Wonkbook: It’s time to downgrade America’s political system

October 16, 2013

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Exterior view of Fitch Rating's offices in New York.
(Photo by Justin Lane/EPA)

Here's why it doesn't matter that Fitch is threatening to downgrade the credit rating of the United States of America: The ratings agencies have no special information about America's political system. No one really cares what they think.

Here's why it does matter: Fitch is right. Does anyone really want to argue with this statement? "Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."

And before Fitch was right, S&P was right. In 2011, they downgraded America because "the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.” Two years later, with sequestration slowing the economy and the government entering its third week of shutdown, does anyone want to argue with that analysis, either?

Fitch and S&P aren't saying anything that the rest of the country doesn't believe. They're not even saying anything that Wall Street doesn't believe. Everyone knows that American politics has become a game of Calvinball played with live ammunition. The question facing traders is when to finally bet that this is the day when someone doesn't make it out alive.

What you see with the Fitch and S&P calls is that the market price on the U.S. political system doesn’t reflect what market participants are coming to believe about it: that a once capable and reliable system is now dysfunctional and unpredictable.

That raises the possibility that a pivotal event could move markets dramatically because traders are prepared to believe, and to begin trading on, a much more pessimistic assessment of America’s political system. If everyone were moved to act on that belief simultaneously -- by a debt-ceiling crisis, for example -- the results could be earthshaking.

Gary Gorton, an economist who specializes in financial crises, put it crisply: “Financial markets can be wrong and they can be wrong in a big way because they don’t understand the situation and it only becomes clear ex-post.”

And it would be so clear. It was there in the polls, which showed the American people had lost faith in their government. It was there in the news stories, which showed Republicans in Congress becoming increasingly reckless. It was even being said by the ratings agencies. The ratings agencies!

Spectacular crises aren’t the only way a political system can fail. A Congress that can’t avoid own-goals like sequestration, that can't routinely legislate to address problems like aging infrastructure, and that misses opportunities like immigration reform will, over time, meaningfully harm the country’s growth prospects. And it will do so in a way that’s hard to notice, and thus hard to fix: People don’t much miss the three-tenths of a percentage point worth of growth they didn’t have that quarter. But compounded over time, it’s a disaster.

Crises can happen slowly, too. We can't say we weren't warned.

(For more on this topic, see "Is America a Bubble?")

Wonkbook's Number of the Day: 0.550 percent. That was the yield on the Treasury bill maturing on October 31, just 15 days from now. Remember, the federal funds rate is 0.08 percent, suggesting a decent default-risk premium. 

Wonkbook's Quote of the Day: "Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."

Wonkbook's Graph of the Day: How the "cash on hand" runs out.

Wonkbook's Top 5 Stories: 1) The end, at last?; 2) the 'train wreck' pulls into the station; 3) how do you say 'taper' in Portuguese; and 4) the men in black.

1) Top story: One day to go before all we have is cash on hand

Senate leaders are finalizing a deal. It looks like this nightmare is basically over. "Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell are finalizing a deal to avert a debt default and reopen the government, capping a frantic day that had Washington bracing for an economic crisis of its own making. The deal is essentially done, sources say, as aides for the two leaders finish drafting the legislative language Tuesday night...Reid and McConnell are expected to brief their respective caucuses Wednesday, hours before the country could fail to pay its bills for the first time in history. Cooperation will be needed from members of both parties in order to avoid default as well as to end the first government shutdown in 17 years. And a Senate plan will need to clear the House, which has struggled to pass any bill to raise the national debt limit." Manu Raju and Burgess Everett in Politico.

House effort collapses. "A campaign to persuade the Republican-led House to lift the federal debt limit collapsed in messy failure Tuesday, leaving Washington careering toward a critical deadline, just two days away, with no clear plan for avoiding a government default...After trying all day, with increasing desperation, to cobble together a debt-limit plan that could win the support of 217 Republicans, Boehner and his top deputies gave up and abruptly canceled a scheduled vote on the measure Tuesday evening and left the Capitol without further plan or explanation." Lori Montgomery and Paul Kane in The Washington Post.

