Wonkbook: Super Mario to Europe’s rescue?

August 21, 2012

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RCP Obama vs. RomneyObama +2.5%; 7-day change: Obama -1.5%.

RCP Obama approval48.7%; 7-day change: +0.5%.

Intrade percent chance of Obama win58.1%; 7-day change: +0.1%.

Top story: Super Mario [Draghi] to the rescue?

Germany has said it will back ECB bond-buying. "Jörg Asmussen, the powerful German member of the ECB’s executive board...signalled full backing for the bond rescue plan of ECB chief Mario Draghi, brushing aside warnings from the German Bundesbank that large-scale purchases would amount to debt monetisation and a back-door fiscal rescue of insolvent states in breach of EU treaty law...His support for Mr Draghi is crucial. While the ECB can, in theory, enforce its policy by majority vote, it would be hazardous to do so against German opposition." Ambrose Evans-Pritchard in The Telegraph.

The German economy, long the only one in Europe above water, is itself beginning to sink. "Germany’s central bank warned on Monday that the country could be stressed by the region’s ongoing financial crisis, with signs of a slowdown accumulating in the euro zone’s largest economy even as it is being relied on ever more to prop up its neighbors. 'Confidence in German public finances is a key anchor of stability in the current crisis but it cannot be taken for granted,' the Bundesbank said in a monthly report...Germany’s economy is expected to grow by just 1 percent this year, and the most recent data from the Eurostat statistical agency showed the country expanding just 0.3 percent from April through June." Howard Schneider in The Washington Post.

Greece is drafting the details of a 11.5 billion euro austerity plan. "Although the specifics of the cutbacks still remain a work-in-progress, senior government officials have made clear that the new measures will include across-the-board cuts in pension benefits--a politically sensitive issue--as well as wage reductions and layoffs in the broader public sector...Among the details being discussed are a sliding scale of cutbacks with low-income pensioners--those who survive on, say, an EUR800 a month pension--seeing their retirement checks trimmed by one or two percent. High-income retirees collecting more than, say, EUR2,000 per month, could see their income reduced by 15." Alkman Granitsas and Nektaria Stamouli in The Wall Street Journal.

The European Central Bank is trying to discourage speculation about monetary policy action. "The [ECB] sought Monday to discourage speculation that it might act far more aggressively to contain borrowing costs for countries like Spain, while issuing a rare rebuke to government officials who have encouraged such speculation...[German magazine Der Spiegel] reported Sunday that the central bank was considering setting upper limits on borrowing costs for some euro zone countries. To enforce such limits, the bank would have to promise to buy bonds in whatever quantity was necessary, a risky commitment...It did not mention any countries but may have been referring to comments by Luis de Guindos, the Spanish economy minister." Jack Ewing in The New York Times.

Could the ECB even cap borrowing rates for European governments, as is rumored to be under consideration? "[T]here are three big reasons to be cautious about the 'spread cap.' One is philosophical, another is practical and the third is tactical... Buying whatever is needed could amount to a lot...Setting an explicit cap removes a lot of control from the ECB’s hands...The practical question is also vexing...Should the ECB buy only short-term bonds? If there’s a spread cap, should Spain get a higher spread cap than Italy? And how exactly should such a spread cap be figured?" Charles Forelle in The Wall Street Journal.

The ECB's promise to do 'enough' is actually conditional. "[T]he one thing the ECB has been explicit about is that any intervention will come with strings attached...Conditionality is a particularly vexing issue for the ECB...[C]onditionality isn't a happy partner for monetary policy, the banner under which the ECB has said bond purchases are possible. It pushes the unelected ECB even deeper into the political arena. And it raises the question of what the ECB would do if, once purchases have started, a country fails politically or economically to achieve its targets. For if conditionality is to mean anything at all, there must be consequences for failure." Richard Barley in The Wall Street Journal.

European commercial banks have reached a state of near-total dependence on central bank credit. "[Europe faces] a sharply-increased reliance of banks in the eurozone periphery on ECB liquidity. Highlighting the trend, Spanish banks last month tapped more than €400bn in the ECB’s open market operations – a third of the record €1.2tn total lent by the eurozone’s monetary guardian...Reversing this trend will not be easy. Financial fragmentation has a lot further to go...As a result, ECB funds are heading to Europe’s sunnier south, where dependence is becoming widespread. Spain, Italy and Portugal, accounted for 60 per cent of ECB lending in July. Spanish banks’ use was equivalent to 11 per cent of their total assets; for Italian banks the figure was about 7 per cent." Ralph Atkins and Mary Watkins in The Financial Times.

