Wonkbook: What will Ben Bernanke do?

September 13, 2012

Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

Wonkbook dashboard

RCP Obama vs. Romney: Obama +3.5%; 7-day change: Obama +3.5%.

RCP Obama approval: 49.8%; 7-day change: +2.6%.

Intrade percent chance of Obama win: 63.0%; 7-day change: +4.7%.

Top story: Checking in on the economy -- and the Fed

Economic growth expectations for this quarter are improving. "Wholesale inventories in July rose by the most in five months, exceeding forecasts and suggesting economic growth started the third quarter on slightly better footing than expected...Wholesale inventories climbed 0.7 percent in July to $485.2 billion, the Commerce Department said...Inventories are a crucial element in the government’s measure of changes in gross domestic product. Weaker growth in inventories dragged on the economy during the second quarter, when the economy expanded at a 1.7 percent annual rate. July’s gain in inventories was enough for some economists to raise forecasts slightly for third- quarter G.D.P." Reuters.

Some experts doubt efficacy of monetary easing. "Economists are skeptical about the economic benefits of another round of bond buying by the Federal Reserve, though most expect the central bank to embark on that course when its latest policy meeting concludes Thursday, according to The Wall Street Journal's latest forecasting survey. Thirty-four of 47 respondents to the survey said they expected the Fed to announce another round of large-scale asset purchases...While the economists believe the Fed will act, they raised doubts about Mr. Bernanke's arguments. Of those who answered the survey of 51 forecasters, 28 said more QE this year would be a mistake, while 17 said it would be the right thing to do. Those surveyed are a mix of Wall Street, business-sector and academic economists." Phil Izzo in The Wall Street Journal.

@bcappelbaum: Will the FOMC's unusual decision to act on a Thursday stimulate the economy or unleash inflation? Discuss.

The one link you must click on: Mike Konczal explains the economic situation -- and what the Fed might do next -- in GIFs.

Over the long run, men have seen decades of income stagnation. Why? "Real male earnings are lower than they were in the early 1970s (these figures discount government transfers)...As Michael Greenstone and Adam Looney explained in a report for the Hamilton Project, median annual earnings for men are actually in worse shape than the Census shows. When you calculate the earnings of all men -- not just those working full-time -- you see an awful 28 percent plunge in median real wages from 1969 to 2009...What's happening is that men are dropping out of the the full-time work force in frightening numbers. Greenstone and Looney use Census data to estimate where they're all going. Most of the increase comes from older men retiring early and middle-aged men collecting disability or failing to find work. This raises the possibility that, in addition to be discouraged by the labor force, many of these men are also taking advantage of the growing safety net to stay out of the work force." Derek Thompson in The Atlantic.

@jhweissman: There needs to be a new term for an economy that is growing while median incomes decline

Read: The latest report from the Bureau of the Census, 'Income, Poverty, and Health Insurance Coverage in the United States: 2011'.

@justinwolfers: It's amazing how we've distorted the word "middle class." Realize that the median full-time man earned $48,200 last year. $37,100 for women.

Other key findings from that census report: "Median incomes fell from 2010 to 2011 for all races, although the change was not statistically significant for Asians and Hispanics...Inequality rose, and is at its highest level on record since 1967...Men have gained more jobs in the recovery (dubbed the 'he-covery') but they also lost a lot more jobs in the recession ('man-cession')...There’s more evidence that the work force is 'hollowing out,' as there was significant job growth in the first, second and fifth income quintiles, but not in the third and fourth ones...The share of people without health insurance fell. The biggest drop was among those 19 to 25 years old, who can now join their parents’ health insurance plans." Catherine Rampell in The New York Times.

