Waiting for SCOTUS

June 27, 2012

There's a part of me that wants to just write a one-line Wonkbook lead today: "Outlook cloudy. Check back tomorrow after 10am."

But the Supreme Court's ruling on health care is not literally the only thing going on in the world right now. In fact, Wonkbook is jam-packed with news today.

The Senate came to an agreement on freezing the interest-rate on student loans. They're getting the $6 billion needed to offset the legislation by raising premiums on federal pension insurance.

Today's the drop-dead day for getting a new highway bill moving if Congress is going to avoid an interruption in infrastructure funding, and Majority Leader Harry Reid says the chances are "better than 50-50." You could take that comment as optimistic or pessimistic, by the way. Optimist's take: Reid is saying this is likely to get done. Pessimist's take: highway bills should be the easiest, most basic thing Congress does, and now we're talking about whether they'll get their 10th stopgap -- forget a long-term bill -- done in time? So much fail, Congress. So much fail. (For the record, I'm in the "so much fail" camp.)

And then, of course, there's Europe, where, in advance of the big euro summit, top officials released a plan for tighter integration in the euro zone. What they did not release was a plan for solving or even significantly ameliorating the current crisis. Much more on that below. "So much fail" would seem like an appropriate comment here, too, though hopefully we'll be pleasantly surprised at the summit.

So there's lots going on. But if you, like me, are primarily focused on the Court and health care right now, well, "Outlook cloudy. Check back tomorrow after 10am."

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Top story: Nearing the (euro) summit

Top European officials released a plan for a tighter euro zone. "Top European officials released a plan Tuesday that proposes euro-zone governments gradually take on responsibility for each others' finances, embarking on what is expected to be a contentious path toward a closer union. The seven-page paper from European Union chiefs sets out long-range ideas for bringing the euro zone's 17 economies closer together, in an effort to prevent a repeat of the twin crises of government finance and banking that have cast doubt over the survival of the common currency. The chiefs proposed that a powerful European supervisor should oversee the region's banks and that national budget deficits should be preapproved by the rest of the bloc. The strict checks on national spending would be necessary to move toward pooling euro-zone countries' debt, the report says. Pooling the debt of all euro counties could drive down the funding costs of vulnerable states. One idea it mentions is issuing joint bonds to roll over, and gradually reduce, debts that exceed 60% of economic output." Gabriele Steinhauser in The Wall Street Journal.

The plan is less ambitious than earlier drafts. "The seven-page plan, which calls for progress towards commonly issued eurozone bonds and the eventual establishment of central EU treasury, is less ambitious and less detailed than earlier drafts, including a 10-page version circulated as recently as Monday. That proposed giving EU institutions the power to rewrite national budgets and urged eurozone leaders to use their €500bn rescue fund to recapitalise European banks. While earlier drafts of the report also contained detailed short-term measures that could be taken to address the current market upheaval, the draft published by Mr Van Rompuy on the website of the European Council contains far fewer details and suggests no timetable for implementation." Peter Spiegel in The Financial Times.

The E.U. summit is about whether to take short-term action. "For those struggling to follow the highfalutin’ debate on how leaders will rescue the eurozone at Thursday’s EU summit: take comfort. In many respects the debate is simple: will leaders agree to take short-term steps to tackle the crisis, or will they limit themselves to the long-term? That is not to say the minutiae are unimportant. At stake is nothing less than whether the single currency area becomes more like a federal state, with Brussels taking over many of the duties that finance ministries and supervisors now perform. But such moves towards union take time. And time may be what the eurozone has least of...Conveniently, those pushing for more short-term measures and those playing the long game fall into identifiable camps. An increasingly strong Franco-Italian alliance, backed by the European Commission and the International Monetary Fund, has been urging quick steps to fight panic...The camp resisting quick movements is led by Berlin." Peter Spiegel in The Financial Times.

The ECB may cut the deposit rate to zero or lower. "European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve. While cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15...Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight. The Fed rejected cutting its deposit rate from 0.25 percent last year. With Europe’s debt crisis damping inflation pressures and curbing growth, the ECB may feel the benefits outweigh the negatives." Jana Randow in Bloomberg.