Top op-eds

BROOKS: Romney-Ryan are passionate moderates on entitlement reform."When you look at Mitt Romney through this prism, you see surprising passion. By picking Paul Ryan as his running mate, Romney has put Medicare at the center of the national debate. Possibly for the first time, he has done something politically perilous. He has made it clear that restructuring Medicare will be a high priority. This is impressive. If you believe entitlement reform is essential for national solvency, then Romney-Ryan is the only train leaving the station. Moreover, when you look at the Medicare reform package Romney and Ryan have proposed, you find yourself a little surprised. You think of them of as free-market purists, but this proposal features heavy government activism, flexibility and rampant pragmatism." David Brooks in The New York Times.

Kevin Drum does not agree: http://nyti.ms/O0YtVI

ORSZAG: Don't bet on the power of competition in health care. "The vast bulk of health-care costs arise from an extremely small share of patients, whose insurance will inevitably bear a substantial share of their expenses. That’s why competition in health care doesn’t work as well as in other sectors...Unfortunately, proponents of moving Medicare to a private “consumer-driven” system, including Republican vice presidential hopeful Paul Ryan, seem to instead believe in a health-care competition tooth fairy -- that if we just increase the patient’s share of costs and bolster competition among insurance companies, the expense will come down...We don’t want to put all our chips down on the health-care competition tooth fairy." Peter Orszag in Bloomberg.

@ObsoleteDogma: It's not clear at all that Paul Ryan's premium support would save more than IPAB.

KLEIN: The best and worst cases against the Obama administration's economic policies.

The best case: "Early on, the Obama administration misunderstood the unusual nature of the crisis. You can see it in its forecasts, which predicted a rapid, “V”-shaped recovery even if Congress didn’t pass a stimulus bill. And you can see it in the administration’s policies...[O]ne view is that the administration basically got the crisis backward. You couldn’t fix the housing crisis by fixing the economy. You had to fix the economy by fixing the housing crisis."

The worst case: "There is a strain of thinking that argued, from the beginning, that Obama’s policies would fail because the required borrowing would send interest rates soaring...This doesn’t say anything one way or another about the success of Obama’s policies. You might think they failed, for instance, because they didn’t do enough to address housing debt. That would lead you to a verdict on Obama that’s no less harsh than Ferguson’s, but that actually has some empirical evidence behind it...Whatever you believe about Obama’s policies, the Ferguson/WSJ/Ryan theory has clearly failed in its main predictions, and it’s worrying to see that this hasn’t led to a more serious effort to rethink its premises."Ezra Klein in The Washington Post.

PONNURU: The problem of taking political sides. "I can’t stand the people on your side. Not you, particularly. You’re fine. It’s your side that’s ruining everything great about this country. Your side lies shamelessly...Your side is simplistic. You never stop and think things through. That’s how you end up with your ridiculously inconsistent positions on abortion and the death penalty...Your side’s extremism just grows and grows. Back in the day, people on your side had some sensible views and were willing to work with people on my side. Now your side purges anyone who would dare to do that." Ramesh Ponnuru in Bloomberg.

HANSON: What the drought reveals about American farming. "Our food is grown by only about 1% of the population. Usually an impressive variety of produce simply appears—safe, plentiful, fresh and relatively cheap—on our grocery-store shelves without much public appreciation of how it got there...The mystery isn't that we have devastating droughts like this summer's, but that so few Americans manage to produce so much food against such daunting odds." Victor Davis Hanson in The Wall Street Journal.

MICHAELS: Energy efficiency is no panacea. "Mandated increases in energy efficiency—popular almost everywhere on the ideological spectrum—have been implemented around the world...[T]hey promise consumers lower energy bills and producers more profit while mitigating the environmental costs of energy development and consumption. There is just one problem: Basic economics says that the best way to promote some activity is to reduce its price. That often means efficiency requirements end up having the opposite effect than the one intended...Research on the effects of efficiency measures tells us that such overestimates of savings are significant, and economic theory suggests that they are to be expected. " Robert J. Michaels in The Wall Street Journal.