@JimPethokoukis: Many middle class families have moved into lower-income quintiles creating income distribution that is less flat

ROVE: When Obama promised a quick recovery. "In his speech in Charlotte, N.C., last Thursday, Mr. Obama said, 'I won't pretend the path I'm offering is quick or easy. I never have.' In truth, he did. Mr. Obama and his economic team claimed in a Jan. 9, 2009, report that if his stimulus bill were passed, joblessness would peak at 8% in eight months and decline to roughly 5.6% by today. Instead, unemployment has been at 8% or higher for 43 months. Remember the administration's 'Recovery Summer' PR offensives? In April 2010, Mr. Obama said, 'We are beginning to turn the corner.' Then in June 2010, he said "our economy is getting stronger by the day.' Vice President Joe Biden predicted job gains of 500,000 a month. In August 2010, Treasury Secretary Timothy Geithner penned an op-ed entitled 'Welcome to the Recovery.'" Karl Rove in The Wall Street Journal.

WILL: Time for a more modest Fed. "Fortunately, not everything is up to date in Kansas City. Esther George, president of the regional Federal Reserve Bank here, is refreshingly retrograde regarding what less circumspect people welcome as the modernizing of the nation’s central bank into a central economic planner...Because today’s rate is negative, the Fed’s stimulus repertoire is reduced to 'quantitative easing.' That phrase, which is how government speaks when trying not to be understood, means printing money...When the independent Fed buys bonds to affect short-term economic stimulus by manipulating long-term interest rates, this is less monetary policy than fiscal policy, which is the business of an accountable Congress. It also is a preposterous arrogation by the Fed of a role as the economy’s central planner, a role beyond the Fed’s -- or anyone else’s -- competence, and incompatible with its independence." George F. Will in The Washington Post.

BLOOMBERG VIEW: Time for Bernanke to act. "Almost two-thirds of economists surveyed by Bloomberg expect Bernanke to announce a third round of quantitative easing. We hope they’re right, and hope too that the Fed, for the first time, makes its program open-ended. There’s no need to announce a limit on the scale of planned purchases. The Fed should say it will begin a new round of stimulus and will maintain its efforts to support demand until economic conditions show clear signs of improvement. Bernanke can expect to be criticized for doing the right thing...He shouldn’t say sorry for doing his job." Bloomberg View's Editorial Board.

AVENT: The Fed is likely to chart a more modest course. "The Fed will recognise that some of the recent increase in expectations is a result of markets pricing in new Fed action, that it must therefore follow through to keep expectations at the current level, but it will also include tempering language designed to discourage the view that it is now open to temporary moderate inflation. In that case, expectations will likely plateau in the very near future, and growth should accelerate through the end of the year but not enough to change the overall recovery trajectory. That would be an outcome similar to that in late 2010, when expectations rose from August hints of forthcoming QE2, then leveled off on the actual policy announcement in November, before sinking again when further headwinds knocked the economy back off course." Ryan Avent in The Economist.

Top op-eds

SUNSTEIN: Hip-hip-hooray for cost-benefit analysis! "It is not exactly news that we live in an era of polarized politics. But Republicans and Democrats have come to agree on one issue: the essential need for cost- benefit analysis in the regulatory process. In fact, cost-benefit analysis has become part of the informal constitution of the U.S. regulatory state. This is an extraordinary development...[T]he requirement of cost-benefit analysis has deterred agencies from proceeding with rules that promise to impose big economic burdens without corresponding gains. With its embrace of cost-benefit analysis, the Obama administration has approved rules with net benefits well in excess of $100 billion...What is remarkable is that all of these issues are being addressed under a framework that is now broadly shared. Endorsed for more than three decades and by five presidents, cost-benefit analysis is here to stay." Cass Sunstein in Bloomberg.

KLEIN: Romney's campaign is losing. And when campaigns are losing, they begin to make mistakes. "There’s a saying in politics: No campaign is ever as good as it looks when it’s winning nor as bad as it looks when it’s losing. In Mitt Romney’s comments on Libya, you see part of the reason why...When campaigns are losing, they get desperate. And when they get desperate, they make riskier political decisions. And so, Tuesday night, the Romney campaign made a risky decision...Romney’s comments were, to be sure, unusually noxious and indecent. But this is also what happens when campaigns get desperate. Like a gambler who’s already lost too much, they begin taking risks in the hope of making it all back. And then, more often than not, they pay the price." Ezra Klein in The Washington Post.

@ezraklein: So who on the Romney campaign decided, "you know, we've talked about the economy enough in this campaign"?