Greece named a new finance minister. "The Greek government named a new finance minister on Tuesday after its previous nominee bowed out because of health problems, appointing a 55-year-old professor of economics to a job that comes with a tight deadline for the country to jump-start its lagging reform program. A veteran technocrat who has served in previous government posts, Yannis Stournaras is known for his no-nonsense views and has been a frequent proponent of neo-liberal policies to shake up Greece's overregulated and hidebound economy. He will have the tough job of leading talks to ease the terms of the country's European-led bailout program. He must also carry out the reforms Greece has promised its creditors...Mr. Stournaras teaches economics at the University of Athens and chairs the Foundation for Economic and Industrial Research, a Greek think tank." Nektaria Stamouli, Stelios Bouras, and Alkman Granitsas in The Wall Street Journal.

As Spain headed towards crisis, top financial officials hailed banks. "As Spain edged closer to a real estate and banking crisis that led to its recent bank bailout, Spanish financial leaders in influential positions mostly played down concerns that something might go terribly wrong...From their lofty perches, first at Spain’s central bank and then as the I.M.F.’s top executives assessing global banking risk, José Viñals and Jaime Caruana were well positioned to sound alarms about the looming bank debacle. But at a news conference in Washington in April 2010, when analysts were raising red flags about failing Spanish real estate loans, Mr. Viñals -- who a year earlier had succeeded Mr. Caruana -- offered assurances. The Spanish system was 'fundamentally sound,' he said, and its needs for cash 'very small.'..Now that the recent failure of Bankia, the big mortgage lender, has prompted a 100 billion euro (about $125 billion) European rescue, it is clear that Mr. Viñals’s forecasts were too sanguine." Landon Thomas Jr. in The New York Times.

GRIFFIN AND KASHYAP: Germany should leave the euro to save it. "As the European economic crisis continues to intensify, policy makers are faced with the need to take ever more extreme measures to prevent a financial cataclysm. Tomorrow, European Union leaders will meet in Brussels to discuss the latest proposals: centralizing banking regulation and putting limits on national spending and borrowing. A better, bolder and, until now, almost inconceivable solution is for Germany to reintroduce the mark, which would cause the euro to immediately decline in value. Such a devaluation would give troubled economies, especially those of Greece, Italy and Spain, the financial flexibility they need to stabilize themselves...Reintroducing the mark would not solve the debt burdens of southern European countries, but it would give them needed breathing room to restructure their economies, reform labor markets, collect more taxes and reassure investors." Kenneth Griffin and Anil Kashyap in The New York Times.

WOLF: Federal Europe won't happen. "What is needed, as I have argued before, is a solution that is both politically feasible and economically workable...I regard the full federal option as too much and the current path as too little to meet my criteria. This leaves the question of whether it is possible to envisage something in between. That would seem to be in everybody’s interest, compared to a collapse of the euro. Here the crucial elements would seem to be: clear plans for resolution of banks largely at the expense of creditors, instead of relying on recapitalisation by fiscally stressed states - an approach that would automatically share more of the pain between creditors and debtors; a strong commitment to symmetrical economic adjustment across the eurozone, instead of today’s debtor-focused adjustment; recognition by the ECB of its obligation to sustain demand; and enough conditional financing to give governments committed to reform the ability to manage their economies without entering calamity." Martin Wolf in The Financial Times.

@BCAppelbaum: "Germany has a rhetorical commitment to federal solutions but, like Saint Augustine, 'not yet.'"

BECK: Germany hasn't been a winner with the euro. "The familiar view of Germany’s role in the euro crisis is simple enough: Germany has been the principal beneficiary of the euro, and for this reason ought to show solidarity with those euro-zone members in crisis. Once the euro zone is back on its feet, Germany will be the main beneficiary again. Unfortunately, this view does not appear to fit the facts. Those who think that Germany has been a winner with the euro almost always rest their case on Germany’s export surpluses. The euro created stability; it eliminated exchange rate risks; appreciated less than the Deutsch mark would have, and thus aided German exports. But has the euro benefited Germany more than other countries?..If the euro was so vital to Germany’s external trade, then the increase in exports to euro zone members would have been greater than the increase to other countries. In fact, the reverse is the case." Gunnar Beck in The New York Times.

