Wonkbook: Giving up on the unemployed
By Ezra Klein,
Pablo Martinez Monsivais ASSOCIATED PRESS
It’s true that 8.9 percent is better than almost-10 percent, but it’s not better enough. Remember that 8.9 percent was the disaster predicted in the Romer-Bernstein estimate of what would happen in the absence of the stimulus. The recession proved much worse than they -- or anyone -- knew at the time, and so their estimate proved sadly optimistic. But it was only a bit more than two years ago that our best economists considered 8.9 percent a catastrophic outcome for our economy, a future that was to be avoided no matter the cost. Now we’ve relaxed into it. Accepted it. Both Congress and the White House are pushing spending plans that most economists agree will destroy jobs in 2011. Rather than doing everything we can to boost employment, we’re doing things that we know will reduce it.
We’re not broke. But our deficit is a problem. That’s why the obvious deal has always been more on jobs now combined with the passage of legislation that does more on deficits soon. Romer, in fact, is one of the undersigned on the commentary 10 former-CEA chiefs published calling for the swift consideration of the fiscal commission’s final plan. Put the recommendations of her op-ed together with her Vanderbilt comments and you have the right policy agenda. But that’s not what the political system will do.
Former CEA chair Christina Romer calls the administration’s lack of action on unemployment “shameful,” reports Ben Smith: “’I frankly don’t understand why policy makers aren’t more worried about the suffering of real families,’ former Council of Economic Advisors Chair Christina Romer, who left the Administration last fall, said during a discussion at Vanderbilt University in Nashville Tuesday. ‘I think there are tools we have tools...that we can use, and I think it’s shameful that we’re not using them....If I have a complaint about policy these days, it’s that we’re not doing enough. That goes all the way up to the Federal Reserve, [which] could be taking more aggressive action. It goes to the Congress and the Administration – there are fiscal policy actions they could be taking.’”
Joe Stiglitz explains how to correctly budget for war: ”This is particularly the case for wars of choice, which most recent wars have been. When we were attacked in Pearl Harbor, we weren’t going to go through a cost-benefit analysis of responding. The Iraq War, however, was a war of choice. And if you’re going to approach that with any degree of rationality, you have to think about what it’s going to cost you. To do that, you want an inclusive cost estimate, particularly because you know the government is going to try and narrow the cost down. They’re going to talk about only the cost of the bombs, whereas we emphasized that there are a whole other set of costs — taking care of the disabled, replacing equipment, etc. — that any good accounting system would take into account.”
Evidence from 23 states suggests that government shutdowns lead to higher spending, writes Matt Mitchell: “It turns out that in 23 U.S. states, the government will automatically shut down in the event that the governor and the legislature fail to agree on a budget. In his work on budget rules, David Primo examined the theoretical impact of these provisions from a game theoretic perspective. He noted that in states with an automatic shutdown provision, ‘the legislature will be able to achieve its ideal budget, so long as the governor prefers it to no spending.’ He therefore predicted that states with such a provision will spend more than states without such a rule. He then tested the hypothesis, controlling for a number of other factors known to impact state spending and found that states with an automatic shutdown provision actually spend about $64 more per capita than other states. As he notes, ‘This effect is remarkably large, given that shutdowns occur rarely.’”
Tyler Cowen comments: ”Maybe you’re not convinced by that $64 difference. Maybe you ascribe it to unobserved variables. Still, it is hard to argue, based on the evidence, that shutdowns help the cause of fiscal conservatism.”
The White House opposes a corporate tax holiday, reports John McKinnon: “The Obama administration on Wednesday rejected the idea of a tax holiday for U.S. multinationals’ overseas income, criticizing a plan being floated by some House Republicans and multinational companies for a stand-alone relief measure. Treasury officials said they would only consider letting U.S. companies pay a reduced tax rate on as much as $1 trillion of profits earned overseas as part of a broader overhaul of the U.S. corporate tax code...Backers of a tax holiday said they would keep trying. House Majority Leader Eric Cantor (R., Va.), who this week promoted the idea for a separate tax holiday, believes a broader overhaul will require a longer time and more leadership from the White House to pass, a spokeswoman said.”
Mitt Romney might be previewing a new line on health-care reform: “If I were president, on Day One I would issue an executive order paving the way for Obamacare waivers to all 50 states. The executive order would direct the Secretary of Health and Human Services and all relevant federal officials to return the maximum possible authority to the states to innovate and design health-care solutions that work best for them. As I have stated time and again, a one-size-fits-all national plan that raises taxes is simply not the answer.” My comments here.
