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's Number of the Day: 15 percent and 13 percent. Those are the probabilities, respectively, that we'll see a recession within the year or that GDP growth over the next year will run above 3.5 percent, according to economists surveyed by The Wall Street Journal. In other words: A low chance of something really bad or really good -- and a high chance of "meh."
Wonkbook's Graphs of the Day: Floyd Norris's column has some cool ones on profits and wages.
Wonkbook's Top 5 Stories: 1) economic inequality, meet your cousin, political inequality; 2) slow-drip NSA news leaves big puddle; 3) introducing the "Diners' Club"; 4) is this the "replace" in "repeal and replace"?; and 5) a green light for the green agenda.
1) Top story: Is there a doom loop between economic and political inequality?
Freshmen on the House Financial Services Committee can swim in pools of their own campaign money. "Representative Andy Barr, a Republican from Kentucky with little experience in the intricacies of Wall Street, was among the lucky House freshmen to secure a seat on the powerful Financial Services Committee. Now, half a year into his first term, he has emerged as a telling example of why the panel is sometimes called “the cash committee” — a place, critics say, where there are big incentives for freshmen to do special favors for the industry...One afternoon in April, Mr. Barr hosted credit union lobbyists and executives in his House office just before a committee hearing, promising that he would help protect a federal tax break worth $500 million a year, the executives said. Last month, he introduced legislation to eliminate a new federal rule intended to prevent banks from issuing mortgages to customers who could not afford to repay the debt — a measure pushed by bank lobbyists who had visited his office." Eric Lipton in The New York Times.
The Fed, Lawrence Summers, and money. "When Lawrence H. Summers left his job as President Obama’s top economic policy adviser at the end of 2010 to return to Harvard University, one of his first steps was to set up a roster of part-time positions that would touch on just about every corner of the financial world. But as he negotiated with a prominent venture capital firm in Silicon Valley, Mr. Summers made one thing very clear: he needed an exit plan, in case he returned to public service...[H]is money and Wall Street connections put him in an awkward position, partly because the next person to lead the Federal Reserve will oversee the writing of several key new regulations from the Dodd-Frank financial reform bill." Louise Story and Annie Lowrey in The New York Times.
Read this: Wonks, you'll want to read this quarter's symposium in the Journal of Economic Perspectives, which gives a highly readable review of new economic literature on inequality.
Lydia DePillis summarizes. "It’s been nearly two years since Occupy Wall Street took over Zuccotti Park, and the academic establishment is still chewing through questions it raised about how to understand the 1 percent in America. In particular, how did they get so darn rich? And what would happen if we took some of their money away? That’s the focus of this month’s Journal of Economic Perspectives, which features several papers arguing a few sides of the debate, offering some fascinating windows into the nature of extreme wealth." Lydia DePillis in The Washington Post.
And the economic divide is, more and more, about the divide between capital and labor. Really. "American companies are more profitable than ever — and more profitable than we thought they were before the government revised the national income accounts last week. Wage earners are making less than we thought, in part because the government now thinks it was overestimating the amount of income not reported by taxpayers." Floyd Norris in The New York Times.
@mattyglesias: If someone could teach Piketty and Saez to make color charts, we could really get a handle on this whole inequality thing.
Research suggests a link between economic and political inequality: "Larry Bartels, a political scientist, quantified the deafness in a study of voting patterns in Congress. "In almost every instance," he wrote, "senators appear to be considerably more responsive to the opinions of affluent constituents than to the opinions of middle-class constituents, while the opinions of constituents in the bottom third of the income distribution have no apparent statistical effect on their senators’ roll call votes [his emphasis]."..."[H]igher levels of income inequality," writes Frederick Solt, a professor at the University of Iowa, "powerfully depress political interest, the frequency of political discussion, and participation in elections among all but the most affluent citizens, providing compelling evidence that greater economic inequality yields greater political inequality." Solt’s paper suggests a vicious circle." Evan Soltas in Bloomberg.
Explainer: Economic data coming your way this week. Amrita Jayakumar in The Washington Post.