Top op-eds

1) GLAESER: Federal mandates are generally a bad idea. "Three questions are bundled together in the great debate over the health-insurance mandate. Does the U.S. Constitution give the federal government the power to require individuals to buy health insurance? Should the government force them to buy this coverage? Should it have the power to make people buy such services? The second and third questions are distinct, because even if some individual policy, such as mandating health insurance, seems reasonable, similar policies could be quite harmful, and society would be better off if all such policies were off-limits to the federal government. I am no lawyer and have no opinion on the first, legal question...But as a student of the history of federal market regulation, I wish that the government had generally exercised less control over markets, which leaves me hoping that the Supreme Court, in its imminent decision on the individual mandate, curtails federal power." Edward Glaeser in Bloomberg.

2) MEYERSON: Are the Supremes voting their politics? Yep. "The club champion for double standards, however, is not Alito but Antonin Scalia. Dissenting from this week’s decision striking down major provisions in Arizona’s anti-immigrant law, he argued that Arizona has the sovereign rights of a nation in protecting its borders — a right he gleans through such a bizarre reading of the Constitution that not one of his fellow conservatives signed on to his dissent. Yet the same day, Scalia signed on to a Gang of Five decision declining to hear Montana’s case that its century-old law banning corporate contributions to political campaigns should take precedence over Citizens United. In the world according to Nino, Arizona has the rights of a nation-state, but Montana must submit to the Gang of Five. You’re sovereign when Scalia agrees with you; you’re nothing when he doesn’t." Harold Meyerson in The Washington Post.

3) DOUTHAT: Conservatives and liberals should unite behind measures to encourage judicial restraint. "One can disagree with the specifics of the liberal brief against the Roberts Court and still welcome liberalism’s conversion to the cause of judicial restraint. It should be a point of bipartisan consensus that the judiciary is a political body rather than a panel of Platonic Guardians, and it’s a healthy thing for our democracy to have the other branches of government ready to push back when the high court seems to overreach. This pushback can and should include the possibility of reforming the way the court does business: Term limits and supermajority requirements, for instance, are both plausible responses to the weirdness of having our great controversies settled by the timing of an aging justice’s final illness, or the idiosyncracies of Anthony Kennedy." Ross Douthat in The New York Times.

4) THOMA: We need unions to deal with recessions. "The high unemployment rate ought to be a national emergency. There are millions of people in need of jobs. The lost income as a result of the recession totals hundreds of billions of dollars annually, and the longer the problem persists, the more permanent the damage becomes. Why doesn’t the unemployment problem get more attention? Why have other worries such as inflation and debt reduction dominated the conversation instead?..When we talk about leveling the playing field, it is generally in terms of economic opportunity. However, leveling the political playing field is just as important, and in the past unions provided workers with a powerful voice in the political arena. But unions have largely faded from the scene, leaving workers with very little organized power. Correcting the political imbalance this has created through the renewed political empowerment of the working class must be part of any attempt to improve our response to serious recessions." Mark Thoma in The Fiscal Times.

5) ORSZAG: Natural gas cars could help the economy. "Armenia is not generally known as a world leader, but it holds at least one record: Seventy-five percent of its cars and trucks run on natural gas. In the U.S., in contrast, the share is well under 0.1 percent -- even though natural-gas prices have plummeted here over the past few years. Given the problems associated with U.S. dependence on oil, more use of natural gas for transportation could carry big benefits. One of the most important of these would be macroeconomic. Switching to natural-gas vehicles would reduce our vulnerability to oil-price shocks, as Christopher Knittel, a professor of energy economics at the Massachusetts Institute of Technology, argues in a new paper for the Hamilton Project. That benefit alone could amount to between $850 (for sedans) and $18,500 (for heavy-duty trucks) for each vehicle converted...The bottom line is that the U.S. would be much better off with a wider choice of transportation fuels." Peter Orszag in Bloomberg.

Irish folk interlude: James Vincent McMorrow plays "This Old Dark Machine" for SK* Sessions.

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

Still to come:The Fed may keep rates low for longer; Obamacare could boost 'churning'; the Senate has a deal to keep freeze interest rates on student loans; a court backs the EPA; and a baby camel is actually kind of cute.

