hamburg issued a 69-page decision that said a review had clearly shown the drug was harming women more than it was helping them. Studies have found that Avastin can increase the risk of dangerous bleeding, heart attacks and other problems...While medical advances have reduced the death toll from breast cancer, the malignancy remains the most common cancer among women, and the decision leaves few last-ditch options for many of those fighting the most advanced form of the disease."
The ranks of the "near poor" are quite large, report Jason DeParle, Robert Gebeloff, and Sabrina Tavernise: "They drive cars, but seldom new ones. They earn paychecks, but not big ones. Many own homes. Most pay taxes. Half are married, and nearly half live in the suburbs. None are poor, but many describe themselves as barely scraping by..When the Census Bureau this month released a new measure of poverty, meant to better count disposable income, it began altering the portrait of national need. Perhaps the most startling differences between the old measure and the new involves data the government has not yet published, showing 51 million people with incomes less than 50 percent above the poverty line...All told, that places 100 million people -- one in three Americans -- either in poverty or in the fretful zone just above it."
The supercommittee's failure won't necessarily lead to defense cuts, writes Jonathan Bernstein: "What, then, of the possibility that congress will just agree to get rid of the cuts and let the deficit go up, either openly or through the use of budget gimmicks?...It’s here that the congressional math quickly gets tricky: While there are plenty of Democrats who support high levels of Pentagon spending, there are also plenty who would jump at the chance to cut it. Likewise, while there are plenty of Republicans who don’t mind looking the other way on the deficit if it achieves other goals, there are quite a few Tea Partiers who would be very reluctant to vote that way. As a result, a vote to defuse the defense cuts trigger at the expense of the deficit would most likely pit centrist Republicans and Democrats against the more ideologically extreme wings of their parties, and there’s no guarantee which coalition would win."
Additional adorable animal interlude: A panda sleepover.
Congress has killed the National Climate Service, reports Brian Vastag: "At first look, the proposal is as dull, bureaucratic and routine as an agency request to Congress can be. The National Oceanic and Atmospheric Administration wanted to reshuffle its offices to establish a National Climate Service akin to the agency’s National Weather Service. It asked for no new funding to do so. But in a political climate where talk of the earthly kind of climate can be radioactive, the answer in last week’s budget deal was 'no.' Congress barred NOAA from launching what the agency bills as a 'one-stop shop' for climate information. Demand for such data is skyrocketing, NOAA administrator Jane Lubchenco told Congress earlier this year. Farmers are wondering when to plant. Urban planners want to know whether groundwater will stop flowing under subdivisions."
Climate change makes extreme weather events more likely, writes Peter Stott: "A clearer way of thinking about weather and climate is to consider the odds. After the European heat wave of 2003, I worked with Myles Allen and Dáithí Stone of the University of Oxford to show that human influence had very likely more than doubled the probability of such extreme temperatures. Since then, the concept that human influence could have 'loaded the dice' in favor, or against, the occurrence of a particular heat wave, flood, or drought has become widely accepted by scientists and seems a relatively straightforward message to communicate to the public. But this doesn't mean that we are yet able to reliably quantify the changed odds of all extreme weather events."
Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.