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The U.S. economy grew 3.6 percent in the third quarter.That's the kind of number that could foretell a real recovery. Sadly, this one doesn't.
"A run-up in private inventories added a whopping 1.68 percentage points to the overall GDP number, the most since 2010, meaning that 'final demand' -- the actual purchases and investments in the second quarter -- rose at a sub-2 percent rate, about where it has been for four years and counting," reports Neil Irwin.
Wall Street certainly doesn't think the numbers foretell a recovery. "Barclays, for example, now expects the nation’s gross domestic product to advance at only a 1.5 percent annual rate, down from 2 percent and far below the government’s latest estimate of a 3.6 percent pace for the third quarter," reports Nelson Schwartz.
The political system, however, seems to be moving on. President Obama's big economic speech this week was on inequality and social mobility. Paul Ryan is thinking about poverty. Both men are quick to say that growth is necessary to reduce both inequality and poverty. But weak growth is no longer the central economic problem obsessing American politics. It's no longer treated as a crisis. No one on either side of the aisle believes new policy is politically possible. Washington has become used to these kinds of numbers and resigned to its inability to do anything about them.
Meanwhile, the economic profession is beginning to wonder whether slow growth is, for the United States, the new normal. That was the subject of Larry Summers's searing speech before the International Monetary Fund, and it's the subject of Tyler Cowen's work on "The Great Stagnation," and it's the subject of Brad DeLong's 9,000-word piece on whether "growth is getting harder".
As the economics profession becomes far more worried about growth, Washington is becoming less worried, or at least more fatalistic. That's not good.
Wonkbook's Quotation of the Day: “When a man has done what he considers his duty to his people and his country, he can rest in peace. I believe I have made that effort and that is, therefore, why I will sleep for eternity." -- Nelson Mandela.
Wonkbook's Graph(s) of the Day: Five startling facts about pregnancy and abortion in America.
Wonkbook's Top 5 Stories: (1) is a boom too much to ask?; (2) the Obamacare normalization; (3) sealing the fiscal minideal; (4) inevitable carbon taxation; and (5) the waste in the anti-NSA arms race.
1. Top story: Why we can't have nice things like faster growth
The economy grew 3.6 percent last quarter. But it was a fluke. "That's the kind of number that, if it reflected the true, underlying growth rate of the economy, would be fantastic news. A couple of years of 3 percent to 4 percent growth would go a long way toward ending the long, post-crisis economic malaise that has afflicted the United States. Too bad that's not at all what the details of the new GDP report suggest is going on. A run-up in private inventories added a whopping 1.68 percentage points to the overall GDP number, the most since 2010, meaning that "final demand" - -the actual purchases and investments in the second quarter -- rose at a sub-2 percent rate, about where it has been for four years and counting." Neil Irwin in The Washington Post.
Faster growth may not last for long. "As investors digested the better-than-expected data on Thursday from the Commerce Department for July, August and September, many economists immediately cut their estimates for fourth-quarter growth. Barclays, for example, now expects the nation’s gross domestic product to advance at only a 1.5 percent annual rate, down from 2 percent and far below the government’s latest estimate of a 3.6 percent pace for the third quarter. A final revision is scheduled Dec. 20." Nelson D. Schwartz in The New York Times.
@justinwolfers: If you think this GDP report is good news, you're reading it wrong: -GDI grew only 1.4% -↓revisions to final sales -Inventories unhelpful.
Fed's Lockhart says it is time to think about tapering. ""I now think it is appropriate in coming meetings to put a tapering decision on the table as long as the resulting overall posture of policy preserves a high degree of accommodation," Mr. Lockhart said. Most refer to any slowing of the current pace of central bank bond-buying as tapering. He added, "if market expectations are that the asset-purchase program will wind down over the coming year, I think that is reasonable." Mr. Lockhart told reporters after his speech that "December is certainly a meeting where the issue can be addressed, but I want to be quite confident" economic recovery is on track before cutting Fed bond buys." Michael S. Derby in The Wall Street Journal.