DIONNE: Nostalgia politics. "A specter is haunting the affluent societies of the West. Across the rich countries and across the political spectrum, there is an unstated but palpable longing for a return to the 1950s. This nostalgia takes different forms on the left and on the right. For progressives, the backward-looking wish is for the shared and growing prosperity when unions thrived and could enforce a relatively egalitarian social contract...On the right, ’50s nostalgia takes the form of a quest for order, social homogeneity, religious faith -- or, at the least, public respect for traditional values -- and strong families, sometimes defined as a return to old gender roles and a less adventurous approach to sexuality. Neither side fully acknowledges its own nostalgia, partly because everyone wants their 1950s a la carte...In the end, of course, nostalgia is a dangerous form of politics and a kind of lie." E.J. Dionne in The Washington Post.

HERTSGAARD: The farm bill as climate legislation. "The farm bill is not only the centerpiece of United States food and agriculture policy, it is also a de facto climate bill. And in this respect, both the Senate and House versions of the legislation are a disaster waiting to happen... would make American agriculture’s climate problem worse, in two ways. Not only would the bill accelerate global warming by encouraging more greenhouse gas emissions, it would make the nation’s farms more vulnerable to the impacts of those emissions. Indeed, instead of helping farmers take common-sense measures to limit their land’s vulnerability to extreme weather, the legislation would simply spend billions more on crop insurance -- sticking taxpayers with the bill...[A]griculture is also a major contributor to global warming: by some estimates, it accounts for roughly a third of emissions globally. The industrialized, meat-heavy food system of the United States takes a heavy toll on the atmosphere; it takes an enormous amount of fossil fuel to run farm equipment and harvest the mountains of corn that fatten livestock. And most fertilizers contain nitrous oxide, a greenhouse gas 298 times more potent than carbon dioxide over a century." Mark Hertsgaard in The New York Times.

Haughty interlude: Now even you can be a pretentious art critic.

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

Still to come: why the U.S. deserves a credit downgrade; the case for a fat tax; why businesses care about more than marginal tax rates; fuel economy standards around the globe; and a new species of monkey.

Economy

Believe it or not, good news from Europe. "Industrial production in the 17 countries that share the euro rebounded in July...The rise in industrial production was larger than expected, driven by a surge in the manufacture of capital goods...The rebound in factory output does suggest that the euro-zone economy may be more resilient than many economists had suspected, and continuing to draw strength from sales of factory equipment to large developing economies where business investment is stronger than in the currency area." Paul Hannon in The Wall Street Journal.

Why Moody's is right to be considering downgrading U.S. debt. "How many times should the American political system be permitted to fail to accomplish its stated aims before we begin concluding that there’s something structurally wrong in American politics that needs to be priced into our predictions of how well Washington will manage its budget going forward? How many times should one party in Congress be permitted to threaten that it will force the country to default on debts that it could pay before investors begin wondering whether the United States is as responsible a borrower as they believed it was prior to this kind of continuous brinksmanship?...[I]nsofar as credit-rating agencies like Moody’s are wrong about Congress’s ability to make responsible fiscal decisions going forward, my worry isn’t that they’re being overly pessimistic. It’s that they still don’t understand how bad things have gotten." Ezra Klein in The Washington Post.

Michael Bloomberg: Washington needs to stop obsessing over taxes. "When it comes to improving the business climate, 'Usually the pundits think of this as lowering taxes,' Bloomberg said in a Wednesday speech in downtown D.C. 'But taxes are just one element of the environment — and usually not the most important. The first question most entrepreneurs ask is not can I afford the taxes — it’s not that. It is: Who are my customers, and where do I need to be to serve them, and how do I get up and running  quickly?'” Suzy Khimm in the Washington Post.

Biology interlude: A new species of African monkey is found.

Health Care

Where this year's change in the uninsured pool happened. "New Census data out Wednesday showed the uninsured rate ticking downward, from 16.3 percent in 2010 to 15.7 percent in 2011. That downward trend, however, looks to be concentrated in a handful of states. The State Health Access and Data Assistance Center maps out the change in insurance rates, between 2011 and 2012. Only seven states saw a statistically significant decline in the uninsured rate. Two, New Hampshire and Colorado, actually saw their uninsured rates go up." Sarah Kliff in The Washington Post.