@DouthatNYT: Big gulf right now between headline coverage (chaos! blood! fire!) and reality of insiders' confidence that a deal will happen tomorrow.

...Boehner sees his control of House Republicans slip away. "Boehner struggled to accommodate his most vocal and hard-line members, adjusting his plan to address their concerns only hours after laying it out in a morning meeting with his caucus. But even after the rewrite, even after cajoling lawmakers in small groups — attempting to convince them that passing a Republican plan in the House would give the party more power to win concessions from Democrats than if they allowed the Senate to take the lead — there were still not enough votes to pass it...The death knell for the legislation came as the conservative group Heritage Action announced that it opposed the plan and urged lawmakers to vote against it." Rosalind S. Helderman and Jackie Kucinich in The Washington Post.

How Republicans reacted to the implosion. "After a day of furious negotiating with fellow Republicans over how to tweak a bill he had unveiled in the morning, it was left to stunned members of his leadership team to confirm to reporters that the vote had been canceled. “They’re trying to work it out,” said Representative Greg Walden, the National Republican Congressional Committee chairman. Pete Sessions, chairman of the Rules Committee, kept in character and put a positive spin on an obvious disaster for the GOP. Boehner “made a decision that what we’re going to do is allow us to take the night and make sure all of our members know what’s going on. We’re trying to make sure that what we’re doing, people know about and they can prepare and study for,” Sessions said." Jonathan Strong in National Review Online.

Daily Default Dashboard: Steady as she goes on MondayNeil Irwin, Darla Cameron, and Zachary A. Goldfarb in The Washington Post.

Obama is winning his bet that he could stare Republicans down"More than two years ago, President Obama was still in the thick of his previous showdown with Republican House leaders over the nation’s debt limit when he called five senior advisers into his office. He did not ask their advice, one said. Rather, he told them, in a way that brooked no discussion: From now on, no more negotiating over legislation so basic and essential to the economy, and the country...The current fight is hardly over, yet the steady retreat of House Republicans since late last week, when they first proposed a short-term increase in the debt limit without policy strings, suggests that Mr. Obama’s big gamble could be paying off. It is a stand that was, and still is, fraught with risks if neither side backs down." Jackie Calmes in The New York Times.

@jonathanchait: Time now for Obama to announce he'll veto any debt ceiling bill unless it has single payer attached.

Fitch puts U.S. on notice for possible credit downgrade. "On Tuesday, Fitch Ratings announced it was accelerating its timetable for a potential U.S. credit rating downgrade, citing the brinksmanship in Washington. Fitch would become the second credit rating firm to downgrade U.S. government debt, which could have ripple effects across a range of markets...Fitch's decision doesn't actually downgrade the United States' credit rating, but serves as a signal that it might should the political situation continue to threaten the U.S.'s ability to pay its debts. " Zachary Goldfarb and Aaron Blake in The Washington Post.

Primary source: Read Fitch's statement.

...Fitch says the U.S. government’s debt fundamentals are fine. Our politics are a mess. "It turns out that if you have a major political party arguing that a government debt default wouldn't be that big a deal, it makes people start to wonder just how creditworthy your government really is. That's the lesson of the decision late Tuesday by Fitch, one of the three major credit-rating firms, to put the U.S. government on "Ratings Watch Negative" for a possible downgrade of the nation's AAA credit rating...The irony in Fitch's statement resides in the pains it takes to point out the soundness of the fundamentals of the U.S. debt picture...[T]he United States is not facing anything resembling a traditional debt crisis, like those faced by Greece and Argentina in the recent past. This is a different sort of animal, the Fitch analysts strive to make clear -- a scenario in which it is political actors, not economic fundamentals, that are posing a risk to the creditworthiness of the world's largest economy." Neil Irwin in The Washington Post.

@michaelrstrain: The idea that we can go past the 17th w/out raising the debt ceiling seems to be picking up steam fast among GOP. Just. Kill. Me.