Unemployment won't hit 6.5 percent until 2015, Fed research suggests. "A new paper from researchers at the Federal Reserve Bank of Cleveland could assuage the concerns of some market participants who still doubt the Fed’s commitment to keep rates low even after the recovery picks up steam. The paper’s authors, staff economists Edward Knotek and Saeed Zaman, attempt to gauge when the U.S. unemployment rate, currently at 7.3%, might hit 6.5% — the threshold set by Fed officials for when they will start considering an increase in short-term interest rates...The researchers find that setting an inflation floor of 1.5% would have just a modest impact on the timing of the first increase in short-term rates. But a 1.75% floor could cause “a considerable delay.”" Pedro Da Costa in The Wall Street Journal.
@grossdm: compared with a year ago, 863,000 fewer Americans receiving unemployment benefits -- down 17 percent.
House Democrats are pushing hard to extend unemployment benefits. "House Minority Leader Nancy Pelosi (D-CA) on Thursday said Democrats would not support a budget deal that does not extend emergency unemployment benefits, which are set to lapse on Dec. 28 for about 1.3 million people...Pelosi walked back her remark slightly during a press conference later Thursday, saying that she "didn't say" the unemployment benefits extension had to be in the Ryan-Murray budget. She clarified that it had to be done but could be done separately." Sahil Kapur in Talking Points Memo.
Boehner says he'll consider it. "House Speaker John Boehner said Thursday he would "entertain" a possible extension of expiring emergency unemployment benefits, but he put the onus on the White House to offer a specific proposal in the coming days...[T]he White House report didn't specify how it would reshape or change the emergency benefits as part of any extension. The last time the benefits were extended, the White House and lawmakers made some changes to try to make it easier for Americans to rejoin the workforce." Damian Paletta and Michael R. Crittenden in The Wall Street Journal.
@CEABetsey: When the extension of EUC expires in December, 1.3 million people lose unemployment insurance benefits--that's a third of all UI recipients
Long-term unemployment is still at its highest levels since World War II. "Where does it all end? Will a program that was meant to provide "emergency" aid to the unemployed get extended indefinitely, year after year? Over at the Center on Budget and Policy Priorities, Chad Stone offers one way to think about this question. Technically, we're still very much facing a jobs "emergency," even after years of recovery. That's particularly true for workers who have been out of work for 27 weeks or more — the people most likely to be affected by the cut-off in benefits. In each of the previous three recessions, federal aid for the unemployed didn't expire until the long-term unemployment rate had dropped to around 1.3 percent. Right now, it's at 2.6 percent." Brad Plumer in The Washington Post.
@pdacosta: For economists, unemployment is a long-term problem. For the unemployed, it's a daily emergency.
House and Senate are near deal on 'fast-track' trade powers. "A congressional aide close to the negotiations said that both sides had made significant progress on reaching a fast-track deal, also known as trade-promotion authority. But the aide, who declined to speak on the record because of the delicate nature of the talks, emphasized that an agreement was not complete...They are expected to bring forward a bill next week, during the last few days Congress will be in session this year. But the plan still faces several obstacles, including opposition from some Democrats and Republicans in the House. Aides doubted that the fast-track legislation would reach a floor vote this year, given the crowded the Congressional calendar." Annie Lowrey in The New York Times.
Volcker rule to create grey area for regulators. "[T]he official said some trading would fall between such activity and the explicitly permitted business of “market making” – buying and selling stocks and bonds on clients’ behalf. He said the rule itself would be quite short, leaving room for regulators’ discretion." Tom Braithwaite, Gina Chon, and Alex Barker in The Financial Times.
@JimPethokoukis: The Philly Fed's revised GDPplus number for 3Q was up just 1.96% vs. 3.65 for old-fashioned GDP
The government is the reason U.S. inequality is so high. "It's worth noting that you can get U.S. inequality down to the levels seen in extremely egalitarian societies like Sweden by doing nothing but changing tax and transfer policies...The only reason these countries enjoy such low levels of inequality is that their tax and transfer systems reduce inequality much, much more than the U.S. system does. And, interestingly, the way they do that is by using relatively regressive but highly efficient consumption taxes to fund very generous welfare states. That's a marked contrast to the U.S. approach of having relatively progressive income taxes but stingier spending programs." Dylan Matthews in The Washington Post.
