Karl Singer is writing Wonkbook while Ezra is on vacation.
RCP Obama vs. Romney: Obama +3.9%; 7-day change: Obama +1.9%.
RCP Obama approval: 47.9%; 7-day change: +0.5%.
Top story: It's getting hot in here
July was the hottest month ever in the U.S. "It may come as little surprise to the nation’s corn farmers or resort operators, but the official statistics are in: July was the hottest month in the lower 48 states since the government began keeping temperature records in 1895. The average temperature last month was 77.6 degrees -- 3.3 degrees above the average 20th-century temperature, the National Oceanic and Atmospheric Administration reported on Wednesday. July thereby dethroned July 1936, which had set the record at 77.4 degrees, the agency said...A hot July also contributed to the warmest 12-month period ever recorded in the United States, the statistics showed. Climatologists at the agency noted that by the end of the month, about 63 percent of the nation was experiencing drought conditions, which contributed to the high temperatures." Joanna Foster in The New York Times.
How droughts will reshape the United States: http://wapo.st/PD9Sey.
Crops will get a little relief from the drought over the next week. "Little change in midday weather forecasts were noted for the drought-stricken U.S. Midwest crop region with some relief still expected from showers and cooler temperatures over the next week to 10 days, an agricultural meteorologist said on Wednesday. However, meteorologists also said that a turn to wetter and cooler weather did not mean the drought was over...Nicholls said 0.25 inch to 0.75 inch of rain, with locally heavier amounts, was expected in roughly 75 percent of the Midwest from Wednesday through Friday morning, and a similar weather system is expected next week." Sam Nelson in Reuters.
The drought won't have much effect on consumer food prices. "The U.S. drought is going to drive up food prices next year, the Agriculture Department says. What exactly will that mean for consumer budgets? We did the math. The answer: Not that much. Americans, on average, will spend an additional $32.76 on food next year than they would have if the drought had not occurred, according to our back-of-the envelope calculations. That comes out to $2.73 a month...Economists point out that, given the fragile state of the economy, even a modest increase isn’t welcome. Still, the price increases aren’t expected to have a major effect on overall growth, since food only accounts for about 14% of consumers’ daily living expenses, and given that prices for other items are falling or subdued, bringing down inflation overall." Josh Mitchell in The Wall Street Journal.
Friday's grain statistics will be a moment of truth. "Hundreds of hedge fund managers, commodity merchants, government officials and farmers will have one thing on their mind when they turn on their computers on Friday: US grain statistics. The release of this specialised report from the US Department of Agriculture has acquired huge market significance this year as the worst drought in half a century shrivels crops in America’s farm belt. It will influence trading for days and weeks to come as well as possible government decisions on biofuels and feed exports...Friday’s USDA crop production report will contain this season’s first national surveys of domestic corn and soyabean fields. Both crops have suffered the worst in the drought." Gregory Meyer in The Financial Times.
What we know about climate change and drought: http://wapo.st/MJMxoJ.
1) KLEIN: Tax reform won't be as easy as it looks. "Just as tax reform offers a slew of benefits and political possibilities that simply raising taxes doesn’t, it also presents a slew of technical and political difficulties that simply raising taxes doesn’t. The Tax Policy Center’s paper points to five of these...The closer you look at base-broadening, rate-lowering tax reform, the less it looks like an exception to the normal rules of Washington policy making and the more it looks like it will inevitably fall victim to them. It is clean and elegant when imagined by technocrats who don’t worry about the politics, clear and simple when endorsed by politicians who omit the crucial details, and likely to become polarizing and disappointing if it is actually taken up by Congress." Ezra Klein in Bloomberg.
2) BERNSTEIN: Americans -- including the middle class -- need to pay more in taxes. "There needs to be a more robust plan to return to fiscal health. That plan will have to include tax increases beyond just the wealthiest households, although that is the right place to start. But what should happen next?...The best thing to do, once the economic recovery is solidly under way, is to simply let the Bush tax cuts expire and return to the tax structure that prevailed under Bill Clinton. It cannot be plausibly argued, based on economic outcomes, that the rate structure in those years was counterproductive. Oh, and it also helped deliver a budget surplus." Jared Bernstein in The Financial Times.