As U.S. faces potential downgrade, markets flash alarm over debt-ceiling impasse. "Stock and bond markets — as well as the system of daily borrowing that helps banks operate and companies make payroll — are flashing increasing concern about whether Congress will find agreement to raise the federal debt ceiling, suggesting that investors may not give lawmakers much more time to haggle before markets swoon...The investor reactions come as major financial institutions and Main Street companies alike are taking steps to protect themselves and their investors in the face of a potential U.S. government default — which the Obama administration has warned might happen if Congress fails to raise the debt ceiling soon." Zachary A. Goldfarb in The Washington Post.

@jimantle: Idea: Open steak/burger joint next to Tortilla Coast called Ray's the Debt Ceiling.

...Treasury yields jump. "Yields on the shortest-term Treasury securities rose sharply on Tuesday to the highest level in nearly five years amid signs that no deal was imminent on Capitol Hill ending the U.S. budget showdown. In late-afternoon trading, bills that mature on Nov. 7 yielded 0.380%, the highest one-month yield reached since October 2008. Yields on Treasury bills maturing on Oct. 17 and Oct. 31 hit as high as 0.395% and 0.550%, respectively. Some large investors including banks and money market funds have indicated they are shying away from issues maturing in the next month, amid fears of a U.S. default...Treasury received fewer orders for each dollar of debt issued in two simultaneous auctions Tuesday—for $35 billion of three-month bills and $30 billion of six-month bills—than in previous auctions. The so-called bid-to-cover ratio fell in both auctions, reflecting the decision of many investors to avoid debt they believe could be hit in a potential U.S. default." Carolyn Cui in The Wall Street Journal.

@grossdm: for crying out loud, people: stop trading the debt ceiling. All it does is generate commissions for brokers.

Alaska's king-crab fleet is stuck at port. Blame the shutdown. "The federal workers needed to process the permits for each boat’s catch quota were on furlough. Equally frustrating, said Tom Suryan, a crabber with 35 years of experience, was that the weather was lovely. The violent seas that crab crews can commonly confront in the fall, and that television audiences have become familiar with in shows like “Deadliest Catch,” were nowhere in sight...The livelihoods of around 500 or so crew members and captains on more than 80 crab vessels are at stake, not to mention the impact on wholesalers, fishmongers and others down the food chain. The Port of Seattle, in a 2009 report, said that each Seattle-based crab boat generates about $500,000 of economic activity a year. But in the crabbers’ case, there is also a ticking clock, with profit margins hinged on a mid-November deadline to supply the Japanese market, where the finest red king crabs are a traditional high-end holiday gift." Kirk Johnson in The New York Times.

...And the automakers are worrying, too. "General Motors, the nation’s largest automaker, acknowledged that the shutdown was chipping away at the consumer confidence that automakers depend on to sell vehicles, even if it was still too early to gauge the full impact of the fiscal standoff. Hyundai also said this week that its sales could fall as much as 10 percent in October because of uncertainty surrounding the shutdown, according to John Krafcik, chief executive and president of Hyundai Motor America...Ford Motor said that the industry appeared to be on pace with projections, made before the impasse, to sell more than 15.5 million vehicles this year." Jaclyn Trop in The New York Times.

Seriously, reopen the government or a pandemic could kill us all. ""To me, the CDC and infectious-disease monitoring is to the military what a hostile enemy threat is," Gregory Poland, an infectious-disease expert at the Mayo Clinic. "We don't furlough our military and say, 'Well, we won't just have any national security until the Congress gets its act together.' But why aren't we willing to save something that could cost just as many lives?" When it comes to data, we already have a nationalized health care system. The CDC provides disease-tracking services that no other agency or private entity does. The CDC is the agency that makes the judgement call about what flu vaccines to distribute across the nation. Without the CDC, we have no real-time tracking of disease outbreaks. It monitors high-security labs that do tests on deadly pathogens like anthrax. It collaborates across international borders to stop outbreaks." Brian Resnick in NationalJournal.

