Wonkbook: ‘There’s a chance it could not happen’
By Ezra Klein,
Mark Wilson GETTY IMAGES
There is nothing about the deficit that suggests a nightmare scenario developing any time soon. But there is no doubt that if the government defaults, a fiscal nightmare would envelope us instantly. Boehner knows that, but he also knows that he needs to show some willingness to risk those consequences if he’s going to negotiate effectively with President Obama. As Alan Greenspan put it on Sunday, “you cannot have a position which stipulates that, ‘I will never allow the United States to default. But on the other hand, I will not allow the process to go forward unless there are additional actions with respect to the debt.’” In other words, if you’ve said you won’t shoot the hostage, you can’t simultaneously demand a ransom.
So Boehner is saying he’ll shoot the hostage -- because how else can he demand a ransom? The danger in this is that as the rhetoric ramps up, the market may not realize this is all just more of Washington’s fun and games. Brinksmanship runs the risk of misjudging what is the last minute, or the maximum amount of uncertainty, that the market will accept before it reevaluates the American government’s capacity to pay its debts back in a timely and smooth way. Remember that the danger here isn’t simply that we don’t make our payments. It’s that we run such a terrifying and uncertain process that we make the market think it’s more likely that we won’t cover our debts at some point in the future. Giving the market a demonstration of exactly how we could fail them is almost as bad as actually failing them.
Five in the morning
1) John Boehner won’t even promise a vote on raising the debt limit, reports Jake Sherman: “Speaker John Boehner won’t guarantee a vote on raising the debt limit, the latest threat in an increasingly high stakes game of chicken with the White House over whether Congress will inch closer to letting the nation default on its credit...Boehner laid out several goals for any potential deal on the debt limit: He is calling for controls on discretionary spending and altering the nation’s entitlements like Medicare and Medicaid to be attached to the legislation to hike the debt ceiling. He was noncommittal about holding a vote on that bill before July 4 -- very close to the deadline in which Treasury says the U.S. will have hit its borrowing limit.”
The National Review hosts a roundtable on whether Republicans should agree to lift the debt ceiling: http://bit.ly/i7sSFU
2) The Fed is sweating the details of its first press conference, reports Jon Hilsenrath: “The Federal Reserve is doing some careful stage planning for its first-ever public news conference Wednesday afternoon following a two-day policy meeting. Details that would be extremely mundane for most other institutions--such as who gets in, how Chairman Ben Bernanke should kick things off, and how questions will be asked--have potentially market-moving importance in this instance. Analysts and traders on Wall Street have been scrambling to find out what to expect. ‘People are trying to get their arms around the whole thing,’ said David Greenlaw, chief U.S. economist with Morgan Stanley. He has quizzed colleagues who follow the European Central Bank, which, like other central banks, has held news conferences for years, to understand how it might unfold.”
3) High gas prices are pushing down Obama’s approval rating, report Steven Mufson and Jon Cohen: “Soaring gasoline prices are biting into household incomes and nibbling at Americans’ fuel consumption -- and support for President Obama, according to a Washington Post-ABC News poll. About six in 10 respondents said they had cut back on driving because of rising fuel prices, and seven in 10 said that high pump prices are causing financial hardship. Obama, like previous presidents in times of high oil prices, is taking a hit. Only 39 percent of those who call gas prices a ‘serious financial hardship’ approve of the way he is doing his job, and 33 percent of them say he’s doing a good job on the economy. The Energy Information Administration said Monday that gas prices climbed last week to $3.88 a gallon, up 81 cents since the start of the year.”
4) States are in the red by over $1 trillion, reports Michael Fletcher: “The state funds that pay pension and health-care benefits to retired teachers, corrections officers and millions of other public workers faced a cumulative shortfall of at least $1.26 trillion at the end of fiscal 2009, according to a new report. The study, to be released Tuesday by the Pew Center on the States, found that the pension and health-care funding gap increased by 26 percent over the previous year. Pew officials said the growing shortfall was driven by inadequate state contributions, an aging population and market losses that accompanied the recession. Although investment markets have recovered substantially since the period covered by the report, its authors warn that states still face an increasing burden from retiree costs that are beginning to crowd out critical services.”