3) GELERNTER: Local internet schools should be a reality. "A local Internet school sounds like a contradiction in terms: the Internet lets you discard geography and forget 'local.' But the idea is simple. A one-classroom school, with 20 or so children of all ages between 6th and 12th grade, each sitting at a computer and wearing headsets. They all come from nearby. A one-room Internet school might serve a few blocks in a suburb, or a single urban apartment building...Each child does a whole curriculum's worth of learning online, at the computer. Most of the time he follows canned courses on-screen. But for an hour every day, he deals directly, one-to-one over phone or videophone with a tutor. Ideally there's a teaching assistant on an open phone line throughout the day, each assistant dealing with a few dozen students." David Gelernter in The Wall Street Journal.
4) RODRIK: Rapid growth will be the exception, not the rule. "Just as it was inappropriate to extrapolate from the previous decade of strong growth, one should not read too much into short-term fluctuations. Nevertheless, there are strong reasons to believe that rapid growth will prove the exception rather than the rule in the decades ahead...Manufacturing industries will remain poor countries’ 'escalator industries,' but the escalator will neither move as rapidly, nor go as high. Growth will need to rely to a much greater extent on sustained improvements in human capital, institutions, and governance. And that means that growth will remain slow and difficult at best." Dani Rodrik in Project Syndicate.
5) WESSEL: Investors are paying to lend to governments. "It has been five years since the onset of the global financial crisis. The first cracks in financial markets appeared in August 2007. That is so long ago, it's easy to overlook just how unusual these times are. Here's one signpost: Investors are so skittish that instead of demanding interest when they lend to governments, they are actually paying to put money into the coffers of the financially sturdiest governments. We have blown past zero interest rates. Investors lend 100 euros (or Danish kroner or Swiss francs) and get back 99 and change. Wow." David Wessel in The Wall Street Journal.
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Top long reads
Sheila Kaplan and Corbin Hiar on an EPA project gone wrong:"Millions of Americans may be drinking water that is contaminated with dangerous doses of lead. The Environmental Protection Agency (EPA) knows it; state governments know it; local utilities know it. The only people who usually don’t know it are those who are actually drinking the toxic water. The problem stems from a common practice in which water utilities replace sections of deteriorating lead service lines rather than the entire lines, commonly known as partial pipe replacements. It is a course of action that can do more harm than good...Since the 1970s, lead has emerged as the most dangerous neurotoxin known to man, potentially damaging the developing brain and nervous system, causing life-long learning disabilities and other serious problems. It has been taken out of gasoline, removed from paint and banned from children’s toys. Yet practices developed to keep lead out of water, under an EPA rule, have backfired and can actually increase the hazard."
Adam Higginbotham writes on the narco tunnels of Nogales:"Crime has been coming up out of the ground in Nogales for a while now. Since 1995 more than 90 illicit underground passageways have been discovered in various states of completion in the two-mile stretch of urban frontier that separates Arizona’s Nogales from its far larger twin in Sonora. Twenty-two complete tunnels have been found in the past three years alone...Some tunnels cost at least a million dollars to build and require architects, engineers, and teams of miners to work for months at a stretch. A few include spectacular feats of engineering, running as much as 100 feet deep, with electric rail systems, elevators, and hydraulic doors. But the economies of scale are extraordinary. Tunnels like these can be used to move several tons of narcotics in a single night. The tunneling boom reflects not only the extent and financial torque of the Mexican cartels’ operations--estimated in a 2010 Rand Corp. report to turn a $6.6 billion profit every year--but also the futile nature of attempts to secure the U.S. border against drug smugglers."
90s nostalgia interlude: Jeff Buckley and Gary Lucas play "Grace" live.
Got tips, additions, or comments? E-mail me.
