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Wonkbook: The case for rehiring public workers

By Ezra Klein,

This week, Senate Democrats will break up President Obama's jobs bill and begin voting on the pieces separately. First up is the $35 billion to state and local governments, $30 billion of which is earmarked for retain and rehiring teachers and $5 billion of which is meant to go to public-safety personnel. Senate Dems are proposing to pay for it with a 0.5 percent tax surcharge on income over $1,000,000 a year. Senate Republicans are proposing to filibuster. Minority Leader Mitch McConnell says the bill is further proof that Democrats "are still focused on the same temporary stimulus spending that's failed to solve our jobs crisis."

Spencer Platt


A crowd protests against proposed cuts of the New York Department of Education on October 4, 2011 in New York City.

But not all "temporary stimulus spending" is the same. The theory behind a temporary payroll tax cut, for instance, is that it gives Americans a bit more money to spend. But that only gets the economy moving in a significant way if Americans are sufficiently interested in spending that money. The argument against a temporary tax cut is that Americans know it's temporary and they know that they will eventually have to pay for this sort of spending and so they save the tax cut rather than spend it.

The case against a program to hire or rehire public-sector workers isn't, as McConnell suggests, that it's temporary. You can't put a job in the bank and save it for later. The case against a program like this is that you think a recovery is right around the corner and so it's better to let these workers remain unemployed so that the market can place them in the sort of jobs that the economy really needs. But anyone who thinks a recovery is right around the corner is not looking at the economic data that the rest of us are seeing. The real alternative here isn't that the market reemploys these workers. It's that nobody does. And then, in a few years, when the labor market does tighten up again, their skills have deteriorated, and employers feel nervous about hiring them, and they have gone from unemployed to almost unemployable.

Of late, economist Adam Ozimek has been asking people to list their "now-less-than-ever" ideas: Policies they would normally support, but would oppose due to the current economic circumstances. This bill is sort of the opposite of that: It's a "now-and-hopefully-never-again" idea. Of all the things you could do with federal dollars, helping state and local governments rehire people they have fired or expand their public-safety payrolls seems like the most absurd. In normal times, if the public-sector is downsizing, that's probably a good thing. But this is not a normal time. That's why the money is, as McConnell says, temporary, and also why it makes sense. It would be ideal if we could cut out the middleman and simply stick them in the industries of the future now, but we can't. And if we don't get them jobs soon, then the industries of the future aren't going to want to hire them anyway. This is not a policy anybody should, as a general measure, like. But until unemployment comes down and workers can find jobs on their own, it's a policy we need.

Top stories

1) Senate Democrats are embracing Obama's piecemeal approach to the jobs bill, reports Corey Boles: "Senate Democrats plan to bring a bill forward that would send $35 billion to state and local governments to allow them to rehire unemployed public-sector workers. The legislation is the first measure from President Barack Obama's job-creation program that Democrats will try to move forward with as a stand-alone bill after the entire package was defeated by the Senate in a vote last week. The measure's $35 billion cost would be entirely offset by a 0.5% surcharge on people earning more than $1 million a year. The surcharge would only be levied on income above $1 million annually. This is similar to the budgetary offset Senate Democrats had proposed for the entire Obama plan, although in that case the surcharge would have been set at 5.6% to cover the $447 billion cost of the whole package. Senate Majority Leader Harry Reid (D., Nev.) said the legislation would save or create 400,000 teaching jobs."

2) Goldman Sachs is pushing the Fed to target economic growth, reports Brian Beutler: "Economists and monetary policy wonks have been screaming about this for months -- sometimes at each other. Now economists at investment giant Goldman Sachs are on board. In a proprietary analysis for clients, Goldman economists Jan Hatzius and Sven Jari Stehn say the Federal Reserve should announce publicly that it will pursue a bit of inflation, and make good on that goal with looser monetary policy -- a new round of so-called 'Quantitative Easing.' From the analysis: '[W]e believe that the Fed's most promising option for delivering significant further policy easing would be a shift to a nominal GDP level target coupled with large-scale asset purchases.' This is precisely the sort of action senior Republicans in Congress have been warning chairman Ben Bernanke against taking, and it's a matter of controversy among members of the Fed's Open Market Committee, where these decisions are made."