Is inequality bad for economic growth? "On Wednesday, just as President Obama was giving his big speech on inequality and the economy, the Center for American Progress released three new papers on this very topic. Perhaps the most interesting paper here is economist Jared Bernstein's exploration (pdf) of whether rising income inequality in the United States is bad for economic growth. His conclusion: There are compelling reasons to believe that inequality can harm growth, but it's surprisingly difficult to prove this is happening." Brad Plumer in The Washington Post.
How Americans feel about inequality. "More than half (61%) of Americans said the U.S. economic system favors the wealthy, while just 35% said it’s fair to most people...More than half (55%) of Republicans said the economic system is fair to most people, but majorities of Democrats (75%) and independents (63%) said it favors the wealthy. And 61% of Democrats and 50% of independents said the gap was a very big problem, versus only 28% of Republicans." Drew DeSilver for the Pew Research Center.
Illinois governor signs big pension overhaul into law. "The new law would reduce future costs by shrinking cost-of-living increases for retirees, raising retirement ages for younger employees and capping the size of pensions. It also requires the state to make regular contributions to the pension funds to ensure their long-term solvency, something Illinois has failed to do in the past." Mark Peters in The Wall Street Journal.
KRUGMAN: Obama gets real on inequality. "What struck me about this speech, however, was what he had to say about the sources of rising inequality. Much of our political and pundit class remains devoted to the notion that rising inequality, to the extent that it’s an issue at all, is all about workers lacking the right skills and education. But the president now seems to accept progressive arguments that education is at best one of a number of concerns, that America’s growing class inequality largely reflects political choices, like the failure to raise the minimum wage along with inflation and productivity." Paul Krugman in The New York Times.
REICH: Redistribute the gains from low-wage work. "The EITC subsidy should be enlarged and extended further up the wage scale before tapering off. How to pay for this? By cutting subsidies and special tax breaks for the oil and gas industries, big agribusiness, military contractors, hedge-fund and private-equity partners, and Wall Street banks. And by capping individual tax deductions (deductions are the economic equivalent of government subsidies) for gold-plated health care plans, lavish business junkets and interest on giant mortgages. In other words, we can finance much of this redistribution to the working poor by ending unnecessary redistributions to the wealthy." Robert Reich on his blog.
WESSEL: Why the dollar dominates. "You'd think the U.S. dollar's reign as the world's supreme currency would be ending—or at least vulnerable. So now comes economist Eswar Prasad with a surprising argument: "The global financial crisis has strengthened the dollar's prominence in global finance."...Neither the euro nor the Japanese yen is a plausible rival. China's yuan may be someday, but not soon. China still lacks the legal and other institutions and deep financial markets that make U.S. Treasury debt so attractive to so many." David Wessel in The Wall Street Journal.
CROOK: How to save liberal trade. "Global liberalization -- multilateralism, as it’s called -- is failing. And governments have taken up the alternative, regionalism, with zeal. The next big moves in trade reform will be settled within regional groups. The WTO must adapt to this or die." Clive Crook in Bloomberg.
Music recommendations interlude: Andrew Bird, "Imitosis."
ORSZAG AND SUNSTEIN: Give people choices, not edicts. "In the U.S. and other nations, automatic enrollment has significantly increased participation in savings plans. A recent study found that in Denmark, automatic enrollment has had a larger impact than significant tax incentives in getting people to save. The study found that 99 percent of the retirement contributions made in response to tax incentives would have been saved anyway; by contrast, the bulk of the contributions made by people who were automatically enrolled in a retirement plan represented a net addition to saving." Peter Orszag and Cass R. Sunstein in Bloomberg.
CHAIT: It's time for a round of budget will-be-or-won't-be! "The impediment to an agreement is that Democrats believe since both parties dislike sequestration, both of them should compromise in equal measure in order to replace it. Republicans believe that, since Democrats hate it more, Democrats should have to offer unilateral concessions to replace it. The possibility of a deal rests on Republicans facing pressure to compromise. And there are forces impelling them to do so." Jonathan Chait in New York Magazine.