Still to come:Fannie posts a profit; retail and restaurants may make healthcare cuts; executive cybersecurity action may be coming; a program to fight climate change has unintended consequences; and sunrise on Mars.
Fannie Mae reported a big profit for last quarter. "After reporting a profit of $5.1 billion for the second quarter Wednesday -- which came on top of paying a $2.9 billion dividend to taxpayers -- Fannie Mae also appeared to make a case for its continued existence. 'With our high-quality new book of business and diminishing legacy expenses, Fannie Mae has strong potential earnings power that can deliver considerable value to taxpayers over the long term,' Timothy J. Mayopoulos, president and chief executive, said in a statement. President Obama and congressional Republicans have agreed that the firms, with nearly 9,000 local employees combined, should be eliminated." Zachary Goldfarb and Jia Lynn Yang in The Washington Post.
@goldfarb: One has to wonder if Fannie and Freddie's new riches will reignite support for keeping them alive.
@mattyglesias: Old CW: Economy won't recovery until housing recovers. Tomorrow's CW: Housing recovery not good enough to fix labor market.
Interest rates for mortgages are low but profits for banks are soaring. "Interest rates on mortgages and refinancing are at record lows, giving borrowers plenty to celebrate. But the bigger winners are the banks making the loans. Banks are making unusually large gains on mortgages because they are taking profits far higher than the historical norm, analysts say. That 3.55 percent rate for a 30-year mortgage could be closer to 3.05 percent if banks were satisfied with the profit margins of just a few years ago. The lower rate would save a borrower about $30,000 in interest payments over the life of a $300,000 mortgage...Mortgage bankers acknowledge that they are realizing big gains right now from home loans. But they say they cannot afford to cut rates even more because of the higher expenses resulting from stiffer regulations." Peter Eavis in The New York Times.
@BCAppelbaum: "That 3.55 rate for a 30-year mortgage could be 3.05 if banks were satisfied with normal profit margins."
Prosecutors have offered ex-UBS traders a deal in the Libor probe. "U.S. prosecutors have agreed to shield several former UBS AG employees from criminal charges in return for their cooperation with the escalating investigation of suspected interest-rate manipulation, according to a person close to the probe. The leniency deal was offered to former traders and other employees who had relatively junior-level jobs at the Swiss bank, the person said...The agreements with former UBS employees are a sign that the Justice Department is trying to persuade them to turn against the people suspected of leading the alleged interest-rate rigging at the bank, legal experts said." Jean Eaglesham and Joe Palazzolo in The Wall Street Journal.
A lax banking law helped enable money laundering cases. "The list of global banks that have been accused in recent years of laundering foreign transactions totaling billions of dollars has been growing -- Credit Suisse, Lloyds, Barclays, ING, HSBC -- and now Standard Chartered. The details in each case are different, with the international banks suspected of using their American subsidiaries to process tainted money for clients that included Iran, Cuba, North Korea, sponsors of terrorist groups and drug cartels. What the cases have in common is that the accused banks took advantage of a law that was not changed until 2008 and that allowed banks to disguise client identities and move their money offshore." Jessica Silver-Greenberg and Edward Wyatt in The New York Times.
Productivity grew last quarter. "The productivity of U.S. workers grew mildly in April through June, reflecting a slow improvement in the overall economy, even as labor costs moved higher. Nonfarm business productivity, the output per hour of all workers, rose at a 1.6% annual rate in the second three months of 2012, the Labor Department said Wednesday. Unit labor costs were up 1.7% during the period. The productivity acceleration was just above expectations. Economists surveyed by Dow Jones Newswires had forecast that productivity would rise 1.3% in the quarter and labor costs would rise 0.6%. The increase in productivity reflects a modest improvement in output as hours worked barely grew." Sarah Portlock and Eric Morath in The Wall Street Journal.
@mattyglesias: I think "productivity" is a misleading word in a services-dominated economy.
Tumblr interlude: Famous album covers recreated using socks.
