Robert Byrd dies; G-20: Prelude to Depression or wise turn from spending?

Monday, June 28, 2010; 7:20 AM

In Toronto, members of the G-20 have cut a deal on deficit reduction, ignoring the White House's push to focus on growth. Paul Krugman thinks this could mean a "Long Depression." Greg Mankiw think it's only prudent. There was also a deal on capital requirements for banks, though as is normal for these multilateral agreements, it was more of an agreement to make a deal at some future date.

Meanwhile, the finalization of the FinReg bill is causing lobbyists to focus on regulators instead of legislators. That's what happens when you give regulators most of the power. And across the country, politicians who were traditionally union allies are tussling with labor as they find themselves needing to cut public employee salaries. In sadder news, Sen. Robert C. Byrd, one of the institution's few remaining masters, died last night. He was 92.

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Sen. Robert Byrd, 92, died last night. WaPo's obit: "A conservative West Virginia Democrat who became the longest-serving member of Congress in history and used his masterful knowledge of the institution to shape the federal budget, protect the procedural rules of the Senate and, above all else, tend to the interests of his state, died at 3 a.m. Monday at Inova Fairfax Hospital, his office said."

Watch this photo gallery of his life:

G-20 member countries agreed to halve their deficits within three years. Read their declaration:

Obama responded by calling for more stimulus spending, report Howard Schneider and Scott Wilson: "'A number of our European partners are making difficult decisions,' Obama said. 'But we must recognize that our fiscal health tomorrow will rest in no small measure on our ability to create jobs and growth today.'--The declaration, in the works for weeks, gave each side what it wanted, although the specific deadlines went further than the Obama administration had preferred before the meeting."

The G-20 also agreed to tougher bank capital requirements:

Paul Krugman warns that this kind of austerity will lead to a Third Depression: "It will probably look more like the Long Depression than the much more severe Great Depression. But the cost -- to the world economy and, above all, to the millions of lives blighted by the absence of jobs ¿ will nonetheless be immense. And this third depression will be primarily a failure of policy. Around the world -- most recently at last weekend's deeply discouraging G-20 meeting -- governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending."

Greg Mankiw wishes Keynesians would take the risks of stimulus spending more seriously: "The negative effects are even more challenging to trace. For example, if people observe the government issuing substantial debt (required to finance a stimulus), they may anticipate higher future taxes and therefore cut back on their current consumption. Increased government borrowing may also drive up long-term interest rates, which could make it difficult for people to borrow money and could therefore reduce spending today."

Some tips for balancing the federal budget, and a game that lets you do it yourself:

Politicians who are traditionally union allies are at war with labor over budget cuts, reports Steven Greenhouse: "In Oregon, Gov. Theodore R. Kulongoski, a former lawyer representing the state employees' union, is insisting upon wage concessions from those very workers. In Los Angeles, Mayor Antonio Villaraigosa, a former teachers' union organizer, is battling once-friendly unions, demanding $100 million in concessions. In New York, Gov. David A. Paterson, a longtime union ally whose father is a top adviser to several unions, is threatening large-scale layoffs unless public sector unions agree to a pay freeze and re-open contracts."

British dance interlude: Hot Chip play "One Life Stand".

Still to come: How the health-care system can make death worse; BP lacks a successor should Tony Hayward go; a new study shows that women and minorities whore nominated for the Supreme Court have tougher confirmation hearings; can you have a functioning financial sector without financial literacy?; and Ozzy Osbourne pretends to be made of wax.

Economy/ FinReg

Banks are already gearing up to lobby regulators once FinReg passes, reports Binyamin Appelbaum: "The much-debated prohibition on banks investing their own money, for example, leaves it up to regulators to set the exact boundaries. Lobbyists for Goldman Sachs, Citigroup and other large banks already are pressing to exclude some kinds of lucrative trading from that definition. Regulators are charged with deciding how much money banks have to set aside against unexpected losses, so the Financial Services Roundtable, which represents large financial companies, and other banking groups have been making a case to the regulators that squeezing too hard would hurt the economy."

The Frank-Dodd still may not be strong enough, writes Gretchen Morgensen: "For this law to be the groundbreaking remedy its architects claimed, it needed to do three things very well: protect consumers from abusive financial products, curb dangerous risk taking by institutions and cut big and interconnected financial entities down to size. So far, the report card is mixed."

James Surowiecki says we need financial literacy if the Ownership Society is to work: "A study by economists at the Atlanta Fed found that thirty per cent of people in the lowest quartile of financial literacy thought they had a fixed-rate mortgage when in fact they had an adjustable-rate one. A study of subprime borrowers in the Northeast found that, of the people who scored in the bottom quartile on a very basic test of calculation skills, a full twenty per cent had been foreclosed on, compared with just five per cent of those in the top quartile."