Again? The standoff on the Hill foreshadows another standoff in a matter of months. "[T]hink about what the two sides were talking about Tuesday. In its cleanest form, one piece would fund the government for a relatively short period of time — a matter of months. The second would give the government the power to keep borrowing money until early February." Dan Balz in The Washington Post.

@blakehounshell: So we are down to two scenarios, no? Boehner passes clean debt-ceiling bill, with Dem votes, or bust.

Why is the medical device tax such an issue? "[T]he repeal’s staying power in the debate highlights a typical Washington confluence of money and local politics...During the Obamacare debate, “the medical device companies never came forward with any offer of participation; this was pushed down their throat,” said Ira Loss, a senior health care analyst for investors at Washington Analysis." Rachael Bade and Kim Dixon in Politico.

...Maybe Republicans just really, really want to tweak Obamacare? "What the changes all have in common is that they are relatively small, particularly when compared with opponents' original hopes: to use the budget debate as a lever to strip funds from implementation of the law, or delay for a year its signature provision that most individuals carry insurance or pay a penalty. Those efforts have fallen short. For some Republicans, even modest tweaks to the law would be worthwhile, if only because they would prove that Congress has the ability to alter the law. That, they believe, would be a precedent as the debate continues over the health overhaul." Louise Radnofsky in The Wall Street Journal.

@morningmoneyben: People like Steve King and Ted Yoho have no business anywhere near the debt ceiling. They simply have no idea what they are talking about

Yes, the debt fight could delay Social Security checks. Here’s how. "There’s a theory pinging around that says no matter what happens with the debt ceiling, Social Security beneficiaries will keep getting their checks on time...No one knows exactly what will happen if the nation’s borrowing limit doesn’t rise. As much as retirees and policy advocates want the Obama administration to hold Social Security harmless in that case, there is no guarantee that will happen-- or that it’s legally or technically possible." Jim Tankersley in The Washington Post.

Poll: GOP is more ‘extreme’ but slightly better at running thingsBrad Plumer in The Washington Post.

Pelosi, dealmaker? "Pelosi has reached out to the speaker nearly every day for weeks, according to Democratic aides, either talking to the Republican leader on the floor or calling him to the point of pestering. But Boehner has yet to solicit her help — despite Pelosi’s ability to deliver House Democrats and the fact that most of them would support a government funding bill and debt ceiling hike without controversial policy add-ons." Ginger Gibson in Politico.

36 percent of Americans don't fear the debt ceiling. "A new Pew Research Center poll shows a majority of Republicans and many independents are just fine with the idea of not raising the debt limit by the Treasury Department’s deadline of Oct. 17. The poll shows 52 percent of Republicans, 38 percent of independents and 36 percent of Americans overall say the country can go past that deadline without major economic problems." Aaron Blake in The Washington Post.

@M_C_Klein: I get the sense that not everyone realizes the drop-dead date on the debt ceiling is still a couple of weeks away.

No pay for Senate staffers at end of the week. "As if things weren’t dire enough on Capitol Hill, Senate staffers learned Tuesday that they have received their last paycheck until government funding is renewed by their bosses. Due to the now two-week government shutdown, the regular twice-monthly paychecks for all Senate employees will not be disbursed this Friday unless a bill is passed to resume government funding by Friday, according to a memo sent to all Senate employees." Burgess Everett in Politico.

What the fighting looks like from Europe. "The prospect of similar deadlocks in the future has raised questions about the ability of Washington to function and remain a source of stability in the world, according to some European executives, who worry there could be lasting damage to consumer and business confidence that could act as a brake on investment and spending...Europe’s own fragile recovery rests on demand for its exports, especially from the United States...It would not take much of a stutter in U.S. growth to undermine the euro zone economy, which is still burdened by weak banks and 12 percent unemployment." Jack Ewing in The New York Times.

@mattyglesias: Are we back to complacency about the debt ceiling? Seems appropriate.