3) Mortgage delinquencies are heading back up again, report Tom Braithwaite, Shahien Nasiripour and Ajay Makan: "Fears about the health of US consumer balance sheets grew on Monday as Citigroup and Wells Fargo joined JPMorgan Chase in reporting new signs that homeowners and credit-card borrowers are falling behind on their payments. The banks’ third-quarter results were hit by expected declines in investment banking, reflecting turbulence in global markets. But the reports also revealed weakness in the consumer side of their businesses - with mortgage delinquency numbers suggesting that record low mortgage rates and government loan modification programmes are failing to help a large swathe of homeowners...Wells said delinquencies of more than 90 days in its main portfolio of consumer loans - including mortgages and credit cards - rose 4 per cent to $1.5bn, the first increase since 2009."

4) The IMF is turning against austerity, reports Howard Schneider: "The International Monetary Fund, known throughout its history for urging governments to slash their budgets, is now worried that a global round of austerity may trigger a new recession and is urging countries to look for ways to boost growth. On Monday, the agency warned the world’s leading economies that belt-tightening by governments, companies and consumers has been become so aggressive that the global economy could falter because of anemic demand. 'The immediate risk is that the global economy tips into a downward spiral...Even in a less severe scenario, key advanced economies could suffer from a protracted period of low growth,' the IMF said. The agency report urged all but the most debt-strapped nations to boost growth through expansive government budget and spending policies or through central bank measures such as lowering interest rates to stimulate the economy."

Top op-eds

1) The Fed needs to get serious about fighting unemployment, writes Chicago Federal Reserve President Charles Evans: "As I see it, current financial conditions are more restrictive than I favor, in part because households, businesses and markets place too much weight on the possibility that Fed policy will turn restrictive in the near to medium term. The FOMC’s announcement in August that it anticipates short-term rates remaining low through mid-2013 was certainly a step in the right direction because it significantly raised the hurdle for early policy tightening. But I think we could go even further. One way would be to make a simple statement about our policy plans that clearly lays out our conditionality in terms of our dual mandate responsibilities and observable economic data....Alternatively, I have previously discussed how state-contingent, price-level targeting would work in this regard. Another possibility might be to target the level of nominal GDP, with the goal of bringing it back to the growth trend that existed before the recession."

2) Occupy Wall Street shows how globalization has made democracy weak, writes Anne Applebaum: "Democracy is based on the rule of law. Democracy works only within distinct borders and among people who feel themselves to be part of the same nation. A “global community” cannot be a national democracy. And a national democracy cannot command the allegiance of a billion-dollar global hedge fund, with its headquarters in a tax haven and its employees scattered around the world...We have democratic institutions in the Western world. They are designed to reflect, at least crudely, the desire for political change within a given nation. But they cannot cope with the desire for global political change, nor can they control things that happen outside their borders. Although I still believe in globalization’s economic and spiritual benefits -- along with open borders, freedom of movement and free trade -- globalization has clearly begun to undermine the legitimacy of Western democracies."

3) Herman Cain's 9-9-9 plan doesn't add up, writes Ramesh Ponnuru: "Cain claimed that poor people would come out ahead under his plan (Stage Two of it, that is) because they would pay a 9 percent income tax, but the standard 15.3 percent payroll levy would be eliminated. On this point he is deeply mistaken. The earned-income tax credit currently offsets some of that 15.3 percent, and he would abolish that credit. Poor people would also pay the 9 percent sales tax every time they buy groceries or get a medical bill. And that’s not all. Cain is counting the employer share of the payroll tax in his 15.3 percent on the theory that employers pass that on to workers by cutting their wages. He is right to do so. But a good chunk of his VAT would also be passed on to workers. Today’s corporate income tax allows companies to deduct wages. The VAT doesn’t: It is designed to be, at least partly, a tax on wages."

4) Forget OWS and the Tea Party, most Americans want balance, writes David Brooks: "By choice or necessity, eight million Americans have stopped using bank-issued credit cards, according to The National Journal. The average credit card balance has fallen 10 percent this year from 2010. Banks, households and businesses are all reducing their debt levels. Second, Americans are trying to re-establish the link between effort and reward. This was the link that was severed on Wall Street, where so many made so much for work that served no productive purpose. This was the link that was frayed by the bailouts, when people who broke the rules still got rewarded. In sphere after sphere, strong majorities want to see a balance between what you produce and what you get. The bank bailouts worked and barely cost the government anything, but they are ferociously unpopular because the unjust got rewarded."

Late night interlude: Beirut play "East Harlem" on Late Show with David Letterman.

