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Ezra Klein's Wonkbook  Wednesday, Aug. 11, 2010

Wonkbook: Fed takes mild action; Obama signs state aid bill; Senate considers border security bill

The Fed will hold rather than gradually reduce the amount of assets it owns in order to kickstart what it views as a faltering recovery. This, in Fed lingo, is "mild easing," and the markets were cheered by it because it means the Fed is probably willing to intervene if things get worse. But so far as it's actual economic impact goes, it's not going to mean much: The Fed will do more by not doing less. It's like watching Yoda intervene in the economy.

Meanwhile, the House passed and Obama signed into law a $26 billion package providing aid to state governments. It is, for Democrats, a big, frustrating victory. Republicans managed to halve the total size of the aid package, and states are facing a $140 billion shortfall. So though this aid will give states a boost, we can still expect the public sector to contract quite sharply even as the private sector slowly expands. If you want to see what that looks like, think back to the July job numbers, when the 71,000 jobs the private sector added were overwhelmed by the 200,000 public sector job losses.

Welcome to Wonkbook.

Top Stories

The Fed is introducing mild easing, reports Neil Irwin: "The Fed pledged to keep the amount of assets it holds unchanged at $2 trillion rather than allow the level to taper off over time. The decision should help keep long-term interest rates, such as those for home mortgages and corporate loans, a bit lower than they otherwise might have been, though the direct economic impact is likely to be modest. ...'The signaling effect is much greater than the actual effect,' said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management. 'It says that they have a lot more firepower to deploy if it becomes necessary.'"

Phil Izzo collects economists' reactions to the Fed news: http://bit.ly/aQnUZ2

Obama signed $26 billion in state aid into law, report Lori Montgomery and Nick Anderson: "The sum is about half what Obama requested. Democratic leaders were forced to scale back the package by rank-and-file Democrats concerned about how more spending would play with angry voters. They also had to cover the cost of the measure so that it would not increase future deficits. The bill includes nearly $10 billion in new taxes on U.S. multinational corporations that do business abroad, and it rescinds after 2014 an increase in food stamp payments enacted in last year's $862 billion stimulus package."

Harry Reid will reopen the Senate to consider a $600 million border security bill, report Scott Wong and Carrie Budoff Brown: "Democrats will try to pass the bill by unanimous consent, which means only a handful of senators will need to be present for the unusual session less than a week into the Senate's month-long summer recess. 'It's up to Republicans to decide if they agree with this strategy,' Reid spokesman Jim Manley said. 'Do they want an issue or do they want us to get it done quickly?'"

David Leonhardt writes that the unemployed are bearing almost the whole burden of the recession, while the employed are occasionally even benefiting: "This time around, nominal wages -- the numbers people see in their paychecks -- have risen throughout the slump, as companies have passed along some of the impressive productivity to their (remaining) workers. Meanwhile, inflation has been almost non-existent, except for parts of last year, when real wages did briefly fall... the contrast is pretty stark. The typical jobless person has been out of work six months. The typical worker has received a raise."

'90s cover interlude: The Swell Season play "Two-Headed Boy".

Still to come: FinReg implementation is already running into problem; a judge in New Orleans is set to hear over 300 oil spill lawsuits; the House GOP is still hammering at health care reform; and a cat who really hates watermelon.

Economy/ FinReg

Regulators suggest new legislation may be needed to implement FinReg properly, reports Michael Crittenden: "Regulators meeting at the Federal Deposit Insurance Corp. expressed concern about a requirement restricting the use of private credit ratings by federal agencies that was included in the Dodd-Frank legislation. The requirement has forced regulators to put on hold a proposal setting capital standards for thousands of banks, particularly smaller institutions. Regulators complained that they were now left with few attractive alternatives and that the changes they could be forced to make might cause more harm than good."

FDIC is creating two new divisions to handle FinReg implementation: http://bit.ly/d0AD1Q

Economists fear deflation more than inflation by a two to one margin, reports Phil Izzo: "Among economists who answered the question, nearly two-thirds said that deflation poses the bigger risk to the economy over the next three years; the remainder said inflation is the bigger threat. That compares to an April survey, when the economists were split 50/50 over whether inflation or disinflation posed the bigger risk over the next year."

Equipment purchases are growing fast: http://bit.ly/cGR6Ez

The minimum income for working families to be subject to income taxes is still below 1950s levels, write Gene Steuerle and Stephanie Rennane "In 1947, a family of four owed income tax once their earnings hit 89 percent of median family income. Over the following three decades, this tax threshold fell steadily, reaching a low point of 33 percent by 1974, just before Congress enacted the Earned Income Tax Credit (EITC). It rose steadily from 1985 to 2003, when it reached 70 percent, where it remained through 2008. While that's higher than most of the past thirty years, it is still below the levels of the late 1940s and early 1950s."

Productivity fell in the second quarter: http://bit.ly/aint7z

Raghuram Rajan argues the world economy is still out of balance: "In the United States, for example, credit-fueled consumption may have been exacerbated by the government's push to expand home ownership, especially among low-income households...the political pressure on the Fed to revive the economy forces it to try to discourage household savings in downturns by keeping policy rates at ultra-low levels for sustained periods of time...As other countries come to see that the United States is willing to be the world's consumer of first and last resort, they are happy to rely on it to provide the extra demand to lift the world out of recessions, even while Americans get their finances in order."