...And from Canary Wharf, London's financial district. "[Their] views largely reflected those shared by a number of money managers interviewed over the last week in London, Europe’s financial nerve center. As the city contemplates the abyss that it hopes will never come, heads shake at what they see as the Americans’ inability to operate a government. The prevailing belief seems to be that crisis will be averted and that the politicians will come to their senses at the 11th hour. The alternative is simply too dire to contemplate." Danny Hakim in The New York Times.

...And from Mexico City, and also the whole rest of the world. " word many Mexicans now use to describe Washington reflects a familiar mix of outrage and exasperation: berrinche. Technically defined as a tantrum, berrinches are also spoiled little rich kids, blind to their privilege and the effects of their misbehavior...Faced with Washington’s march toward a default, the world has reacted mostly with disbelief that the reigning superpower could fall into such dysfunction, worry over global suffering to come and frustration that American lawmakers could let the problem reach this point. A common question crossing continents remains quite simple: The Americans aren’t really that unreasonable and self-destructive, are they?" Damien Cave in The New York Times.

SCHIEBER: Boehner's mental institution. "As it happens, Reid and McConnell came very close to inking a deal Monday night, but then McConnell suspended their negotiations on Tuesday to give Boehner a chance at passing a bill, which promptly collapsed under the weight of his own ineptitude and your basic garden-variety House Republican lunacy, at which point Reid and McConnell resumed their negotiation over a deal that will soon pass the Senate and force Boehner’s hand. Which is to say, I missed the all-important “let’s briefly pause so Boehner can flail helplessly while the entire world looks on in horror before we officially end this thing” step in the process." Noam Schieber in New Republic.

MAKIN AND PINEROS: If we hit the debt ceiling, default is unlikely but recession certain. "Hitting the debt ceiling means that government spending gets cut dramatically, by about 20 percent under current conditions. The CBO projects the federal government will spend $3,602 billion in fiscal year 2014, $560 billion of which will be financed by borrowing, and $237 billion of which will be spent on meeting interest obligations. Without new borrowing and while continuing as it is required to do (pay interest on its debt), the federal government will have $797 billion (20 percent of $3,602 billion) less available to spend on non-interest obligations. If mandatory spending remains unaffected, the cuts would force discretionary spending to drop by 48 percent." John Makin and Brittany Pineros in The Atlantic.

WOLF: The debt-ceiling doomsday device. "Some laws are too dangerous to be allowed to remain on the books. Take, for example, the US debt ceiling. It is the legislative equivalent of a nuclear bomb aimed by the US at itself, with the rest of the world within its blast radius. What must never be used should not exist. Regardless of the outcome of the current negotiations, the law needs to be repealed. Orderly government cannot be pursued under so destructive a threat." Martin Wolf in The Financial Times.

IRWIN: House Republicans are falling for the sunk cost fallacy. "If there is to be a successful resolution of the debt ceiling and government shutdown standoff, it will be because House Republicans come to grips with an important concept that they have, to date, showed little appreciation for. It is called the sunk cost fallacy. A sunk cost is something you're not going to get back. If you watch five episodes of a television show you decide you don't like very much, you're never getting that time back. If you date somebody for six months before figuring out you're incompatible with them, same deal." Neil Irwin in The Washington Post.

Music recommendations interlude: Dire Straits, "Your Latest Trick," 1986.

Top opinion

COATES: What this cruel war was over. "It's not so much that a man would fly a Confederate flag, as Jeff Goldberg notes, in front of the home of a black family. It's that a crowd would allow him the comfort of doing it. I was in a crowd once. It's been almost 20 years. But I remember most is how emphatically we were drilled, that day, on the politics of respectability. Our wisdom was conservative—too conservative for my tastes, frankly. But I obeyed the edict of the day which held that had any black man who came to the Million Man March and so much as stole candy bar would doom us all. That was our wisdom. It's a good memory. But I fear that it is no match for the wisdom of Sunday's crowd. The blue period is upon us." Ta-Nehisi Coates in The Atlantic.