Homebuyers are scrambling to close sales in time to collect the just-extended tax credit:

Tyler Cowen argues that austerity is winning due to political realities, not the triumph of fiscal conservatives: In the United States, we face rising health care costs and pension problems in state governments, with no clear long-run solution for bringing the books into balance. That makes responsible politicians reluctant to undertake major new commitments.¿In short, it's not that ideas of government interventionism and free markets are fighting a titanic intellectual struggle. The reality is more mundane. The ascendancy of one view often creates the conditions for an economic counterreaction."

Vancouver rock interlude: Japandroids play "Wet Hair" on Jimmy Fallon.


A successor to Tony Hayward, especially one untainted by the oil spill, is hard to find, reports Steven Mufson: "Three leading candidates -- head of exploration and production Andy Inglis, BP America president Lamar McKay and Chief Operating Officer Doug Suttles -- are all closely associated with the oil spill. Inglis, the most senior, has kept out of the public eye, while McKay has taken his lumps before Congress and Suttles has been the voice of the Gulf operations. But any one of them could -- and perhaps should -- have been aware of the costly and dangerous problems the Macondo well was having before the blowout."

Navy Secretary Ray Mabus has to spell out details of the administration's environmrntal recovery plan, reports Catherine Cheney: "Mabus still has to address the big, multi-billion-dollar question: who will pay?¿Another complication Mabus will face is where to draw the line: Who wins, and who loses? What portion of the 1,680 miles of American coastline in the Gulf of Mexico will the government define as eligible for restoration?"

The EPA is lagging on implementing air standards, reports Yeganeh June Torbati: "Some experts said the failures were persisting largely because the E.P.A.'s Office of Air and Radiation, which is responsible for regulating air pollutants, lacked the money needed to meet its deadlines. In a written response to the report, E.P.A. officials also said budget cuts had made it difficult to meet their deadlines, noting that 'air toxics support has been cut over 70 percent' since 2001."

The BP oil spill made landfall in Florida:

Scientists need to listen to the public to educate it on climate change, writes Chris Mooney: "Politics comes first on such a contested subject, and better information is no cure-all -- people are likely to simply strain it through an ideological sieve...Resistance to climate science in the United States seems to be linked to a libertarian economic outlook: People who resist what experts tell them about global warming often appear, at heart, to be most worried about the consequences of increased government regulation of carbon emissions."

Madame Tussauds interlude: Ozzy Osbourne pretends to be made of wax, scares children.

Domestic Policy

Civil rights activists are questioning Elena Kagan's record on race, reports Amy Goldstein: "The National Bar Association, the main organization of black lawyers, has refrained from endorsing Kagan, giving her a lukewarm rating. The group's president, Mavis T. Thompson, said it 'had some qualms' about Kagan's statements on crack-cocaine sentencing and what it regards as her inadequate emphasis while dean at Harvard Law School on diversifying the school along racial and ethnic lines. Others have expressed reservations about Kagan's views on affirmative action, racial profiling and immigration."

EJ Dionne thinks the Kagan hearings will show a new liberal populism on economics:

A new study suggests Supreme Court confirmation hearings are quite candid, and tougher on women and minorities, reports Adam Liptak: "A new study, based on an analysis of every question asked and every answer given at Supreme Court confirmation hearings in the last 70 years, shows that the hearings often address real substance, illuminate the spirit of their times and change with shifts in partisan alignments and the demographic characteristics of nominees.¿And it finds that female and minority nominees are questioned more closely than white male ones."

The DISCLOSE Act needs to pass by July 4 to affect this year's elections, reports Russell Berman:

The health-care system made my parents' death worse, writes Katy Butler: They were seemingly among the lucky ones for whom the American medical system, despite its fragmentation, inequity and waste, works quite well. Medicare and supplemental insurance paid for their specialists and their trusted Middletown internist...They signed living wills and durable power-of-attorney documents for health care...Even so, I watched them lose control of their lives to a set of perverse financial incentives ¿ for cardiologists, hospitals and especially the manufacturers of advanced medical devices ¿ skewed to promote maximum treatment. At a point hard to precisely define, they stopped being beneficiaries of the war on sudden death and became its victims.

States are finalizing their high risk pool proposals, but more federal funds may be needed, reports Robert Pear: "A new study by the Congressional Budget Office says the money will 'not be sufficient to cover the costs of all applicants.' If more than 200,000 people participate, the budget office said, 'the available funds will probably be exhausted prior to 2013.'¿Richard S. Foster, the chief actuary at the Department of Health and Human Services, said 375,000 people could gain coverage in high-risk pools this year. But he predicted, 'By 2011 and 2012, the initial $5 billion in federal funding would be exhausted.'"

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Closing credits: Wonkbook compiled with the help of Dylan Matthews.

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