Late night live interlude: The Pains of Being Pure at Heart play “Heart in Your Heartbreak” on the Late Show with David Letterman .
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Want Wonkbook delivered to your inbox or mobile device? Subscribe! Still to come: Bill Daley is recusing himself from the search for a director of the Consumer Financial Protection Bureau; Ten former CEA chairs call for a serious deficit-reduction package; the GOP is preparing to offer legislation on Fannie and Freddie; a much-hyped pro-health care reform group is MIA; Republicans might back food stamp cuts; Japan’s crisis is complicating nuclear plant financing in the US; and a Russia tow truck uses a crane hand to move cars.
Bill Daley is recusing himself from picking a head of consumer financial protection, report Brady Dennis and Zachary Goldfarb: “President Obama’s new chief of staff, former banker William M. Daley, has recused himself from the search for a nominee to lead the Consumer Financial Protection Bureau, a signature piece of the administration’s overhaul of the financial regulatory landscape. Before coming to the White House in January, Daley oversaw, among other things, J.P. Morgan Chase’s lobbying operation as the bank opposed the creation of the new watchdog. Daley was among several top executives who decided the bank would support new consumer protections but not a new regulator to enforce them...]Elizabeth] Warren has deflected inquiries about whether she hopes to get the nod, but she has not said she wouldn’t accept the role.
The GOP will hold votes on dismantling Fannie and Freddie next week, reports Peter Schroeder: “House Republicans are ready to take on the troubled mortgage giants Fannie Mae and Freddie Mac with a series of bills that would likely chip away at the federal government’s role in the housing market. Early next week, Republicans on the House Financial Services Committee will unveil at least six bills on Fannie and Freddie, the first step in a concerted effort to extricate the government-sponsored enterprises (GSEs) from their central role in mortgage services. Fannie and Freddie currently back roughly nine out of every 10 new mortgages in the United States. The GOP bills will be the first of what could be dozens of measures aimed at altering the mortgage giants.”
10 past CEA chairs are urging more action on the deficit “To be sure, we don’t all support every proposal here. Each one of us could probably come up with a deficit reduction plan we like better. Some of us already have. Many of us might prefer one of the comprehensive alternative proposals offered in recent months. Yet we all strongly support prompt consideration of the commission’s proposals. The unsustainable long-run budget outlook is a growing threat to our well-being. Further stalemate and inaction would be irresponsible.”
The Fed is seeking to limit new debit card rules, reports Victoria McGrane: “Federal Reserve Chairman Ben Bernanke said Wednesday that the central bank will exercise ‘all the powers that we have’ to ensure community banks are effectively spared debit-card fee limits dictated by last year’s Dodd-Frank financial-overhaul law. The Fed’s draft rule would prohibit large banks from charging merchants more than 12 cents each time a customer pays with a debit card--down from the current average of 44 cents. The law included an exemption for small banks and credit unions, those with less than $10 billion in assets, but these small institutions say the exemption won’t work in practice and market forces will push them to accept the fee cap set for large banks.”
Big banks may be too big to save, writes Simon Johnson: “People sometimes talk about “systemic risk” as if it were intrinsic to the financial system. But modern financial history, including in emerging markets, strongly indicates otherwise. When banks and other financial institutions get into trouble, private losses are transferred - explicitly or implicitly - to the government’s balance sheet. Dangerous financial systems pose big fiscal risks...America’s too-big-to-fail banks are well on their way to becoming too big to save. That point will be reached when saving the big banks, protecting their creditors, and stabilizing the economy plunges the US government so deeply into debt that its solvency is called into question, interest rates rise sharply, and a fiscal crisis erupts.
In other words, the ‘doom loop’ isn’t really a loop at all. It does end eventually, as it has - just for starters - in Iceland, Ireland, and Greece.”
Adorable animals injuring themselves interlude: A puppy forgets to jump onto, not run into, a bed.
A much-hyped pro-health care reform group hasn’t surfaced, reports Jennifer Haberkorn: “Democrats are under siege as they mark the first anniversary of health care reform Wednesday -- and they won’t get much help from the star-studded, $125 million support group they were once promised. Wal-Mart Watch founder Andrew Grossman unveiled the Health Information Campaign with great fanfare last June. Tom Daschle and Ted Kennedy’s widow, Vicki, were expected to lead the effort. They’d have help from former White House Communications Director Anita Dunn...But nine months later, the Health Information Campaign has all but disappeared. Its website hasn’t been updated since the end of last year. Its executive director and communications director are gone. There’s no sign that it has any money.”
