Republican presidential hopeful, former Minnesota Gov. Tim Pawlenty delivers a policy address at the University of Chicago Harris School of Public Policy in Chicago June 6. (Paul Beaty/AP)
Tim Pawlenty's book is titled "The Courage to Stand." The theme of his speaking tour is called "Tell the Truth." But the message in his big economic speech yesterday went down pretty easy, at least for the Republican faithful. Pawlenty promised that substantially cutting taxes would increase economic growth by 150 percent and reduce the deficit by 40 percent. Some hard truth. Next you'll deliver the bad news that if I stop paying my mortgage, my income will grow twice as fast, the bank will pay off half my loan and I'll be able to use the savings to redo my kitchen. Or perhaps you'll sit me down to explain the bad news that eating more pie will stimulate my metabolism and help me lose weight. Ooh, I'm really going to resent you for that one!
To be fair, after riffing on his willingness to deliver hard truths all over the country, Pawlenty does admit that the "the truth about our economy isn’t hard at all." But here's the pity: he's wrong on that, too. The truth is hard. A GOP contender delivering "the hard truth" would sound something like this:
"We've got two problems. A jobs crisis now and a debt crisis soon. Easing the jobs crisis now requires doing something that feels wrong, that polls poorly, but that's economically right: increasing the deficit by even more. So I'm proposing a full payroll tax cut -- both on the employer and the employee sides -- till unemployment returns to 7 percent. I'm also starting up a major infrastructure-rebuilding effort. We've got trillions of work to do in this country and lots of construction workers who've had nothing to do since the crisis. This is money we're going to have to spend sooner or later, so better to spend it now, when it can also help the economy, rather than later, when it won't have any macroeconomic impact."
"But stimulus isn't free. If Democrats want me to sign that bill -- and they will -- every dollar of stimulus needs to be accompanied by four dollars of deficit reduction between 2013 and 2022. I know my Republican friends won't like this, but some of that money, in the end, will have to come from revenues. Not most of it. Not half of it. But some of it. The responsibility of Republicans isn't to oppose all tax increases at all times, but dumb tax increases at any time. So those revenues won't come from hiking marginal rates. They're going to have to come from cutting tax breaks and closing loopholes because, as even Republican economists will tell you, smoothing out the tax code doesn't have the anti-work incentive of increasing the taxes people pay on the last dollar they earn."
"Unfortunately, I can't tell you this'll solve all our problems. The Obama administration made the mistake of saying their stimulus plan would head off the recession before they even knew how big the recession was. They've paid for that dearly, as they should've. My plan won't end our jobs crisis. It'll help. But much in the economy is outside of the government's control, and one difference between Republicans and Democrats is that we Republicans know that. As for deficit reduction, my plan will work, but it will hurt. Real spending cuts mean hitting programs people like and use, and closing tax loopholes and shaving tax breaks mean that many Americans, some middle class, will pay a bit more in taxes."
Would every Republican voter like that? Of course not. But that's what makes it the hard truth.
Five in the morning
1) Sen. John Kyl has issued the GOP's demands on a debt limit deal, reports Felicia Sonmez: "The Senate’s No. 2 Republican on Tuesday spelled out GOP leaders’ conditions in the negotiations over reducing the federal deficit, offering the most specific outline of the party’s demands thus far. Minority Whip Jon Kyl (Ariz.) told reporters that Republicans want $2.5 trillion in budget savings in exchange for voting to raise the country’s $14.3 trillion borrowing limit through the end of next year. 'You’d have to do about $2.4 trillion in debt ceiling,' Kyl said, 'which means you’d have to be about $2 1/2 trillion -- at a minimum -- in savings.'...Kyl’s remarks Tuesday were an indication that GOP leaders are looking to tackle the issue all at once, although he said a piecemeal approach remains a possibility."