Economists see growth ahead, perhaps enough for a Fed exit. "The U.S. economic growth outlook has been upgraded to decent from lousy—which, while some distance from good, is likely good enough for the Federal Reserve to pull back on its stimulus later this year. On the positive side, fears of another downturn are minimal. Economists in the latest Wall Street Journal economic forecasting survey put less than a 15% chance on another recession hitting in the next 12 months. But at the same time, they put only a 13% chance that growth in gross domestic product this year will be stronger than the long-run average of 3.5%...Forecasts for the rest of the year remain depressed at 2.3% growth in the third quarter and 2.7% in the fourth." Phil Izzo in The Wall Street Journal.
For the first time since 2007, emerging economies are actually growing more slowly than developed economies. "Among forces driving the shift: a resurgent Japan that for years was a weakling of the global economy. Japan's economy expanded 2.6% on an annualized basis last quarter...The recovering U.S. economy has produced steady, albeit tepid, growth. And Europe's economy is estimated to have expanded slightly in the latest quarter after a long recession, new reports this week are expected to show. At the same time, the emerging world's big guns—such as Brazil, Russia, India and China—are ailing or ratcheting back." Sudeep Reddy in The Wall Street Journal.
@EconomicPolicy: The wealthiest Americans have rigged the economy in their favor. Ending tax breaks for the rich is one way to fight inequality.
RICH: The stench on the Potomac. "[W]hat will linger in Washington well after its current dinosaurs are extinct: the political culture owned by big money, Wall Street and otherwise, that the Democrats, no less than the Republicans, have done their best to perpetuate over the past two decades. At least Mitt Romney didn’t pretend to care about the hoi polloi below. Democrats once did." Frank Rich in New York Magazine.
CADENA AND KOVAK: How immigrants reduce inequality. "Without less skilled workers willing to move from the hardest hit markets to cities with better employment prospects, the economy faced the possibility of very unequal changes in employment rates across cities. There is a group of low-skilled workers, though, who are quite sensitive to labour-market conditions in choosing where to locate: immigrants...Immigrants’ mobility therefore serves to allocate the supply of labour towards the areas where it is in the highest demand. As a result, employment rates vary less across cities than they would have if no workers had been willing to move." Brian C. Cadena and Brian Kovak in VoxEU.
Music recommendations interlude: Bloc Party, "This Modern Love."
KLEIN: Everything you know about immigration reform is wrong. "So says Princeton University’s Doug Massey, anyway. Massey is one of the nation’s preeminent immigration scholars. And he thinks we’ve wasted a whole lot of money on immigration policy and are about to waste a whole lot more." Ezra Klein in The Washington Post.
MULLAINATHAN: When a copay gets in the way of health. "People are not overusing ineffective drugs; they are underusing highly effective ones. This is a quandary that two colleagues — Katherine Baicker, a professor of health economics at Harvard, and Josh Schwartzstein, a professor of economics at Dartmouth — and I call “behavioral hazard.” We’ve found that co-payments do not resolve behavioral hazard. They make it worse. They reduce the use of a drug that is already underused...Those in the zero co-pay group were 31 percent less likely to have a stroke, 11 percent less likely to have another major “vascular episode” and 16 percent less likely to have a myocardial infarction or unstable angina. None of these benefits came at a net monetary cost. The insurers did not spend more in total. By some measures, they spent less." Sendhil Mullainathan in The New York Times.
HUBBARD AND KANE: The great miscalculation. ""The deficit is now under control” [is a] fallacy. The C.B.O. did indeed say that the average federal budget deficit would be $62 billion lower per year than was predicted before. That sounds good, but it lacks context. The C.B.O. still anticipates a 2015 deficit of $378 billion. And Uncle Sam is heading — and this is the best-case scenario — toward nearly a trillion dollars of red ink every year after 2023. In an effort to alert Congress to the danger, the C.B.O. also publishes a more realistic alternative fiscal scenario that anticipates how much will actually be spent by the Treasury in the coming decade. The realistic scenario predicts $1.76 trillion more in debt than the old baseline. For anyone willing to question authority, it gets worse." R. Glenn Hubbard and Tim Kane in The New York Times.