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Still to come: A little-known anthropologist is the leading theorist of Occupy Wall Street; Massachusetts is moving away from fee-for-service health care; cuts in agriculture subsidies could be less than they appear; the Senate passed a pipeline safety bill; and a penguin steals from another penguin.


An obscure anthropologist is Occupy Wall Street's leading theorist, writes Dan Berrett: "Occupy Wall Street's most defining characteristics--its decentralized nature and its intensive process of participatory, consensus-based decision-making--are rooted in other precincts of academe and activism: in the scholarship of anarchism and, specifically, in an ethnography of central Madagascar. It was on this island nation off the coast of Africa that David Graeber, one of the movement's early organizers, who has been called one of its main intellectual sources, spent 20 months between 1989 and 1991. He studied the people of Betafo, a community of descendants of nobles and of slaves, for his 2007 book, Lost People...In Betafo he observed what he called 'consensus decision-making,' where residents made choices in a direct, decentralized way, not through the apparatus of the state."

9-9-9 could doom Republicans, writes Ron Klain: "If Romney or Perry embraces the plan to gain favor with primary voters, he would court disaster in the general election. For tens of millions of Americans making between $40,000 and $100,000 a year, and who spend virtually every dollar they earn on basic goods that would be subject to a new 9 percent federal sales tax under Cain’s plan, 9-9-9 is a massive tax increase. A typical family of four making $70,000, paying about $7,000 today in payroll and income taxes, would owe more than $12,000 in federal income and sales taxes under Cain’s blueprint. Right now, Republican primary voters who are moved by rabidly anti-IRS, anti-government zeal are prepared to embrace the 9-9-9 plan regardless of its effect on their personal pocket books; in the general election, where pragmatic, non-ideological voters are the swing bloc, the 9-9-9 proposal’s impact on middle-class voters would be fatal."

Adorable animals disrespecting property rights interlude: A penguin steals rocks from another penguin's nest.

Health Care

Massachusetts is trying to end fee-for-service health care, report Abby Goodnough and Kevin Sack: "After three years of study, the state’s legislative leaders appear close to producing bills that would make Massachusetts the first state -- again -- to radically revamp the way doctors, hospitals and other health providers are paid. Although important details remain to be negotiated, the legislative leaders and Gov. Deval Patrick, all Democrats, are working toward a plan that would encourage flat 'global payments' to networks of providers for keeping patients well, replacing the fee-for-service system that creates incentives for excessive care by paying for each visit and procedure. 'We have shown the nation how to extend care to everybody,' Mr. Patrick said in an interview, 'and we’ll be the place to crack the code on costs.'"

Obama doesn't want CLASS repealed even as he's in the process of ending it, reports Julian Pecquet: "President Obama is against repealing the health law's long-term-care CLASS Act and might veto Republican efforts to do so, an administration official tells The Hill, despite the government's announcement Friday that the program was dead in the water. 'We do not support repeal,' the official said Monday. 'Repealing the CLASS Act isn't necessary or productive. What we should be doing is working together to address the long-term care challenges we face in this country.' Over the weekend, The Hill has learned, an administration official called advocates of the Community Living Assistance Services and Supports (CLASS) Act to reassure them that Obama is still committed to making the program work. That official also told advocates that widespread media reports on the program's demise were wrong, leaving advocates scratching their heads."

Medicare is looking at hospice programs for savings, reports Joanne Kenen: "Thirty years after its inclusion as a Medicare benefit, hospice is having a bit of a midlife crisis. Changes in whom it serves, where it serves them and for how long are affecting the bottom line, in ways that may accelerate trends that are already reshaping end-of-life care. Now, the hospice industry -- which gives dying patients and their families care from an interdisciplinary team that may include doctors, nurses, chaplains, social workers, home aides and volunteers -- is facing two separate rounds of cuts. And some researchers and advocates worry about the repercussions. Hospice faces about $7 billion in Medicare payment reductions over a decade under the health care reform law. On top of that, the summer’s debt reduction deal will trigger a 2 percent cut in 2013 -- unless the deficit supercommittee reaches its own agreement."