Top long reads

The Economist shines a light into the finances of the Catholic Church:"OF ALL the organisations that serve America’s poor, few do more good work than the Catholic church: its schools and hospitals provide a lifeline for millions. Yet even taking these virtues into account, the finances of the Catholic church in America are an unholy mess. The sins involved in its book-keeping are not as vivid or grotesque as those on display in the various sexual-abuse cases that have cost the American church more than $3 billion so far; but the financial mismanagement and questionable business practices would have seen widespread resignations at the top of any other public institution...By studying court documents in bankruptcy cases, examining public records, requesting documents from local, state and federal governments, as well as talking to priests and bishops confidentially, The Economist has sought to quantify the damage."

Morning music interlude: Dave Brubeck, "Strange Meadowlark," 1959.

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

Still to come:Trash as an economic indicator; Congressional paralysis strengthens the hand of the Supreme Court; can natural gas help tackle global warming; and an infographic on the use of physical force by police in NYC.

Economy

Apple became the largest corporation in history in absolute dollars*. "Apple hit the new milestone—$623.52 billion—at a time when its influence on the economy, on the stock market and on popular culture rivals that of some of the most powerful companies in U.S. history...Apple's stock-market valuation at Monday's close of business was greater, in nominal terms, although not in inflation-adjusted terms, than Microsoft's closing high of $616.34 billion in December 1999. It left Apple's value more than $200 billion ahead of that of its nearest U.S. rival, Exxon Mobil." E. S. Browning, Steven Russolillo and Jessica E. Vascellaro in The Wall Street Journal.

*That's not adjusted for inflation.

Trash, a most unusual economic indicator, may show that the American economy is headed for a dumpster dive. "What fascinating secrets are buried in our garbage? Perhaps an indication of how well the economy is doing...U.S. GDP growth has long been tightly correlated with the change in carloads of trash that are being shipped off by rail to landfills across the country...In fact, the trash index has had an 82.4 percent statistical correlation with U.S. economic growth since 2001. Few indicators are quite so revealing...And that’s worrisome because, as the graph above shows, the garbage indicator (which is gleaned from statistics provided by the American Association of Railroads) appears to have plummeted for the third quarter of 2012." Brad Plumer in The Washington Post.

Open borders would unleash tremendous economic growth. "Want to double living standards for the global poor? Simple — just repeal all immigration laws. In every single country. Right now...[University of Wisconsin’s John Keenan] stimates that fully eliminating immigration restrictions worldwide would effectively double the world’s labor supply. This, unsurprisingly, leads to enormous economic growth, such that typical workers in developing countries would see annual wages more than double, from an average of $8,903 today to $19,272 with open borders." Dylan Matthews in The Washington Post.

14 potential reasons for the extended stagnation of median household income. "Why has median household income just endured its worst 12-year stretch since the Great Depression? The immediate answer to that question is that economic growth has slowed and inequality has risen...But that answer is really just an accounting answer. The more important questions are why economic growth has slowed and why inequality has risen." David Leonhardt in The New York Times.

Expansion of Panama Canal may help U.S. ports. "This sense that the new set of locks now being built to allow giant ships through the canal will bring riches 1,000 miles or more to the north is shared by industry and government officials along the East Coast and the Gulf of Mexico, who have been promoting multimillion- and in some cases multibillion- dollar port projects for years. The Obama administration has now moved to speed up the review process for developing and deepening the harbors for several of these ports, including those of New York and New Jersey; Charleston, S.C.; Savannah, Ga.; Jacksonville, Fla.; and Miami." John Schwartz in The New York Times.

NYPD interlude: The frequency of use of physical force by police, graphed across a map of New York City.

Health Care

Health experts take down Rep. Todd Akin's theories on rape. ""'There are no words for this — it is just nuts,' said Dr. Michael Greene, a professor of obstetrics, gynecology and reproductive biology at Harvard Medical School. Dr. David Grimes, a clinical professor in obstetrics and gynecology at the University of North Carolina, said, that 'to suggest that there’s some biological reason why women couldn’t get pregnant during a rape is absurd.'” Pam Belluck in The New York Times.

@mattyglesias: Seems to me that an empty chair that promised to caucus with the GOP caucus would have a good chance of beating McCaskill.

Akin's ideas may be wacky, but he's not alone in holding them. "Pennsylvania state Rep. Stephen Freind (R) was an ardent abortion opponent. He authored legislation that included one of the the nation’s first abortion waiting periods, and the case went all the way to the Supreme Court. He also looks to be the first legislator to make the argument that rape prevents pregnancy,  arguing in the late 1980s that the odds of a pregnancy resulting from rape were 'one in millions and millions and millions.' His explanation? The trauma of rape causes women to 'secrete a certain secretion which has the tendency to kill sperm.' Reproductive health experts immediately denounced those remarks. One told the Philadelphia Inquirer, 'Boy, if I could find out what that [secretion] was, I’d use it as a contraceptive.'" Sarah Kliff in the Washington Post.