2) Tim Pawlenty unveiled his economic plan in a policy speech: "Let’s start with a big, positive goal. Let’s grow the economy by 5%, instead of the anemic 2% currently envisioned. Such a national economic growth target will set our sights on a positive future. And inspire the actions needed to reach it. By the way, 5% growth is not some pie-in-the-sky number. We’ve done it before. And with the right policies, we can do it again...5% economic growth over 10 years would generate 3.8 trillion dollars in new tax revenues. With that --- we would reduce projected deficits by 40%. All before we made a single budget cut."
And it's...absurd. My take: "One small problem, though: There is no economist anywhere who knows how to add three percentage points to the country’s growth. Goosing economic growth over any long period is is hard enough when you’re talking about a tenth or two of a percent. Three percentage points? I’ve never seen anyone make that sort of a claim...Pawlenty says he wants '5 percent growth.' Later in his piece, he specifies 'five percent economic growth over 10 years.' And his evidence that 'it’s been done before'? Two periods in which growth was under five percent and held there for less than five years. So even in his handpicked examples, Pawlenty can’t come anywhere close to his target.
3) Ben Bernanke thinks the current growth dip is temporary, reports Neil Irwin: "The recent slowdown in the U.S. economy is being driven by temporary factors, and growth is likely to accelerate later in the year, Federal Reserve Chairman Ben S. Bernanke said Tuesday. The Fed chairman gave no indication that signs of economic weakness over the past few weeks, including a disappointing report on the job market Friday, will lead the central bank to consider new steps to try to boost growth, such as a third round of injecting billions into the economy by buying Treasury bonds...Bernanke in effect argued that the things holding back the U.S. economy will not be fixed by the central bank printing even more money....Bernanke did offer a warning -- that seemed to be aimed at some Republicans in Congress -- that cutting federal spending too quickly could undermine growth."
4) The Senate will vote today on a bank-backed bill to delay swipe fee rules, reports Ylan Mui: "After months of intensive lobbying by banks, the Senate is slated to vote Wednesday on a controversial bill that would delay changes to debit-card swipe fees that would cost the industry billions of dollars. Sen. Jon Tester (D-Mont.) unveiled revised legislation Tuesday that requires four banking regulators to study the issue for six months. The Federal Reserve would then have an additional six months to rewrite the rules governing swipe fees...The debate centers on the fees that merchants must pay banks each time a debit card is swiped. They average is between 1 and 2 percent of each purchase and totaled $16.9 billion in 2009, according to the Fed. The proposed regulations would reduce the fees by roughly 70 percent to a maximum of 12 cents a swipe."
5) Senate Democrats think Harry Reid isn't doing enough, reports Manu Raju: "A growing number of Senate Democrats are anxious about the lack of a Democratic budget and the unusually slow legislative agenda, creating another headache for Majority Leader Harry Reid as he tries to protect his majority ahead of a daunting election year. 'On the budget front, I’m not a happy camper around here,' California Sen. Dianne Feinstein told POLITICO. 'I think we need to have a budget that we stand by.' 'In the states, you can’t do this in the states -- you’ve got to move,' said West Virginia Sen. Joe Manchin, a former governor up for reelection next year. 'We’re hoping we will.' Not having a budget, Arkansas Sen. Mark Pryor said, 'makes it harder to do things that we just need to do -- there are people talking about an education bill, a highway bill -- a lot of other things you just don’t know how much you have to spend.'"
Maryland rock interlude: Wye Oak plays "My Neighbor" live.
Got tips, additions, or comments? E-mail me.
Still to come: Tim Geithner is the last original Obama economic adviser standing; a McKinsey study suggests many employers will drop coverage as health reform takes effect; a bill reducing the number of appointments requiring Senate confirmation is set to pass; OPEC is split on increasing oil production; and the world's most adorable Glee fan.
Economy
Tim Geithner is the last member of Obama's initial economic team remaining, reports Zachary Goldfarb: "Geithner has not only survived but quietly gained influence, which he has used to press President Obama to curb the nation’s soaring debt even at the expense of spending that might more directly spur employment...Geithner has successfully pressed Obama to announce a plan to reduce the deficit by $4 trillion, though the president ultimately proposed doing it in 12 years rather than 10, as the Treasury secretary wanted. And Geithner has argued for an approach that would include tax increases, spending cuts and politically explosive changes to government retiree programs like Social Security and Medicare. 'He pushes the envelope,' William Daley, Obama’s chief of staff, said in an interview. 'The debate has a political piece that brings us back a little from what Tim may be advocating.'"