5) Financiers have switched their allegiances to Republicans, report Brody Mullins, Susan Pulliam, and Steve Eder: “Hedge-fund managers made a big bet on Barack Obama and other Democrats in 2008. Now, with the 2012 contest gearing up, some prominent fund managers have turned their backs on the party and are actively supporting Republicans...Hedge-fund kings have feelings, too, and the president appears to have hurt them...Managers of hedge funds--private investment partnerships that cater to institutions and wealthy people--are reacting to what some criticize as Mr. Obama’s populist attacks on Wall Street, as well as to Democrat-led efforts to raise their tax bills. They had hoped to be protected from such a tax move by their relationships with prominent Democratic members of Congress.”
Synth interlude: Yeah Yeah Yeahs play “Zero” on the Late Show with David Letterman .
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Still to come: Harry Reid will likely bring the Ryan budget up for a vote in the Senate; the Supreme Court won’t speed up consideration of health care reform; early childhood education spending fell the first year of Obama’s presidency; John Boehner is open to cutting oil subsidies; and a Jack Russell Terrier leads an aerobics workout.
Harry Reid will likely force a Senate vote on Paul Ryan’s budget, reports Alexander Bolton: “Senate Democratic aides expect Senate Majority Leader Harry Reid (D-Nev.) to force Senate Republicans to vote on the Paul Ryan budget plan. Reid hasn’t made a formal decision yet, and won’t until he returns from an overseas trip. The idea is to drive a wedge through the GOP caucus and put vulnerable incumbents such as Sens. Scott Brown (R-Mass.) and Olympia Snowe (R-Maine) in a political jam. Senate Democrats felt encouraged Friday after Sen. Susan Collins (Maine) emerged as the first Senate Republican to publicly oppose the House-passed budget blueprint, named after Budget Committee Chairman Paul Ryan (R-Wis.).”
Monetary policy wouldn’t save us if the debt limit isn’t raised, reports Brian Palmer: “Wait, if the government were really at risk of default, couldn’t it just print enough money to pay its loans? No. The independent Federal Reserve manages the national money supply to maintain stable credit conditions and prevent systemic economic risks, not to prop up the Treasury. Neither the president nor the treasury secretary can order it to print money. In addition, the Fed isn’t a charity--it’s a bank. It doesn’t give money away without taking something in return. When the central bankers issue money to commercial banks, they take mortgage-backed securities. When they ship cash to Uncle Sam, they get Treasury bonds. If the government hits the debt ceiling, the Treasury won’t be able to issue any more bonds.”
The rent is too damn high, reports Dina ElBoghdady: “The share of renters who spend more than half their income on housing is at its highest level in half a century and it’s no longer just low-income tenants who are feeling the pain, according to a Harvard University study scheduled for release Tuesday. About 26 percent of renters -- or 10.1 million people -- spent more than half their pre-tax household income on rent and utilities in 2009. That’s because incomes slipped dramatically from their peak at the start of the decade even as rents kept rising. The study offers the latest in a series of grim statistics about the scarcity of rental housing, especially for the working poor. The supply has not kept up with demand in part because of a shortage of apartments, a key source of new rentals.”
Is Obama’s secret origin that he’s a...moderate Republican from the 1990s? “If you put aside the emergency measures required by the financial crisis, three major policy ideas have dominated American politics in recent years: a health-care plan plan that uses an individual mandate and tax subsidies to achieve near-universal health coverage; a cap-and-trade plan that attempts to raise the prices of environmental pollutants to better account for their costs; and bringing tax rates up from their Bush-era lows as part of a bid to reduce the deficit. In each case, the position that Obama and the Democrats have staked out is the very position that moderate Republicans have staked out before.”
Benjamin Wallace-Wells profiles Paul Krugman: “In December, Krugman and five other liberal economic thinkers (Joseph Stiglitz, Robert Reich, Jeffrey Sachs, Alan Blinder, and Larry Mishel) were invited to the Oval Office for a 90-minute off-the-record audience with the president... Even then, these economists recognized what a paltry, bowdlerized proxy for the left they were: six academics, and by any broad ideological standard a pretty moderate group, comfortable with markets and free trade. But liberals had long ago ceased to rally around class. ‘In the United States,’ Blinder told me weeks later, a little bleakly, a little apologetically, ‘there is no left left.’ Krugman, looking back, diagnoses two problems. First, the progressive economists had been too disorganized. And then they had been too late.”