Economy

The Fed may stick with near-zero interest rates into 2015. "The Federal Open Market Committee, the Fed’s policy-making arm, has said since January that it expects to keep short-term interest rates near zero through at least late 2014. But comments and recently revised projections from Fed officials have some economists guessing the Fed might decide to stick with its easy-money policy into 2015. One clue is in the revised interest-rate projections Fed officials released last week. In June, six out of 19 officials indicated they thought the first interest rate hike should come in 2015, up from four at their April meeting, though the committee had only 17 officials then. Governors Jeremy Stein and Jerome Powell joined the board in May. Another clue might be in changes to the statement the FOMC releases after each meeting. In June the committee dropped an often-used phrase that it would continue to review the size of its portfolio of assets, opting instead to say it is now 'prepared to take further action as appropriate.'" Kristina Peterson in The Wall Street Journal.

Home prices are up. "A key gauge of U.S. home prices shows that the market came back to life in April for the first time in seven months, but analysts said it’s too soon to conclude that the sector’s troubles are over. Home prices rose in 19 of the 20 cities surveyed by Standard & Poor’s/Case-Shiller. The biggest gains from March to April were in San Francisco and Washington, while the only city that showed negative growth was Detroit." Amrita Jayakumar in The Washington Post.

Extending Operation Twist wasn't enough for the markets. "The market is looking for more than it got out of last week’s meeting of the Federal Reserve, which limited its stimulus efforts to continuing a bond-buying program. Stocks dipped downward for three days after the announcement that Operation Twist would run through the end of the year, with the Dow Jones Industrial Average losing almost 322 points, or 2.51 percent...Several economists peg September as the pivotal month for when the Fed could embark on more quantitative easing." Josh Boak in Politico.

Consumer confidence hit a five-month low. "Confidence among U.S. consumers dropped in June for a fourth consecutive month as mounting concern over jobs and incomes dimmed the outlook for spending. The Conference Board’s sentiment index fell to 62, a five- month low, from a revised 64.4 in May, figures from the New York-based private research group showed today. Another report showed home prices were stabilizing. The slide in confidence raises the risk that the slowdown in hiring revealed by last month’s jobs report will cause households to retrench, restraining the spending that accounts for about 70 percent of the economy." Michelle Jamrisko in Bloomberg.

@TheStalwart: Just made a chart in FRED that made me cry it's so perfect

Sidewalk art interlude: 3D Super Mario using chalk.

Health Care

Going without insurance under the mandate is a great deal. "There are many ironies in the furor around the individual mandate. The fact that it was originally a Republican idea tends to get the most attention. But here’s another: There is no better deal in the legislation -- and there has perhaps never been a better deal in the individual health-care market -- than to go without insurance and pay the mandate’s penalty...Under the Affordable Care Act, here’s what happens if you wait until you’re sick to buy health insurance: You can buy health insurance and no insurer can charge you more for walking into their office with a lump the size of a golf ball. The catch is that between now and getting sick, if you can afford insurance -- which the law defines as you have access to insurance that costs less than eight percent of your income -- you have to pay a penalty of $695 a year (that’s the 2016 number; after 2016, it rises with inflation) or 2.5 percent of your annual income, whichever is greater." Ezra Klein in The Washington Post.

Obamacare could lead to more people 'churning'. "If the health care law is upheld, expect a lot of 'churning' -- especially among low-income women and their children. Churning has nothing to do with butter or cream; it’s a term used to describe what happens when people’s income changes mid-year and they bounce between different health plans -- for instance, going from Medicaid to a subsidized plan in the new health exchanges the law sets up. A report out this month from the Robert Wood Johnson Foundation says 29.4 million people ages 65 and under will experience churn under the health care law. That includes about a third of the people who will qualify for exchange subsidies or Medicaid by 2014. Churn is largely an issue for low-income populations, and creates confusion and potential gaps in coverage and care as people move from one program’s set of rules and health care providers to another." Kathryn Smith in Politico.

@sarahkliff: 36 hours out from a SCOTUS health care decision! This is the sort of major event you carbo-load for, yes? Good.