BERNSTEIN: Making the Fed a better explainer. "[T]he problem is less the message than the audience.  With few exceptions, Mr. Bernanke spoke only to Congress, markets and economic elites. He held forth at Davos and Jackson Hole — not exactly Main Street.  I think it would be great if Ms. Yellen and others got out more among the people...Talk about the role of Fed interest rate policy, and more recently, its asset purchases, in holding down the cost of loans, including mortgages. Talk about the Fed’s favorable impact on exchange rates, and thus on our manufacturing sector, as low interest rates make our exports more competitive in foreign markets. Talk about how the Fed has been contributing to lower budget deficits by turning the profits on its bond portfolio over to the Treasury, to the tune of around $80 billion a year in recent years." Jared Bernstein in The New York Times.

FRIEDMAN: Taking everything. "Whether they realize it or not, [kids are] the ones who will really get hit by all the cans we’re kicking down the road. After we baby boomers get done retiring — at a rate of 7,000 to 11,000 a day — if current taxes and entitlement promises are not reformed, the cupboard will be largely bare for today’s Facebook generation." Thomas L. Friedman in The New York Times.

Adorable animals interlude: Kitty discovers heater.

2) So far, the Obamacare 'train wreck' is real

Obamacare glitches scare off many Web site users. "The number of visitors to the federal government's HealthCare.gov Web site plummeted 88 percent between Oct. 1 and Oct. 13, according to a new analysis of America's online use, while less than half of 1 percent of the site's visitors successfully enrolled for health insurance the first week." Juliet Eilperin in The Washington Post.

Interview: Robert Laszewski: ‘Obamacare is a bit like the astronaut on top of the rocket.’ Ezra Klein in The Washington Post.

Aetna CEO on Obamacare: ‘There’s so much wrong, you just don’t know what’s broken until you get a lot more of it fixed.’ ""When you implement a project of this size, the first thing is unit testing, then application testing, and then integrated testing, and then scaleability testing and user testing," Bertolini said. "That plan is usually a lot longer than some of the application development itself. That's happening on the fly." The hosts were disbelieving. "None of that was done beforehand?" one asked. "All of it has been on the fly," Bertolini said. My understanding is there was some testing done beforehand. So "all" might be an exaggeration. But that testing didn't go well. And there clearly wasn't nearly enough of it." Ezra Klein in The Washington Post.

Delaying Obamacare’s reinsurance fee would be a win for insurers. "The Transitional Reinsurance Program is undoubtedly one of the most important and most boring parts of the Affordable Care Act. It's a huge reason why health plans are even participating in the health law's marketplaces. It's also a great policy read for those with incurable insomnia...The health law's reinsurance program was thought up as a way to coax insurance companies into the insurance marketplaces that launched on Oct. 1. Jumping into these new markets was a big risk; insurance plans had no clue whether they'd get people who were really sick, really healthy or somewhere in the middle. If one plan unintentionally got all the sick people, perhaps because they structured their benefit package in a certain way, that could drive them out of business. The reinsurance program is essentially protection against that, where the government collects $10 billion in 2014 to redistribute to the insurance plans that get super sick enrollees." Sarah Kliff in The Washington Post.

The huge health-care subsidy everyone is ignoring. "140 million Americans (including members of Congress) directly receive government subsidies when they get health-care coverage through their employers. The Affordable Care Act extends government health-care subsidies to millions of other Americans, but for administrative reasons delivers the subsidy through a different mechanism. But so what? Why is the first subsidy somehow lost in a fog of flag waving and free enterprise talk, and the second the sure sign of galloping socialism?" Edward Kleinbard in The Washington Post.

Health-care law’s fate could hinge on political climate in individual states. "The greatest threats to the ultimate success of the new health-care law come not from the technical problems that have plagued its rollout, but from a hostile political climate in many individual states and from potentially serious weaknesses in its design. Those are the conclusions of a cautionary report just published by the Brookings Institution’s new Center for Effective Public Management. The authors are center director Elaine C. Kamarck, who served as a top policy adviser in the Clinton administration, and Sheila P. Burke, who was chief of staff and top health-care adviser to former Senate majority leader Bob Dole (R-Kan.)." Karen Tumulty in The Washington Post.