BARONE: Obamacare, Exit, Voice, and Loyalty. "In 1970 the eccentric but insightful economist Albert Hirschman published a book called Exit, Voice and Loyalty. It explored how people respond when a private firm's or a government agency's performance is deteriorating. Some people choose to leave, buying another product or service or leaving the government's jurisdiction. Others use voice, complaining about defects or lobbying for change. Hirschman tended to deplore exit and exalt voice, and urged firms and governments to nurture loyalty so consumers and citizens would stick around and improve things...If Obamacare's architects were keen on preventing exit, they blithely ignored voice. The legislation was unpopular when it was proposed, while it was passed and in the months and years afterwards." Michael Barone in The Washington Examiner.
BROOKS: The irony of despair. "According to the World Health Organization, global suicide rates have increased by 60 percent over the past 45 years. The increase in this country is nothing like that, but between 1999 and 2010, the suicide rate among Americans between 35 and 64 rose by 28 percent. More people die by suicide than by auto accidents...People who attempt suicide are always subject to sociological risk factors, but they need an idea or story to bring them to the edge of suicide and to justify their act. If you want to prevent suicide, of course, you want to reduce unemployment and isolation, but you also want to attack the ideas and stories that seem to justify it." David Brooks in The New York Times.
ZAKARIA: The leaning tower of PISA. "If one can put ideology and vested interests aside, I think a fair-minded review of this survey, as well as others, suggests that the United States has reason to be worried, though not panicked...There are many reasons, but to put it simply, many of these countries are playing to win. According to the [OECD], the gap in math between Shanghai and Massachusetts (the top-performing U.S. state) translates into two years of schooling. No surprise; as it turns out, because of the longer academic year in China, by the time the average Shanghai kid gets to be 15, she has spent about two years more in school than the average 15-year-old American." Fareed Zakaria in The Washington Post.
In memoriam interlude: Nelson Mandela.
2. Welcome to the 'normalization' stage of the Obamacare launch
Three ways you can tell HealthCare.Gov is working. "Republicans have mostly stopped attacking the website. Two sets of House Republican talking points shared with National Journal bare this out. Tuesday's email, sent from the office of GOP Conference Chairwoman Cathy McMorris Rodgers, barely touches on the website, while Thursday's doesn't mention the site at all." Alex Seitz-Wald in the National Journal.
It’s hard to sign up for Obamacare. It’s much worse to be uninsured. "The people shopping on HealthCare.gov are incredibly, unwaveringly persistent in their attempts to purchase coverage. This is something that has become clear to me in my most recent interviews, talking to people who have now spent two months trying to buy insurance coverage. These are the people who have made upwards of 100 attempts at buying insurance coverage. They're the ones trying the Web site at different times of day and in different Internet browsers. Some incorporate it into their daily routines; logging on to HealthCare.gov has become the first thing they do when they wake up, the last thing they do before falling asleep." Sarah Kliff in The Washington Post.
The GOP says Obamacare will cancel 80-100 million insurance plans. Nope. "[Christopher] Conover says "at least" 129 million people will lose their coverage by the end of 2014. How does Conover reach such a startling estimate? By redefining what it means to lose your coverage. What Conover's talking about here isn't cancellation notices or pink slips, as Rogers says. It's any change to a plan at all...As for Conover's definition of losing your health insurance, it's telling that so many of the people losing their health insurance don't think they've lost their health insurance. Many of them think their health insurance has improved! And small changes to benefits and premiums are common in employer-provided health-care plans." Ezra Klein in The Washington Post.
Explainer: Five startling facts about pregnancy and abortion in America. Sarah Kliff in The Washington Post.
Republicans are shifting their message on Obamacare. "In a significant development, GOP candidates have embraced a concept that was unthinkable a year ago: fixing President Obama’s landmark law. Others, meanwhile, have offered replacement healthcare plans. Senate Republican hopefuls in the House, including Reps. Jack Kingston (Ga.), Bill Cassidy (La.), Paul Broun (Ga.), Shelley Moore Capito (W.Va.) and Tom Cotton (Ark.), have proposed alternatives or voted to repair the law." Alexandra Jaffe in The Hill.