Great moments in film criticism interlude: Scott Tobias tears apart Cats & Dogs: The Revenge of Kitty Galore.


Oil spill lawsuits will go before a judge in New Orleans, reports Dionne Searcey: "U.S District Court Judge Carl J. Barbier of the Eastern District of Louisiana will hear the civil suits filed against BP PLC and other defendants by shrimpers, resort owners and others. All say they have lost revenues because of the Gulf's oil-tainted waters. The lawsuits also include environmental claims as well as personal injury and wrongful death actions filed on behalf of workers hurt or killed when the Deepwater Horizon oil rig exploded April 20. Also, Judge Barbier will oversee rig owner Transocean Ltd.'s efforts to limit its liability."

"Biochar" fuel could reduce global carbon emissions by 12%: http://bit.ly/aiw4qf

BP gas stations still haven't recovered, reports John Collins Rudolf: "While the worst may be over for the BP brand, anxiety and dissatisfaction remain high among station owners and distributors. Some complain of a lack of public relations support from BP. The company introduced a lavish campaign describing its efforts to clean up the gulf, but spent little on ads explaining to the public that its station owners were independently owned businesses with only an inadvertent connection to the disaster."

"Feed-in tariff" policies are responsible for 75% of the world's solar and 45% of its wind power development: http://bit.ly/aSMunv

Julia Whitty writes that the spill's worst effects may be ahead of us: "Untreated oil quickly rises to the surface, where it can be skimmed with relative ease. But treated with dispersant, it becomes a submerged plume, unlikely to ever float to the surface, and destined to migrate through underwater currents to the entire Gulf basin and eventually the North Atlantic. 'Oil is toxic to most life,' says Steiner. 'And Corexit is toxic to most life. But the most toxic of all is oil that's been treated with Corexit. Plus, dispersants may well kill the ocean's first line of defense against oil: the natural microbes that break oil down for other microbes to eat.'"

Firms building oil containment equipment are seeing purchases canceled by BP: http://bit.ly/9KHAtf

David Roberts argues "environmentalism" cannot solve climate change: "For 50 years, American environmental politics has been about restraining the amount of damage industries can do. Environmental campaigners have developed a set of strategies for that purpose, designed to overcome the resistance of industries and politicians to such restraints. And they've been successful in a number of areas. So when climate change entered American politics via environmentalism, that is the model into which it was slotted."

Adorable animals who are picky eaters interlude: The only cat in the world who doesn't like watermelon.

Domestic Policy

The House GOP has launched a new anti-health care reform discharge petition, reports Simmi Aujla: "Herger's petition would repeal all of health care reform, including the reconciliation, and replace it with a plan that would go after frivolous medical lawsuits and fund state-run programs for people with pre-existing medical conditions. A small group of conservative Republicans first supported King's discharge petition, but House Minority Leader John Boehner (R-Ohio) and House Republican Whip Eric Cantor of Virginia later signed on. They issued statements Tuesday backing the Herger petition as well, which Ways and Means ranking Republican Dave Camp of Michigan also supports"

Food insecurity is on the rise in the US: http://bit.ly/cCB3Py

DHS is expanding its deportation program, reports Elise Foley: "Secure Communities requires local law enforcement to give fingerprints they collect to immigration officials, who can then begin removal proceedings...The records also showed troubling inconsistencies county to county, said Bridget Kessler, a clinical teaching fellow at the Benjamin N. Cardozo School of Law's Immigration Justice Clinic. Some counties had far higher rates of deportation of non-criminals than the national average, such as Travis County, Texas, where 80 percent of those deported were non-criminals, or Maricopa County, Ariz., where 54 percent were non-criminals."

Regulators have found Toyota not at fault in sudden acceleration episodes: http://bit.ly/94XjrK

Linda Chavez defends birthright citizenship: "Our history has been largely one of continuously expanding the community of people regarded as Americans, from native-born whites to freed slaves to Indians to naturalized citizens of all races and ethnicities. Since the abolition of slavery, we have never denied citizenship to any group of children born in the U.S.--even when we denied citizenship to their parents, as we did Asian immigrants from 1882 to 1943. This expansive view of who is an American has been critical to our successful assimilation of millions of newcomers. Conservatives should not betray these values based on a misreading of American history and legal precedent."

John Sides and Andrew Gelman debate term limits for Supreme Court justices here: http://bit.ly/aJ1aG5 and here: http://bit.ly/9MAZN6

Steven Pearlstein defends for-profit education: "The real potential of for-profit schools is their focus on teaching and learning. Unlike traditional universities, they have been aggressive in finding ways to use technology to cut costs and achieve economies of scale. They make extensive use of videotaped lectures and online interactive tests. Classes often 'meet' online, as well as in classrooms, and there are teaching assistants available 24/7 to help students with homework. All of this works particularly well for introductory courses, as well as for those that are part of professional training and certification."

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

-Ezra Klein
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