Florida doctors prescribe way more drugs than Colorado doctors. "The Dartmouth Atlas is a hugely influential force in health policy, showing that a patients' treatment can, in many cases, depend more on where they live than what's actually wrong with them. Their new report out today shows that to be true with prescriptions: There's huge variation in how many drugs doctors prescribe, only one-third of which can be explained by differences in health status." Sarah Kliff in The Washington Post.

Childhoods interlude: Why you should thank your imaginary friend.

3) What's Portuguese for 'taper'?

Federal Reserve’s expected ‘taper’ of easy-money policies gets pushback from abroad. "International pressure is aimed at slowing U.S. plans to wind down the loose monetary policies used to battle the economic crisis as Federal Reserve officials and others sort through a deluge of criticism, warnings and evidence that their decisions in coming months might derail growth in other countries. Over a week of meetings in Washington, officials from other nations and international organizations were emphatic in their conversations with the United States. While they know a change in U.S. economic policy is coming, they argue that it should be gradually introduced, be well flagged — and not start until the world has had more time to prepare." Howard Schneider in The Washington Post.

The big interview: Robert Shiller, Nobel laureateNeil Irwin in The Washington Post.

The inefficiency of the market isn't an open question. "After living through a stock-market bubble and a credit bubble in the past decade and a half, we can be quite sure that financial markets are sometimes chronically inefficient. The only outstanding question is how far this inefficiency extends...Nobody could dispute that market movements are hard to forecast. But just because it is tough to tell what a market is going to do doesn’t mean it is efficient in any meaningful sense." John Cassidy in The New Yorker.

What the financial system has in common with a sewer. "hough we don’t know exactly what a U.S. default would look like, we do know that chaos in the financial plumbing tends to have a very bad effect on the economy. That’s why the strange movements in Treasury bill markets over the last week -- major investors shedding bills that will be maturing in the coming weeks out of fear they would not be repaid on time — are so worrisome." Neil Irwin in The Washington Post.

In the convenience store of the future, you can get a mortgage along with your toothpaste. "Walgreens announced that it was rolling out a prepaid debit card at all of its 8,541 locations, including Duane Reades, by the end of the year. And not just your run-of-the-mill rechargable piece of plastic: This one will be able to do online bill payments, check cashing, and direct deposit of paychecks...For a retailer, the upside is even greater. If you can provide a form of payment that has built-in rewards for shopping in your stores, you've created customers with a strong loyalty bias toward your products. Wal-Mart recognized this a while ago and introduced its Bluebird card, which Consumers Union gave top marks in a review of the industry this summer." Lydia DePillis in The Washington Post.

Low fast-food wages come at high public cost, reports say. "Taxpayers are spending nearly $7 billion a year to supplement the wages of fast-food workers, even as the leading fast-food companies earn billions of dollars in annual profits, according to a pair of reports released Tuesday. More than half of the nation’s 1.8 million “core” fast-food workers rely on the federal safety net to make ends meet, the reports said. Together, they collect nearly $1.9 billion through the earned income tax credit, $1 billion in food stamps and $3.9 billion through Medicaid and the Children’s Health Insurance Program, according to a report by economists at the University of California at Berkeley’s Labor Center and the University of Illinois." Michael A. Fletcher in The Washington Post.

Oh my god this is so great interlude: hateplow.tumblr.com.

4) The men in black

Supreme Court justices skeptical of affirmative-action arguments. "Supporters of affirmative action faced an uphill battle Tuesday in convincing the Supreme Court that a Michigan constitutional amendment banning the use of racial preferences in university admissions should be thrown out. An appeals court had said that the amendment, approved by 58 percent of the state’s voters in 2006, had restructured the political process in a way that unfairly targeted minorities. But Michigan Solicitor General John J. Bursch told the justices Tuesday it was illogical that the amendment could offend the U.S. Constitution’s protection against discrimination, because the state was simply requiring a color-blind selection process. By contrast, Bursch said, the previous times the Supreme Court has disallowed “political restructuring” were when the government or voters had acted against proposals designed to prevent discrimination." Robert Barnes in The Washington Post.