KRUGMAN: Milton Friedman, unperson. "What ever happened to Friedman’s role as a free-market icon? The answer to that question says a lot about what has happened to modern conservatism. Friedman, who used to be the ultimate avatar of conservative economics, has essentially disappeared from right-wing discourse. Oh, he gets name-checked now and then — but only for his political polemics, never for his monetary theories...How did that happen? Friedman, it turns out, was too nuanced and realist a figure for the modern right, which doesn’t do nuance and rejects reality, which has a well-known liberal bias. One way to think about Friedman is that he was the man who tried to save free-market ideology from itself, by offering an answer to the obvious question: “If free markets are so great, how come we have depressions?”" Paul Krugman in The New York Times.
WALLISON: Competing visions on housing finance. "The bill that the House will consider proposes a housing-finance market that is predominantly operated by the private sector. The Senate bill is likely to be a proposal that keeps the government in control. The choice of two visions is important...Instead of the usual cave-in to the Government Mortgage Complex, the House bill will give the American people a rare opportunity to consider an alternative future for housing finance." Peter J. Wallison in The Wall Street Journal.
KONCZAL: In defense of the 30-year mortgage. "There are three broad reasons to support the credit guarantee included in the Senate plan. The first is that the PLS market is a mess, and unlikely to recover soon...The second is that providing macroeconomic stability is a legitimate and important function of the government. After the crash, the government had to step in, prevent a banking crisis and run the entire mortgage market after private capital disappeared...And the third reason is to preserve the 30-year fixed rate mortgage." Mike Konczal in The Washington Post.
Something is rotten in the state next to Denmark interlude: "Norway PM Jens Stoltenberg works as secret taxi driver."
2) The NSA story has been slow-drip. But now we have a very big puddle.
Lawmakers say obstacles limited oversight of NSA’s telephone surveillance program. "The Obama administration points to checks and balances from Congress as a key rationale for supporting bulk collection of Americans’ telephone communications data, but several lawmakers responsible for overseeing the program in recent years say that they felt limited in their ability to challenge its scope and legality...They describe regular classified briefings in which intelligence officials would not volunteer details if questions were not asked with absolute precision...Additional obstacles stemmed from the classified nature of documents, which lawmakers may read only in specific, secure offices; rules require them to leave their notes behind and restrict their ability to discuss the issues with colleagues, outside experts or their own staff." Peter Wallsten in The Washington Post.
Obama plan to revamp NSA gets lukewarm reception. "Senior House GOP lawmakers on Sunday criticized Mr. Obama's idea to provide a new advocate for privacy concerns before a secret court that oversees the agency's sweeping data collection, warning that it could slow antiterrorism efforts when time is of the essence...But Mr. Obama faces pushback from civil-liberties advocates who say his proposals don't go far enough. Sen. Ron Wyden (D., Ore.) said he welcomed the proposals but would fight to have them "strengthened" so that, among other things, the phone-data collection program is ended." Janet Hook and Carol E. Lee in The Wall Street Journal.
And you thought you had seen it all interlude: A wave of ice.
3) Introducing the fiscal-policy "Diners' Club."
White House meets with senators to discuss fiscal proposals. "The group of eight Republicans has been meeting regularly with senior White House officials to hash over major fiscal issues as fall deadlines rapidly approach, including four times in the two weeks before Congress began its August recess. The group runs the gamut from former presidential nominee Sen. John McCain (R., Ariz.) to a freshman tea-party ally, Sen. Ron Johnson (R., Wis.), but is notably lacking in top-ranking party officials and budget experts who have been regular fixtures of past fiscal confrontations...The result was a group nicknamed the "Diners' Club" that is ideologically diverse and short on budget-policy expertise—but long on lawmakers who Democrats hope might sign onto a deal." Janet Hook in The Wall Street Journal.