Permanent ‘doc fix’ unlikely this year. "Lawmakers have all but given up on efforts to permanently replace the Medicare physician payment formula this year and have refocused their effort on getting it done in 2014. Both the Senate Finance and the House Ways and Means committees are expected to vote next week on a proposal that would permanently repeal the Sustainable Growth Rate and establish a new formula...Capitol Hill is now scrambling to come up with a short-term patch to prevent a 20.1 percent cut due in January under the current formula." Jennifer Haberkorn and Page Winfield Cunningham in Politico.
And you thought you had seen it all interlude: Corporation not person in carpool lanes.
3. Sealing the fiscal minideal
Lawmakers rushing to reach budget agreement to avoid another shutdown. "Lawmakers and senior aides in both parties said they were optimistic about the prospects for a modest agreement that would restore about $45 billion to agency budgets in the current fiscal year and about $20 billion in fiscal 2015. To cover that cost — and to put another small dent in the federal deficit — negotiators are considering a range of policies, including cutting retirement benefits for federal workers, reducing payments to hospitals that treat the uninsured and increasing security fees for airline travelers." Lori Montgomery in The Washington Post.
The conservative position is now for a clean CR. "Reps. Mick Mulvaney (S.C.), Jim Jordan (Ohio) and Steve Scalise (La.) are advocating in a letter to Speaker John Boehner and Majority Leader Eric Cantor that they vote for a so-called clean continuing resolution at the sequester level of $967 billion for 2014 spending...Republican leadership has quietly been gathering support for a CR at $967 billion if the talks fail." Jake Sherman in Politico.
The liberal one: "Van Hollen also took a shot at budget negotiators for considering an increase in Transportation Security Administration fees but not closing a tax loophole that allows private jets to receive a tax deduction...House Minority Whip Steny Hoyer (D-Md.) strongly criticized reports that the budget negotiators are considering reducing federal employee pension contributions to help offset the sequester. Hoyer’s suburban Washington district is home to a large concentration of federal employees." Ginger Gibson in Politico.
You're not the only one noticing a little sniping between liberal and centrist Democrats. "The coalition, the Progressive Change Campaign Committee, and three other liberal advocacy organizations have urged their members to contact a group of congressional Democrats who are honorary leaders of the centrist group, Third Way...Taken together, such hardball tactics suggest that emboldened progressives intend to tap into the populist energy coursing through the Democratic Party to ensure that their elected officials hold to the liberal line." Jonathan Martin in The New York Times.
How the GOP lost its nerve on tax reform. "House Speaker John Boehner (R-Ohio) and others pulled the plug last month on Camp’s long-standing vow to take up a tax overhaul bill this year, putting his three-year quest in limbo. The reversal shows how support for tax reform, even among Republicans, is broad but not deep. They routinely say they want to overhaul the Tax Code, but when the Michigan Republican pushed to take the first big step — putting out a bill — party leaders blinked." Brian Faler, Rachael Bade, Kelsey Snell, and Lauren French in Politico.
Tax extenders will have to wait for comprehensive reform. "Congressional tax writers have put K Street on notice that a treasured collection of tax breaks won’t be renewed by the end of the year. House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Senate Finance Committee Chairman Max Baucus (D-Mont.) have vowed to deal with the so-called extenders package in comprehensive tax reform. But with the fate of that effort uncertain, lobbyists are unsure when, if ever, Congress will get around to reauthorizing dozens of breaks that deal with everything from wind energy to research and development to electric vehicles." Bernie Becker and Kevin Bogardus in The Hill.
Musical instruments interlude: Drums, drums everywhere.