Domestic Policy

Paralysis in Congress tilts the balance of power towards the Supreme Court. "Much of the court’s work involves the interpretation of laws enacted by Congress. In those cases, the court is, in theory at least, engaged in a dialogue with lawmakers. Lately, though, that conversation has become pretty one-sided, thanks to the legislative paralysis brought on by Congressional polarization. The upshot is that the Supreme Court is becoming even more powerful. Here is the way things are supposed to work. In cases concerning the interpretation of ambiguous federal statutes, the justices give their best sense of what the words of the law mean and how they apply in the case before them. If Congress disagrees, all it needs to do is say so in a new law...This sort of back and forth works only if Congress is not paralyzed." Adam Liptak in The New York Times.

Read: A new study by Professor Richard L. Hasen of UC Irvine on the changing relationship of Congress and the Court.

Arcane 'morning hour debate' may offer way around filibuster. "Want to fix the Senate? Two former Senate aides—a Democratic staffer and a GOP-backed Senate parliamentarian—have a new book out this week suggesting reforms that wouldn’t even require a bill to pass Congress, according to Roll Call’s preview of the book...As the authors note, the Majority Leader could avoid cloture on proceeding to bills at any time by using an arcane process of morning hour debate. ’This route has, for some reason that escapes us, fallen out of favor with modern majority leaders (since Robert Byrd used it),’ the book says…Senate leaders routinely skip over the morning hour debate, but motions to proceed offered during the morning hour cannot be filibustered." Suzy Khimm in The Washington Post.

Explainer: The sources of federal government tax revenue.

Big banks establishing a 25 day 'quiet period' after IPOs to avoid legal action. "[R]oughly 20 companies covered by the Jumpstart Our Business Startups, or JOBS, Act, which applies to corporations with less than $1 billion in annual revenue, have seen research published 25 days after their offerings since April. The choice of a 25-day 'quiet period' after an IPO isn't a coincidence but the result of an informal agreement reached by large Wall Street banks fearful of potential legal actions arising from the JOBS Act, according to interviews with several lawyers and bankers." Telis Demos in The Wall Street Journal.

Regulatory burden is rising, report says. "The economic burden of federal regulation in the United States has risen dramatically over the past 20 years, particularly affecting the nation’s manufacturers, according to a report by an industry group to be released Tuesday. The average number of major federal regulations — those expected to have an economic impact in excess of $100 million — that have been finalized each year has risen with each recent administration, according to the report. Under President Bill Clinton it was 27 per year. The number rose to 35 under George W. Bush and stands at 44 per year between 2009 and 2011 under President Obama." Peter Whoriskey in The Washington Post.

Freedom of the press interlude: The U.S. falls from 20th to 47th in a world ranking of press freedoms.

Energy

Can natural gas help tackle global warming? "At a glance, the country appears to be making major progress in tackling climate change. And many analysts give credit to the recent flood of cheap natural gas, which is shoving aside coal as America’s top source of electricity. Yet some environmentalists have argued that the accolades for natural gas are premature...It’s still uncertain how big an improvement natural gas is over coal, because of those methane leaks. The good news is that those leaks can be plugged. The bad news is that even if the leaks are plugged, a flood of cheap natural gas isn’t, by itself, enough to prevent the planet from heating up significantly. There’s only so much more carbon the world can emit if it wants to avoid a 2°C rise in global temperatures. Natural gas can help avert drastic global warming, but only if paired with a broader set of efforts to curtail emissions." Brad Plumer in The Washington Post.

Shell in race with ice to start Alaska drilling. "Royal Dutch Shell is spending billions of dollars to drill the first oil wells in U.S. Arctic waters in 20 years, backed by an Obama administration eager to show it wasn't opposed to offshore exploration. But the closely watched project isn't going the way the company or the government hoped—illustrating the continuing challenge of plumbing for natural riches in one of the world's most unforgiving locations...The project is just one of many multibillion-dollar efforts Shell has under way, so setbacks don't threaten its overall health. But the problems highlight how oil and gas fields are becoming more difficult to reach." Tom Fowler in The Wall Street Journal.

@Ben_German: GOP platform comm. debating language on ensuring safety in drilling expansion -- some worried it implies existing practices aren't safe

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