Supreme Court: The EPA can tackle global warming, but we’ll review a few details. "The decision means that the EPA will be able to go ahead with its rules to curtail carbon-dioxide emissions from cars and light trucks. Forthcoming rules to regulate carbon-dioxide from coal and natural gas plants will also keep moving forward for now. But a separate EPA program to require greenhouse-gas permits for large industrial facilities will come under closer scrutiny...[T]he court will consider the more narrow question of "whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.” What does that mean? Ever since 2011, the EPA has required anyone who wants to build or upgrade a large carbon-emitting facility — say, a power plant or refinery — to obtain permits for greenhouse gases and adopt certain pollution-reduction technologies." Brad Plumer in The Washington Post.

Key judge disavows support for voter ID. "Richard A. Posner, one of the most distinguished judges in the land and a member of the United States Court of Appeals for the Seventh Circuit, [said] he was mistaken in one of the most contentious issues in American politics and jurisprudence: laws that require people to show identification before they can vote...One of the landmark cases in which such requirements were affirmed, Crawford v. Marion County Election Board, was decided at the Seventh Circuit in an opinion written by Judge Posner in 2007 and upheld by the Supreme Court in 2008. In a new book, “Reflections on Judging,” Judge Posner, a prolific author who also teaches at the University of Chicago Law School, said, “I plead guilty to having written the majority opinion” in the case. He noted that the Indiana law in the Crawford case is “a type of law now widely regarded as a means of voter suppression rather than of fraud prevention.”" John Schwartz in The New York Times.

Les Trentes Glorieuses interlude: This is what the French remember of their lost greatness.

Wonkblog Roundup

The ups and downs of being a D.C. pawn shop during a shutdownLydia DePillis.

These maps show where the U.S. is most vulnerable to oil shocksBrad Plumer.

The big interview: Robert Shiller, Nobel laureateNeil Irwin.

Interview: Robert Laszewski: ‘Obamacare is a bit like the astronaut on top of the rocket.’ Ezra Klein.

Poll: GOP is more ‘extreme’ but slightly better at running thingsBrad Plumer.

Fitch: The U.S. government’s debt fundamentals are fine. Our politics are a messNeil Irwin.

What the financial system has in common with a sewerNeil Irwin.

Florida doctors prescribe way more drugs than Colorado doctorsSarah Kliff.

Supreme Court: The EPA can tackle global warming, but we’ll review a few detailsBrad Plumer.

House Republicans are falling for the sunk cost fallacyNeil Irwin.

The House GOP’s shutdown deal is a big improvementEzra Klein.

These maps show where the U.S. is most vulnerable to oil shocksBrad Plumer.

The huge health-care subsidy everyone is ignoringEdward Kleinbard.

Aetna CEO on Obamacare: ‘There’s so much wrong, you just don’t know what’s broken until you get a lot more of it fixed.’ Ezra Klein.

Robert Shiller: ‘When I look around I see a lot of foolishness, and I can’t believe it’s not important economically’. Neil Irwin.

Delaying Obamacare’s reinsurance fee would be a win for insurersSarah Kliff.

In the convenience store of the future, you can get a mortgage along with your toothpaste. Lydia DePillis.

The best sentences Wonkblog read today. Brad Plumer.

Et Cetera

James Risen may be going all the way to the Supreme CourtCharlie Savage in The New York Times.

And Glenn Greenwald is out of The Guardian to found a new media organization. It will be with eBay's Pierre OmidyarBen Smith in BuzzFeed and Mark Hosenball in Reuters.

U.S., eager to lecture others in times of fiscal crisis, plays by different rulesHoward Schneider in The Washington Post.

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

Wonkbook is produced with help from Michelle Williams.

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Sarah Kliff | October 15, 2013