State attorneys general are split on how to negotiate a foreclosure deal, reports Brady Dennis: "As state attorneys general continue their months-long settlement negotiations with the nation’s largest banks over widespread problems in foreclosure practices, they have yet to resolve differences within their own group on key issues. Even within the 14-member 'executive committee' of attorneys general who are leading the 50-state coalition, some have very different visions of what exactly a settlement should look like. Florida’s Pam Bondi, for instance, has joined a handful of other Republican attorneys general in arguing against forcing banks to lower loan balances for troubled homeowners...New York’s Democratic attorney general, Eric Schneiderman, meanwhile, has joined other states in pushing for stiff penalties for the firms involved, which include Bank of America and Wells Fargo."
Germany's state visit showcases a recovery method that worked, reports Jia Lynn Yang: "At the White House on Tuesday, German Chancellor Angela Merkel represented a country that boasts the very things President Obama desperately wants as he seeks reelection: record-low unemployment, a strong manufacturing base, and growth that has returned to levels from before the global recession. Although U.S. policymakers say they’re running low on ammunition to jump-start the economy, the German government has been aggressively instituting policies aimed at protecting jobs -- and they’ve worked. The difference, say some experts, is that the German government has been unafraid to pursue policies that induce companies to preserve high-paying jobs and boost exports, embracing two words that can make lawmakers in Washington recoil: industrial policy."
Wal-Mart is running up against a global union campaign, reports Ylan Mui: "Retailing giant Wal-Mart faced an unusual request when it sought government approval recently to buy a chain of stores in South Africa. Labor groups there first asked for traditional protections, such as job security and a commitment from the new managers to buy merchandise from local suppliers. Then they called on Wal-Mart to end its long-running battle with unions thousands of miles away in the United States...Its employees are not unionized in the United States, where the retailer has become infamous for its staunch opposition to labor groups...But in the United Kingdom, Wal-Mart touts a growing roster of union employees and has negotiated contracts with entrenched labor groups in Brazil and Argentina for decades...Union organizers are pushing for a unified approach to the retailer’s 2 million workers around the world."
The economy is worse than you think, writes Martin Feldstein: "The policies of the Obama administration have led to the weak condition of the American economy. Growth during the coming year will be subpar at best, leaving high or rising levels of unemployment and underemployment. The drop in GDP growth to just 1.8% in the first quarter of 2011, from 3.1% in the final quarter of last year, understates the extent of the decline. Two-thirds of that 1.8% went into business inventories rather than sales to consumers or other final buyers. This means that final sales growth was at an annual rate of just 0.6% and the actual quarterly increase was just 0.15%--dangerously close to no rise at all. A sustained expansion cannot be built on inventory investment. It takes final sales to induce businesses to hire and to invest."
The US could learn a lot from Germany, writes David Leonhardt: "Germany has been far more willing than the United States to use the power of government to help its economy. Yet it has also been more ruthless about cutting wasteful parts of government. The results are intriguing. After performing worse than the American economy for years, the Germany economy has grown faster since the middle of last decade. (It did better than our economy before the crisis and has endured the crisis about equally). Just as important, most Germans have fared much better than most Americans, because the bounty of their growth has not been concentrated among a small slice of the affluent. Inflation-adjusted average hourly pay has risen almost 30 percent since 1985 in Germany, the kind of gains American workers have not enjoyed since the ’50s and ’60s. In this country, hourly pay has risen a scant 6 percent since 1985."
History won't judge Obama's economic performance kindly, writes Harold Meyerson:When historians look back at how Barack Obama lost the 2012 election -- or won it only because the Republicans nominated a certifiable space case -- they will doubtless focus on his first few months in office and ponder why he didn’t do more to stanch the recession and arrest the downward mobility of the American people...By mid-2011, it was clear that Obama had done little to address the nation’s fundamental economic problems. As had not been the case during previous recoveries, America’s major corporations and banks were investing abroad rather than at home. Unemployment still exceeded 9 percent. Almost all the growth the nation had experienced since the economy bottomed out in mid-2009 had gone to profits; wages during that time actually declined."