Neither party is willing to deal with America’s real economic problems, writes David Brooks: “There are structural problems in the economy as growth slows and middle-class incomes stagnate. There are structural problems in the welfare state as baby boomers spend lavishly on themselves and impose horrendous costs on future generations. There are structural problems in energy markets as the rise of China and chronic instability in the Middle East leads to volatile gas prices. There are structural problems with immigration policy and tax policy and on and on. As these problems have gone unaddressed, Americans have lost faith in the credibility of their political system, which is the one resource the entire regime is predicated upon. This loss of faith has contributed to a complex but dark national mood.”
The debt ceiling is a poor vehicle for a fiscal debate, writes Gerald Seib: “Few exercises produce as much cynical and overtly partisan behavior by elected officials as do votes on the debt ceiling. When the party in power needs the debt ceiling raised, its representatives in Congress do what they must to let the government pay its bills and keep the full faith and credit of the U.S. in order. Meanwhile, the opposition party gives posturing speeches about the evils of debt. When power changes hands, the roles reverse. In all cases, lawmakers are voting to limit debt they help create in the first place. The debt ceiling is, in short, a deeply flawed vehicle for an important conversation. Yet it is the vehicle that will be used. The U.S. government will hit its current debt ceiling of $14.3 trillion in mid-May and, technically, lose its ability to borrow.”
Let’s fix the jobs crisis before the debt crisis, writes Eugene Robinson: “Listening to the debate in Washington, you’d think the nation was absorbed by the compelling saga of deficit reduction. You’d get the impression that in households across America, parents put their children to bed and then stay up half the night sifting through piles of think-tank reports on the kitchen table, trying to calculate whether there will be enough in the Social Security trust fund to pay benefits beyond 2037. And you’d be wrong. Those parents are looking at a pile of bills on the kitchen table, trying to decide which ones have to be paid now and which can slide. The question isn’t how to manage health care or retirement costs two decades from now. It’s how the family can make it to the end of the month.”
Supercut interlude: Nearly every cinematic usage of the “Wilhelm Scream”.
The Supreme Court is taking its time on health care reform, reports Robert Barnes: “The Supreme Court on Monday turned down Virginia’s request that it rule immediately on the constitutionality of the nation’s health-care overhaul. The decision to reject Virginia Attorney General Ken Cuccinelli II’s request for expedited review, announced routinely without elaboration or noted dissent, is not surprising. The court rarely takes up issues that have not received a full review in the nation’s appeals courts. Various challenges to the health-care law championed by the Obama administration and passed by the Democratic-controlled Congress in 2010 are proceeding rapidly. Hearings are scheduled for next month in the U.S. Court of Appeals for the 4th Circuit in Richmond, and two other appellate courts will address the issue in June.”
Medicare administrator Don Berwick alleges that Paul Ryan’s budget is the real rationing plan: http://politi.co/emtB5n
Pharma is outraged by HHS’ efforts to oust a CEO, reports Alicia Mundy: “A government attempt to oust a longtime drug-company chief executive over his company’s marketing violations is raising alarms in that industry and beyond about a potential expansion of federal involvement in the business world. The Department of Health and Human Services this month notified Howard Solomon of Forest Laboratories Inc. that it intends to exclude him from doing business with the federal government. This, in turn, could prevent Forest from selling its drugs to Medicare, Medicaid and the Veterans Administration. If the government implements its ban, Forest would have to dump Mr. Solomon, now 83 years old, in order to protect its corporate revenue. No drug company, large or small, can afford to lose out on sales to the federal government, a major customer.”
Health insurers and doctors are balking at one of health reform’s preventative care provisions, reports Harris Meyer: “For years, doctors have urged patients over the age of 50 to get colonoscopies to check for colorectal cancer, which kills 50,000 Americans a year. Their efforts were boosted last year by the federal health care law, which requires that key preventive services, including colonoscopies, be provided to patients at no out-of-pocket cost. But there’s a wrinkle in the highly touted benefit. If doctors find and remove a polyp, which can be cancerous, some private insurers and Medicare hit the patient with a surprise: charges that could run several hundred dollars. That’s because once the doctor takes action, the colonoscopy morphs from a preventive test into a treatment procedure. The situation is causing confusion among doctors and the insurance industry.”