4. A carbon tax is coming. Accept it. Exxon has.
Large companies prepared to pay a price on carbon. "More than two dozen of the nation’s biggest corporations, including the five major oil companies, are planning their future growth on the expectation that the government will force them to pay a price for carbon pollution as a way to control global warming. The development is a striking departure from conservative orthodoxy and a reflection of growing divisions between the Republican Party and its business supporters. A new report by the environmental data company CDP has found that at least 29 companies, some with close ties to Republicans, including ExxonMobil, Walmart and American Electric Power, are incorporating a price on carbon into their long-term financial plans." Coral Davenport in The New York Times.
Obama gives federal government renewable mandate. "Saying the government should lead by example, President Barack Obama on Thursday ordered the federal government to nearly triple its use of renewable sources for electricity by 2020...The government currently has a goal of using 7.5 percent of its electricity from renewable sources, but Obama said recent increases in renewable energy supplies make the new 20 percent goal achievable by 2020. His order says the government should use renewable sources for 10 percent of its electricity in 2015 and gradually increase that amount to 20 percent within seven years." Matthew Daly in The Associated Press.
Diseases on the move because of climate change. "Valley Fever is one of multiple diseases experts say are spreading in part because of climate change. They include a brain-eating amoeba showing up in northern lakes that were once too cold to harbor it and several illnesses carried by ticks whose range is increasing. USA TODAY is looking at the spread of these illnesses as part of a year-long series that explores the places and ways in which climate change affects us." Elizabeth Weise in USA Today.
Earl Blumenauer tries to break highway funding gridlock. "One would raise the gas tax to 33.4 cents cents per gallon, nearly double the current rate of 18.4 cents, over the next few years. That bill would also peg the tax rate to inflation so that its purchasing power doesn’t decline over time. The other bill would let states look into charging drivers by the mile — a so-called vehicle miles traveled fee — by expanding a pilot program started in Blumenauer’s home state of Oregon. The program would be voluntary and allow states to choose how exactly to test the concept of charging for road use." Adam Snider in Politico.
Shell won't build Gulf plant. "Royal Dutch Shell said on Thursday that it would not build an immense gas-to-liquids plant on the Gulf Coast because of concerns over its cost. Shell had been studying the possibility of building a plant to take advantage of cheap shale gas in the United States for at least two years...The decision would appear to be a blow to Shell’s ambitions in natural gas technology and in the United States, where it is a major investor. The news could also be a sign of overheating in the oil and petrochemical industries in the United States." Stanley Reed in The New York Times.
Winning the Internet interlude: Bunny GIFs.
5. A wasteful arms race to block NSA spying
How Internet firms are now in an arms race with the NSA. "For big Internet outfits, it is no longer enough to have a fast-loading smartphone app or cool messaging service. In the era of Edward J. Snowden and his revelations of mass government surveillance, companies are competing to show users how well their data is protected from prying eyes, with billions of dollars in revenue hanging in the balance...[T]he Snowden revelations threaten to erode the market share of American technology companies abroad. In India, government officials are now barred from using email services that have servers located in the United States. In Brazil, lawmakers are pushing for laws that would force foreign companies to spend billions redesigning their systems — and possibly the entire Internet — to keep Brazilian data from leaving the country. Forrester Research projected the fallout could cost the so-called cloud computing industry as much as $180 billion — a quarter of its revenue — by 2016." Nicole Perlroth and Vindu Goel in The New York Times.
Microsoft to encrypt data in its services in bid to prevent snooping. "Microsoft plans to encrypt data flowing through all of its communication, productivity and other services as it seeks to reassure users in the United States and beyond that it will guard their personal information from snooping governments, the company announced Wednesday night...“The goal is clear: We want to be sure that governments use legal processes rather than brute force to access user data,” Brad Smith, Microsoft’s general counsel, said in an interview." Craig Timberg in The Washington Post.
Reading material interlude: The best sentences Wonkblog read today.
This is how Nelson Mandela thought about policy. Lydia DePillis.
The government is the only reason U.S. inequality is so high. Dylan Matthews.
Is inequality bad for economic growth? Brad Plumer.
The House just passed a bill that makes it a lot harder to sue over patents. Edward Wyatt in The New York Times.
Pennsylvania is trying to reduce recidivism with better halfway houses. Joe Palazzolo in The Wall Street Journal.
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