On economic issues, there's a Good Mitt Romney and a Bad Mitt, writes Steven Pearlstein: "The Good Mitt has a firm grasp of what’s wrong with the current health-care system, acknowledges the culpability of Wall Street and the private sector in causing the financial crisis, and even admonishes fellow Republicans for being 'overly fond of bashing regulation as the constant enemy of growth and competition.'...But just when you’re beginning to think maybe you’ve misjudged the guy, the Bad Mitt jumps in and grabs the keyboard. Suddenly we’re asked to believe that less than 10 percent of the Obama stimulus funds created any jobs in the private sector, as if the money that goes to pay the salaries of state workers or finance public works projects winds up in a black hole rather than circulating through the economy."
Animated short interlude: Garson Hampfield, Crossword Inker.
Health Care
A report suggests many employers will drop coverage as health reform is implemented, reports Janet Adamy: "A report by McKinsey & Co. has found that 30% of employers are likely to stop offering workers health insurance after the bulk of the Obama administration's health overhaul takes effect in 2014. The findings come as a growing number of employers are seeking waivers from an early provision in the overhaul that requires them to enrich their benefits this year. At the end of April, the administration had granted 1,372 employers, unions and insurance companies one-year exemptions from the law's requirement that they not cap annual benefit payouts below $750,000 per person a year. But the law doesn't allow for such waivers starting in 2014, leaving all those entities--and other employers whose plans don't meet a slate of new requirements--to change their offerings or drop coverage."
I'm skeptical : "The Massachusetts reform was a good test case, as it also carried the combination of new options for workers and an easy opt-out for employers. So what happened? Employer-based coverage is now more prevalent in Massachusetts than it was before the law was passed. So much as employers might be theoretically interested in getting out of the health-care business, that’s not an easy conversation for them to have with their employees. Never underestimate the power of the status quo. But let’s say McKinsey is right and employers begin dropping workers by the millions. That would leave us with two options: We could stop it from happening by passing a strong employer mandate, or we could embrace it as a long-overdue opportunity to move beyond the employer-based health-care market. It might even be a chance to convert the tax break for employer-based insurance into a refundable tax credit that everyone gets, no matter their employment status. That’s long been a hope of conservatives — both John McCain and Paul Ryan have proposed versions of it — and so long as it happens in the context of a reformed system where consumers are protected, insurers are regulated, and risks are pooled, it’d be very good policy."
Domestic Policy
A bill reducing the number of appointments requiring Senate confirmation looks set to pass, reports Al Kamen: "There’s good news for some not-so-top-tier nominees. Headed for passage in the Senate: measures that would lift confirmation requirements for some 200 full-time positions and put 240 part-time posts on boards and commissions on a fast track to passage. The bipartisan legislation -- supported by Reid and Senate GOP leader Mitch McConnell (Ky.) as well as Senate rules committee Chairman Chuck Schumer (N.Y.) and ranking Republican Sen. Lamar Alexander (Tenn.) -- could be adopted as early as this month. The House has to pass one of the measures, but prior indications are that it will defer to the Senate’s lead."
A federal judge affirmed his ruling against the ban on corporate donations, reports Robert Barnes: "A judge in Virginia on Tuesday affirmed his ruling that the federal ban on direct corporate contributions to political candidates is unconstitutional, turning down the government’s request that he reconsider. U.S. District Judge James Cacheris said in the new opinion that it applies only to the case at issue, involving two men accused of making illegal donations to the 2006 Senate and 2008 presidential campaigns of Secretary of State Hillary Rodham Clinton (D). But Cacheris rejected the government’s arguments that the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission only freed corporations and unions to make independent expenditures on behalf of candidates."