Pharma want the Supreme Court to ratify one of their marketing methods, reports Natasha Singer: “Before pharmaceutical company marketers call on a doctor, they do their homework. These salespeople typically pore over electronic profiles bought from data brokers, dossiers that detail the brands and amounts of drugs a particular doctor has prescribed... Marketing to doctors using prescription records bearing their names is an increasingly contentious practice, with three states, Maine, New Hampshire and Vermont, in the vanguard of enacting laws to limit the uses of a doctor’s prescription records for marketing. On Tuesday, the Supreme Court will hear arguments in a case, Sorrell v. IMS Health, that tests whether Vermont’s prescription confidentiality law violates the free speech protections of the First Amendment.”
The GOP budget raises the eligibility age for Medicare. This is mad, writes Jonathan Cohn: “Given the relatively high incidence of conditions like hypertension, arthritis, and vision problems among older Americans, it’s safe to assume many seniors would have trouble finding affordable coverage--if, indeed, they could find coverage at all...The addition of so many 65- and 66-year-olds to employer insurance plans would raise benefits costs for businesses and, eventually, their workers...Raising the age at which Americans become eligible for Medicare, or whatever program Republicans put in its place, would make health insurance more expensive for businesses, workers, and their employees, all while leaving one-fifth of future 65- and 66-year-olds with too little insurance or none at all--and oh, by the way, giving huge tax breaks to the wealthy.”
Obama’s efforts to encourage early childhood education funding have been a bust, reports Kevin Sieff: “Funding for early-childhood education declined between 2009 and 2010, even as the Obama administration urged states to increase pre-kindergarten programs for 3- and 4-year-olds, according to a study released Tuesday. Total state funding for such programs declined by $30 million nationwide as states scrambled to make up for budget shortfalls, according to the the National Institute for Early Education Research, based at Rutgers University Graduate School of Education. Meanwhile, state funding for K-12 education increased slightly...Education Secretary Arne Duncan urged states to cut other programs before removing funding from early-childhood education, but such advice was rejected across the country.”
Detroit unions are weaker than ever: http://wapo.st/eA1WWa
Fighting money in politics is a prerequisite for fiscal reform, writes Alan Simpson: “On the demand side, politicians require millions of dollars to win and keep their seats. Those who do not have a fortune of their own must turn to private citizens and groups able to contribute large amounts to campaigns. On the supply side, those with the means and incentive to fund political campaigns frequently have a specific special interest quite apart from the needs of ordinary Americans. Private campaign contributions facilitate this unhealthy alliance -- creating, in many cases, a clear conflict of interest that undermines fiscal responsibility. Public employee pensions...and multibillion-dollar defense programs not requested by the Pentagon are but two examples of the very real price we pay when special interest groups are permitted to influence policies.”
There’s only so much education reform can do, writes Joe Nocera: “Making schools better is always a goal worth striving for, whether it means improving pedagogy itself or being able to fire bad teachers more easily. Without question, school reform has already achieved some real, though moderate, progress. What needs to be acknowledged, however, is that school reform won’t fix everything. Though some poor students will succeed, others will fail. Demonizing teachers for the failures of poor students, and pretending that reforming the schools is all that is needed, as the reformers tend to do, is both misguided and counterproductive. Over the long term, fixing our schools is going to involve a lot more than, well, just fixing our schools.”
Adorable animals teaching fitness interlude: Jesse the Jack Russell Terrier’s aerobics video.
John Boehner is open to cutting oil subsidies, reports Darren Goode: “House Speaker John Boehner says he’s open to calls from the White House to curb some of the $4 billion in oil and gas subsidies and tax incentives, as Washington continues to feel the heat over high gas prices. Oil and gas producers are ‘gonna pay their fair share in taxes and they should,’ Boehner told ABC News. ‘I don’t think the big oil companies need to have the oil depletion allowances. But for small, independent oil and gas producers -- if they didn’t have this -- there’d be even less exploration in America than there is today.’ President Barack Obama is pushing for cutting $4 billion in oil and gas industry tax incentives to pay for green and renewable energy projects.”
D.R. Tucker explains his conversion from climate change skeptic to believer: “One friend recommended that I read the 2007 Fourth Assessment Report of the Intergovernmental Panel on Climate Change, suggesting that it might resolve some of the questions I had about the science behind climate concerns. I began reading the report with a skeptical eye, but by the time I concluded I could not find anything to justify my skepticism. The report presented an airtight case that the planet’s temperature has increased dramatically (’Eleven of the last twelve years [1995-2006] rank among the twelve warmest years in the instrumental record of global surface temperature [since 1850]’), [and] that sea levels have undergone a dramatic and disturbing increase since the 1960s.”p>
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.