Domestic Policy

Senators reached a deal to freeze interest rates on student loans. "More than 7 million college students could be spared higher loan rates under a deal reached Tuesday by Senate leaders. The agreement would freeze the interest rate for a year, preventing it from doubling from 3.4 percent to 6.8 percent on July 1, making college more affordable for students even as tuition costs are rising...The deal was announced Tuesday by Senate Majority Leader Harry M. Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.), who told reporters that they had worked out the arrangement but were still discussing how to push it through Congress in the final busy days before lawmakers leave Washington for a week-long Fourth of July holiday. The proposal’s passage will be contingent upon an embrace from the GOP-held House, although McConnell indicated that he thinks the chamber’s leaders will favor the deal." Rosalind Helderman in The Washington Post.

The flood insurance bill has hit a snag. "The Senate’s flood insurance program looked like it was headed toward smooth passage - but now, there appears to be an abortion-related wrinkle. Yes, abortion. That’s at least according to Senate Majority Leader Harry Reid (D-Nev.), who said Tuesday that a Republican senator is insisting on a vote on an amendment defining 'when life begins.' Reid didn’t name the senator, but it was Sen. Rand Paul (R-Ky.) who had offered the amendment...While he’s allowed various unrelated amendments to bills as of late - last week’s farm bill being one example - Reid put his foot down on the latest request...The White House has endorsed the Senate flood insurance bill, saying in a statement issued Monday that the legislation would shore up the National Flood Insurance Program’s finances while helping to reduce the risk of flooding in vulnerable communities." Seung Min Kim in Politico.

Adorable baby animals just hanging out interlude: Elizabeth the baby camel is just in time to celebrate the diamond jubilee.

Energy

A highway bill deal needs to happen today. "Senate Majority Leader Harry Reid (D-Nev.) warned Tuesday that a deal between the House and Senate on transportation funding needed to be finalized Wednesday to be approved by Congress in time to beat a June 30 deadline. Speaking to reporters at the Capitol after a Democratic Caucus luncheon, Reid said the conference committee of lawmakers that have been negotiating the highway bill for nearly two months was close to an agreement...Reid said in order for a possible transportation agreement between the House and Senate to be approved by both chambers and sent to President Obama before the current funding runs out this weekend, it would have to be reached tomorrow...Reid suggested the highway bill could be combined with a bill to prevent an increase in student loan interest rates...Other lawmakers in the Senate expressed openness to the possibility of the measures being combined Tuesday. Senate Minority Whip Jon Kyl (R-Ariz.) said he would be OK with the combination." Keith Laing in The Hill.

@mkraju: Reid: "I think the chances today are more than 50-50" of getting a highway bill done

A federal appeals court upheld the EPA's emissions limits. "A federal appeals court on Tuesday upheld a finding by the Environmental Protection Agency that heat-trapping gases from industry and vehicles endanger public health, dealing a decisive blow to companies and states that had sued to block agency rules. A three-judge panel of the United States Court of Appeals for the District of Columbia declared that the agency was 'unambiguously correct' that the Clean Air Act requires the federal government to impose limits once it has determined that emissions are causing harm. The judges unanimously dismissed arguments from industry that the science of global warming was not well supported and that the agency had based its judgment on unreliable studies...In addition to upholding the E.P.A.’s so-called endangerment finding, the court let stand related rules setting limits on greenhouse gas emissions from cars and limiting emissions from stationary sources." Matthew Wald in The New York Times.

The U.S. will halve its reliance on oil from the Middle East by the end of the decade. "America will halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035 due to declining demand and the rapid growth of new petroleum sources in the Western Hemisphere, energy analysts now anticipate. The shift, a result of technological advances that are unlocking new sources of oil in shale-rock formations, oil sands and deep beneath the ocean floor, carries profound consequences for the U.S. economy and energy security...By 2020, nearly half of the crude oil America consumes will be produced at home, while 82% will come from this side of the Atlantic, according to the U.S. Energy Information Administration. By 2035, oil shipments from the Middle East to North America 'could almost be nonexistent,' the Organization of Petroleum Exporting Countries recently predicted, partly because more efficient car engines and a growing supply of renewable fuel will help curb demand." Angel Gonzalez in The Wall Street Journal.

@BCAppelbaum: So much for gas prices peaking during the summer. Average per gallon back below $3.50. http://bit.ly/LdsHkg

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

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Sarah Kliff · June 26, 2012