A Republican insurance commissioner in Kansas is becoming a leader on implementing health care reform: http://politi.co/hGOtzO
Rep. Anthony Weiner has a better plan for defending health care, writes Dana Milbank: “Many Democrats and Obama administration officials observed Wednesday’s anniversary with events touting the value of the health-care law. But ‘it’s not enough just to say, ‘Here’s this great bill,’’ Weiner countered. ‘We haven’t done a particularly skillful job in the last year of rebutting some of the basic thrusts of the Republican opposition to the bill.’ The congressman offered a few examples, employing the sort of rhetoric used to wage an argument in a schoolyard. Big government takeover? ‘No.’ Transformation of the economy? ‘It wasn’t.’ Socialism? ‘Polar opposite.’ Raiding Medicare? ‘Nonsensical.’ Burdens on small business. ‘None.’ The individual mandate? ‘Ain’t a big deal.’”
Weiner may pursue a health reform waiver for New York City: http://politi.co/e2vlyc
Republicans may seek to cut food stamps, reports Erik Wasson: “Welfare reform, including cutting funds for food stamps, could be in the mix for the Republicans’ 2012 budget proposal. The House Budget Committee has discussed the possibility, according to a GOP aide. Conservatives in the lower chamber want Budget Chairman Paul Ryan (R-Wis.) to include welfare reform alongside the entitlement reforms to Social Security, Medicaid and Medicare in the budget he’s working on. Rep. Jim Jordan (R-Ohio), the chairman of the conservative Republican Study Committee (RSC), introduced the idea in the Welfare Reform Act last week. Jordan told The Hill on Tuesday that he plans to talk to Ryan next week, when Congress returns from its recess, about including the RSC proposals in next year’s budget.”
The Agriculture Department has been siding with genetically modified food producers, reports Lyndsey Layton: “At the supermarket, most shoppers are oblivious to a battle raging within U.S. agriculture and the Obama administration’s role in it. Two thriving but opposing sectors -- organics and genetically engineered crops -- have been warring on the farm, in the courts and in Washington...Into that conflict comes Agriculture Secretary Tom Vilsack, who for two years has been promising something revolutionary: finding a way for organic farms to coexist alongside the modified plants. But in recent weeks, the administration has announced a trio of decisions that have clouded the future of organics and boosted the position of genetically engineered (GE) crops. Vilsack approved genetically modified alfalfa and a modified corn to be made into ethanol, and he gave limited approval to GE sugar beets.”
We should mend, not end, farm subsidies, writes Monica Potts: http://bit.ly/hKxT6q
Public financing for elections lead politicians to spend more time with voters, writes Michael Miller: “When I compared the behavior of candidates who accepted Clean Elections subsidies to candidates who raise money from private sources only (after doing a bit of matching), I found that because they spend no time raising money, Clean Elections candidates devote significantly more effort--about 10 percentage points of their overall time--to direct engagement with voters and groups compared to traditional candidates... When this effect is projected over dozens of campaign weeks, it is safe to conclude that Clean Elections candidates are making hundreds of voter contacts that would not have otherwise occurred.”
Only in Russia interlude: A tow truck uses a giant crane arm to pick up cars.
The Japan crisis is complicating financing for US nuclear plants, report Tennille Tracy and Naureen Malik: “The ongoing nuclear crisis in Japan could make it harder and more expensive for U.S. power companies to finance the construction of new nuclear reactors, threatening to further complicate a process that is already challenging. Nuclear experts are warning of higher financing costs for U.S. nuclear projects and reduced political support for federal loan guarantees that help secure access to cheaper debt. In a note to investors last week, Standard Poor’s said the events in Japan ‘renewed public focus on the inherent risks of nuclear power’ and could lead to ‘deteriorating economics for new plant contruction.’ Any increase in financing costs could stymie the growth of the U.S. nuclear industry, which also faces possible changes to federal standards and a growing wave of opposition from citizens.”
Government dithering on drilling is costing jobs, writes Randy Stilley: http://wapo.st/fVjhCe
Nuclear regulators show too much deference to industry, writes Frank von Hippel: “Independent analysts have argued, based on risk analyses done for the commission, it is dangerous for the United States to pack five times more spent fuel into reactor cooling pools than they were designed to hold, and that 80 percent of that spent fuel is cool enough to be stored safely elsewhere. It would also be more expensive, however, and the Nuclear Regulatory Commission followed the nuclear utilities’ lead and rejected the proposal...Therefore, perhaps the most important thing to do in light of the Fukushima disaster is to change the industry-regulator relationship... The commission has an excellent staff; what it needs is more aggressive political leadership.”
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.