Olympia Snowe is dissenting from Republican health care suggestions, reports Matt Dobias: "Sen. Olympia Snowe, the most moderate Republican on the Senate Finance Committee, parted ways with her GOP colleagues over their calls for tighter Medicare eligibility and Medicaid block grants, according to aides. Snowe was one of two GOP committee members who didn’t sign onto the Finance Committee Republican recommendations to the deficit supercommittee. The other was Jon Kyl of Arizona, and his absence was less notable because he’s a member of the debt panel. The recommendations -- part of a series of letters that congressional committees sent to the deficit-reduction panel -- call for repealing the health care law, tightening Medicare eligibility and turning Medicaid into a block grant. The last two proposals, however, proved a sticking point for the Maine Republican, whose state has a high percentage of Medicare-age seniors and a higher than average Medicaid enrollment."

Domestic Policy

Cuts in agriculture subsidies look to be so much smoke and mirrors, reports William Neuman: "In the name of deficit reduction, lawmakers from both parties are calling for the end of a longstanding agricultural subsidy that puts about $5 billion a year in the pockets of their farmer constituents. Even major farm groups are accepting the move, saying that with farmers poised to reap bumper profits, they must do their part. But in the same breath, the lawmakers and their farm lobby allies are seeking to send most of that money -- under a new name -- straight back to the same farmers, with most of the benefits going to large farms that grow commodity crops like corn, soybeans, wheat and cotton. In essence, lawmakers would replace one subsidy with a new one...The new subsidy is being championed by Senator Sherrod Brown, Democrat of Ohio, and Senator John Thune, Republican of South Dakota."

Some say the jobs bill actually makes it harder to pass construction spending, reports Adam Snider: "The Obama administration continues to fight for its American Jobs Act as a way to boost the sagging transportation construction sector. But Democrats, Republicans and the construction industry have all said the White House’s focus is misdirected. A six-year highway and transit reauthorization is the best possible way to boost the economy, lawmakers say. And backers of the long-term plans say singular focus on the jobs bill -- though it puts a positive light on pressing infrastructure issues that don’t always receive national attention -- has been a distraction...West Virginia Rep. Nick Rahall, the top Democrat on the Transportation and Infrastructure Committee, says the White House’s focus on the jobs proposal distracts from the much-needed long-term bill."

Occupy Wall Street should get mad at the Supreme Court, but not just about Citizens United, writes Dahlia Lithwick: "The legal fiction of speech rights for corporations is a paper tiger that draws attention away from the real sins of the Roberts court: a systematic dismantling of existing legal protections for women, workers, the environment, minorities and the disenfranchised. Protesters at OWS who care about growing inequality need look no further than last term at the high court (i.e., not the Citizens United term) to see what happens when--just for instance--one’s right to sue AT&T, one’s ability to being a class action against Wal-Mart, and one’s ability to hold an investment management fund responsible for its lies, are all eroded by a sweep of the court’s pen. Of course, if you want to focus the blame somewhere for big business growing ever richer at your expense, by all means start with Citizens United. But trust me, that’s not even the interesting part of the story."

Meme interlude: Teenage Mutant Ninja Noses.


The Senate has passed a pipeline safety bill, reports Ryan Tracy: "The U.S. Senate unanimously approved a bill Monday updating pipeline-safety regulations and increasing fines that federal regulators can impose on violators. The bill follows recent natural-gas pipeline explosions, including an incident that killed eight people in northern California last year. The legislation has support from industry. A similar measure won unanimous approval from the House Energy Committee last month and is awaiting a vote by the full House. The bill requires that older pipes operating at high pressures be tested in an effort to incorporate the recommendations of investigators who looked into the explosion on Sept. 9, 2010, in San Bruno, Calif. It also authorizes federal regulators to hire more pipeline inspectors and allows fines of up to $250,000 for 'major consequence' violations and an maximum of $2.5 million for a series of major violations."

Electric cars could actually save electricity, reports Brad Plumer: "It also takes a lot of electricity to drill, refine, and transport...gasoline. And factoring that in can paint a very different picture in some cases...In the United States, Norby concludes, 'It takes more electricity to drive the average gasoline car 100 miles, than it does to drive an electric car 100 miles.' Looked at that way, the energy case for shifting to electric cars looks pretty good. How is that possible? Petroleum refineries use a lot of electricity -- the Argonne National Laboratory estimates that it takes about 6 kilowatt-hours of electricity per gallon of gasoline. Norby tacks on the electricity used for extraction, refining, and shipping and comes up with a 'conservative' estimate of about 8 kwh per gallon. If that’s the case, then a gas-powered car that gets 22 miles per gallon would use about 40 kwh of electricity to go 100 miles. An average electric car, by contrast, would only use about 30 kwh of electricity to go the same distance."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.

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