John Barrasso is leading the campaign against Obama's Commerce nominee, reports Darren Goode: "Sen. John Barrasso (R-Wyo.) is leading a Senate Republican charge against President Barack Obama’s pick of former environmentalist and utility executive John Bryson to head the Commerce Department. Barrasso gave fellow Republicans a one-pager at their policy lunch Tuesday -- with the heading 'Mismatched: John Bryson & the Commerce Department' -- citing his founding of the 'extreme environmental organization' the Natural Resources Defense Council and his support of the cap-and-trade bill House Democrats passed in 2009. 'Instead of appointing a truly an economic leader, he has appointed an environmental extremist,' Barrasso told reporters after the lunch."
Polarization is a voluntary process, writes Peter Orszag: "If redistricting isn’t the primary force behind polarization, what is? One crucial cause, as documented in “The Big Sort,” a path-breaking book by Bill Bishop and Robert Cushing, is increased residential segregation by political party. We are voluntarily separating ourselves into Republican and Democratic neighborhoods. Today’s media and blogosphere, which increasingly filter news according to their point of view, exacerbate and reinforce the effect...The consequences are far-reaching. The social psychology literature clearly shows that when like-minded people are put together, they move to extremes -- both because they rarely hear opposing viewpoints and because each person is at least somewhat inclined to prove he is the true believer in the group."
Adorable children singing Katy Perry interlude: A kid imitates the Glee performance of "Teenage Dream".
Energy
OPEC is split on increasing oil production, report Summer Said and John Biers: "Some Middle East oil powerbrokers, led by Saudi Arabia, are quietly pressing ahead with a plan for OPEC to boost output, as the group headed into what appeared to be its most uncertain meeting in years. Key officials of the Organization of Petroleum Exporting Countries, most notably Saudi Arabia's oil minister, Ali Naimi, stayed unusually silent ahead of Wednesday's meeting, a sign that a solid consensus hadn't been reached Tuesday amid a complex political and economic environment. OPEC members are squaring off over the fundamental question of whether the global economy--showing signs of weakness, especially in the oil-hungry U.S.--needs to be supplied with more crude in coming months. Some OPEC members, led by the Saudis, have pushed for a production increase in the belief that demand will rise in the second half of the year."
EPA critics dominate news coverage, report Robin Bravender and Patrick Reis: "Viewers of television news shows are getting a heavy diet of opposition to Obama administration climate policies, thanks mainly to skewed coverage on Fox, according to a report out Tuesday from the liberal-leaning group Media Matters. More than three-quarters of guests who discussed EPA climate rules on major television news channels between late 2009 and April 2011 spoke against the EPA’s greenhouse gas regulations, according to the analysis. And largely, Fox News and Fox Business are driving the disparity...the report also faults coverage on some other networks -- for example, calculating that CNBC featured eight Republicans and zero Democrats in discussions of EPA greenhouse gas regulations during the period studied."
New Jersey is backtracking still further on climate change, reports Mireya Navarro: "Gov. Chris Christie said Tuesday that he planned to scale back New Jersey’s goals for renewable energy as he looked for an 'achievable' approach to generating electricity in the state. His change is part of an overhaul of the state’s 10-year energy master plan, which had been expected since last year, when he asked the New Jersey Board of Public Utilities to evaluate renewable energy targets he found too aggressive. But after his decision last month to withdraw from a multistate trading system, the Regional Greenhouse Gas Initiative, environmental advocates called the move another setback undermining the state’s leadership on energy initiatives. Public hearings will be held on the plan before it becomes final."
Clean energy projects are dangerously land-intensive, writes Robert Bryce: "to have 8,500 megawatts of solar capacity, California would need at least 23 projects the size of Ivanpah, covering about 129 square miles, an area more than five times as large as Manhattan. While there’s plenty of land in the Mojave, projects as big as Ivanpah raise environmental concerns...Wind energy projects require even more land. The Roscoe wind farm in Texas, which has a capacity of 781.5 megawatts, covers about 154 square miles. Again, the math is straightforward: to have 8,500 megawatts of wind generation capacity, California would likely need to set aside an area equivalent to more than 70 Manhattans. Apart from the impact on the environment itself, few if any people could live on the land because of the noise."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.