Retail and restaurants are the most likely to make cuts as Obamacare takes effect. "Employers in the retail and restaurant industries are more likely than other companies to drop their health plans or cut workers' hours when new health-law requirements take effect in 2014, according to new data from the consulting firm Mercer...According to a Mercer survey of 1,203 employers released Wednesday, about 9% of retail and hospitality employers were planning to drop their existing health plans once new insurance exchanges are set up in 2014, compared with 6% of companies across all sectors. The survey also found that retail employers who don't currently offer coverage were more likely to consider cutting employees' hours to avoid requirements of the law." Louise Radnofsky in The Wall Street Journal.
The White House is weighing executive action on cybersecurity. "The Obama administration is considering exercising the White House's executive authority to impose cybersecurity mandates after lawmakers failed to adopt legislation to implement those measures, a top U.S. counterterrorism official said on Tuesday. Those options include President Obama possibly introducing several cybersecurity measures via presidential executive orders, according to White House chief counterterrorism adviser John Brennan. 'We will see what we can do ... the critical infrastructure of this country is under threat' by cyberattacks from state and non-state actors, Brennan said during a speech at the Council on Foreign Relations in Washington." Carlo Muñoz in The Hill.
College debt is hitting upper-middle-income households. "Rising college costs and a sagging economy are taking the biggest toll on a surprising group: upper-middle-income families. According to a Wall Street Journal analysis of recently released Federal Reserve data, households with annual incomes of $94,535 to $205,335 saw the biggest jump in the percentage with student-loan debt from 2007 to 2010, the latest figures available...The amount borrowed by upper-middle-income families, meanwhile, has soared. They owed an average of $32,869 in college loans in 2010, up from $26,639 in 2007, after adjusting for inflation, according to the Journal's analysis." Ruth Simon and Rob Barry in The Wall Street Journal.
IRS employees were discouraged from finding fraud. "Internal Revenue Service supervisors discouraged employees from rooting out fraud in a program that assigns taxpayer identification numbers to non-U.S. residents and others who don't qualify for a Social Security number, according to a report Wednesday from the Treasury inspector general for tax administration. The management failures--including a focus on processing applications quickly instead of accurately--allowed the creation of fictitious identities, meaning that some people who didn't qualify ended up with a taxpayer identification number, the Treasury inspector general for tax administration found. The result could be fraudulent tax returns, the report said. It didn't quantify the number of such returns, if any, or the extent to which people may have received tax refunds they didn't deserve." Siobhan Hughes in The Wall Street Journal.
Other planets interlude: What sunrise looks like on Mars.
A system to slow climate change has increased output of a harmful gas. "That incentive has driven plants in the developing world not only to increase production of the coolant gas but also to keep it high -- a huge problem because the coolant itself contributes to global warming and depletes the ozone layer. That coolant gas is being phased out under a global treaty, but the effort has been a struggle. So since 2005 the 19 plants receiving the waste gas payments have profited handsomely from an unlikely business: churning out more harmful coolant gas so they can be paid to destroy its waste byproduct. The high output keeps the prices of the coolant gas irresistibly low, discouraging air-conditioning companies from switching to less-damaging alternative gases. That means, critics say, that United Nations subsidies intended to improve the environment are instead creating their own damage." Elisabeth Rosenthal and Andrew Lehren in The New York Times.
Cass Sunstein circulated industry attacks on smog standards. "The outgoing White House regulations chief circulated industry attacks on proposed smog standards among high-level advisers to President Obama, emails released to The Hill through a FOIA request show. Cass Sunstein, the regulatory official, ensured that White House aides including Nancy-Ann DeParle and Heather Zichal were made aware of powerful business groups’ concerns with plans to tighten ozone standards, a proposal that was subsequently put on ice. The debate consumed parts of the administration in 2011. Records obtained under a Freedom of Information Act request also show efforts by lobbyists to appeal to White House officials on other rules, providing a window onto how industry groups sought to press their case with senior aides at 1600 Pennsylvania Ave." Ben Geman and Kevin Bogardus in The Hill.
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.