Sen. McConnell demands GOP unity on fiscal issues. "Ahead of fall fiscal talks that already have Washington nervous about a government shutdown, Senate Minority Leader Mitch McConnell is clamping down on Republicans with a firm message to stick with him on spending...To McConnell, Republicans are simply following the law established by the Budget Control Act — which created the sequester’s automatic spending cuts — to trim billions in spending each year while Democrats are the party of “tax and spend,” turning their backs on the last big bipartisan budget deal. A vote for the transportation bill would have violated Congress’s promise to stick to the agreed-upon spending levels, Republicans say." Burgess Everett in Politico.
Cantor to conservatives: We’re not shutting down the government. "It’s possible, of course, that House Republicans could just ignore their leadership on this one and go for a shutdown anyway. But if you look at what key House conservatives are saying to their constituents during the August-recess townhalls, Cantor appears to be on fairly solid ground." Ezra Klein in The Washington Post.
Oh my god this is so great interlude: A glossary of gestures for critical discussion.
4) Repeal and Replace...with what?
Here it is, finally. (Or will be, soon, maybe.) Something some Republicans can say is the "replace" in "repeal and replace." "The conservative Republican Study Committee (RSC) is preparing to unveil legislation that would replace ObamaCare with a new set of healthcare reforms. A spokesman for RSC Chairman Rep. Steve Scalise (R-La.) confirmed Friday that members of the group will introduce their measure after the August recess." Elise Viebeck in The Hill.
Interview: Elizabeth Rosenthal goes on NPR. Worth hearing for health wonks. NPR.
Disability rights advocates, families fight new provision of Affordable Care Act. "Deana Copeland has cared for her 22-year-old, medically fragile daughter since she was born, but she's afraid that a new provision of the Affordable Care Act could force her to place her daughter in foster care...That's because a new provision of the Affordable Care Act set to go into effect Jan. 1, 2014, would largely prohibit guardians from serving as the paid caregiver of an adult child with developmental disabilities. Disability rights advocates and state officials are fighting the provision and say it could restrict family flexibility and choice, especially for single parents who serve as guardians and use the caregiving allowance to stay at home...The new federal provision aims to resolve a conflict of interest that arises when the guardian who helps develop an individual service plan hires herself or himself as the paid caregiver, which could lead to financial fraud." Yuxing Zheng in The Oregonian.
This is one of the most visually stunning infographics I've ever seen interlude: How cities have appeared and disappeared in English literature.
5) A green light for the green agenda
In his second term, Obama becomes bolder on environmental issues. "In the administration’s first term, it framed climate initiatives as ways to promote energy independence or cut consumer costs. It also made modest concessions to business interests — such as rejecting a controversial smog rule, which would have affected a broad swath of industries, and delaying other regulations. Agency heads were given very different guideposts for the second term as Obama deputized a new team of Cabinet members to enact a series of rules and policies aimed at tackling global warming." Juliet Eilperin in The Washington Post.
Amid pipeline debate, two costly cleanups forever change towns. "It has been three years since an Enbridge Energy pipeline ruptured beneath this small western Michigan town [Marshall, MI], spewing more than 840,000 gallons of thick oil sands crude into the Kalamazoo River and Talmadge Creek, the largest oil pipeline failure in the country’s history. Last March, an Exxon Mobil pipeline burst in Mayflower, Ark., releasing thousands of gallons of oil and forcing the evacuation of 22 homes. Both pipeline companies have spent tens of millions of dollars trying to recover the heavy crude, similar to the product Keystone XL would carry. River and floodplain ecosystems have had to be restored, and neighborhoods are still being refurbished. Legal battles are being waged, and residents’ lives have been forever changed." Dan Frosch in The New York Times.
Reading material interlude: The best sentences Wonkblog read today.
Farms are gigantic now. Even the "family-owned" ones. Lydia DePillis.
Everything you know about immigration is wrong. Ezra Klein.
In defense of the 30-year mortgage. Mike Konczal.
Longread: "For Jeff Bezos, a new frontier," by Peter Whoriskey and others, The Washington Post.
President Obama now on vacation at Martha's Vineyard. Billy Kenber in The Washington Post.
Path to US practice is long slog for foreign doctors. Catherine Rampell in The New York Times.
Obama announces aid initiative for wounded vets. Zachary A. Goldfarb in The Washington Post.
Wonkbook is produced with help from Michelle Williams.