Why a fat tax would make a hefty difference. "Columbia University’s Ray Fisman notices an interesting new study on milk pricing that suggests a small fat tax, increasing the relative cost of fattier foods by a quarter or two, could go a long way...'This paper suggests a selective taxation mechanism by altering the relative prices of healthy and unhealthy products in a way that those changes are reflected in shelf prices at the point of purchase,' [the paper's authors] conclude. 'Tax policies designed to alter the relative prices within narrowly defined food products can also mitigate regressive impacts by incentivizing consumers to switch to relatively cheaper and healthier options.'" Sarah Kliff in The Washington Post.

Domestic Policy

Opponents of restrictive voting laws gain some ground. "Legal battles across the nation over who is eligible to vote and whether and how their ballots will be counted are far from settled, even as early voting in some states is set to begin this month...Democrats, minority groups and civil rights organizations have had a successful few weeks challenging an unprecedented number of voting-law changes enacted largely by Republican-led states where officials said they were trying to prevent voter fraud." Robert Barnes in The Washington Post.

Broader public policy, not just taxes, matters to business. "If Washington really wants to help businesses, New York Mayor Michael Bloomberg says that politicians need to stop obsessing so much over tax rates. When it comes to improving the business climate, 'Usually the pundits think of this as lowering taxes,' Bloomberg said in a Wednesday speech in downtown D.C. 'But taxes are just one element of the environment — and usually not the most important. The first question most entrepreneurs ask is not can I afford the taxes — it’s not that. It is: Who are my customers, and where do I need to be to serve them, and how do I get up and running quickly?'" Suzy Khimm in The Washington Post.

House of Reps. will pass stopgap spending plan. "The House is expected to easily pass a short-term spending plan Thursday to keep government operations funded through March, a move that would signal that the chamber has at least temporarily jettisoned the brinkmanship of last year. With support from House Republican and Democratic leaders, the legislation is expected to win broad approval and set government spending for the first six months of fiscal 2013 at a rate slightly higher than that of the current fiscal year...[T]he legislation includes $1.047 trillion in total spending, including an across-the-board spending increase of 0.6 percent over the base rate, higher than the $1.028 trillion limit Ryan set in the House Republican budget passed in the spring." Ed O'Keefe and Paul Kane in The Washington Post.

Computer-driven trading comes under congressional examination. "Congress is stepping up its scrutiny of computer-driven trading and its effect on market stability after a string of technical glitches this year that roiled markets and hurt investor confidence. A Senate Banking Committee panel will hold a hearing on Sept. 20 to probe how computers interact in the market and whether some firms have advantages over others, according to people familiar with the planning of the hearing." Scott Patterson in The Wall Street Journal.

Amid continuing drought, USDA knocks down crop forecasts for third time. "The Agriculture Department on Wednesday slightly lowered its forecast of corn and soybean yields as record heat continued to batter crops in the Midwest, making it likely that farmers will bring in one of the lowest harvests in years. The estimates are published monthly, and this is the third report in a row in which the department has lowered its forecasts for this fall’s harvest of corn and soybeans." Ron Nixon in The New York Times.

@grossdm: Wow. Macro Advisers says drought will reduce U.S. GDP growth rate by .6% in 2nd half. Agriculture is still huuuge industry

Friday morning jam interlude: "Baba O'Riley," The Who..

Energy

The U.S., a laggard in fuel economy standards. "Back in August, the Obama administration announced strict new fuel economy standards for cars and light trucks. By 2025, passenger vehicles sold in the United States are supposed to get, on average, 54.5 miles per gallon. So how does these rules stack up internationally? On paper, at least the Obama administration’s new rules don’t look quite as ambitious. Japan and the European Union have higher targets in place. China, meanwhile, has also proposed stricter standards, although they haven’t been enacted yet." Brad Plumer in The Washington Post.

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Suzy Khimm · September 12, 2012