Welcome to Wonkbook, Wonkblog’s morning policy news primer by Evan Soltas. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Washpost dot com. To read more by the Wonkblog team, click here.
Wonkbook's Number of the Day: 3.2 percent. The U.S. saw that robust growth in its real gross domestic product last quarter, in annualized terms, according to new figures from the Commerce Department.
Wonkbook's Graph of the Day: Wonkbook's Top 5 Stories: (1) economic growth stays strong, for now; (2) a notable triumph for health reform; (3) the Republican perestroika; (4) state of our union still changing; and (5) a big legal challenge to the NSA.
1. Top story: Are happy days here again?
Economy grew 3.2 percent in fourth quarter, fueling hopes for faster recovery. "The Commerce Department reported that the nation’s gross domestic product grew at a solid 3.2 percent annual rate during the fourth quarter. Strong consumer spending, investments by businesses and a pickup in exports boosted the results. But the pace of growth would have been a percentage point higher without the political chaos on Capitol Hill...Economists say the recovery is poised for takeoff once the fiscal headwinds fade. The pickup at the end of the year was particularly encouraging because it followed a surge in growth during the third quarter that some worried could not be sustained. The back-to-back gains are likely to shore up confidence that the recovery will not stall out again." Ylan Q. Mui in The Washington Post.
Here are the signs that happy days are here again. "Now that the domestic economy is improving, U.S. businesses may become less cautious about making longer-term investments, after years of delaying such spending. Last quarter, spending on equipment grew 6.9%, up from an increase of just 0.2% the prior quarter...Aside from consumer spending, trade is becoming a reliable source of growth for the economy. U.S. exports soared 11.4% last quarter, the most in three years." Neil Shah and Sarah Portlock in The Wall Street Journal.
@JustinWolfers: Very very healthy (and encouraging) consumption growth is the backbone of this GDP report. Usually spells good news ahead.
But strong growth is returning too late to rescue Obama's economic legacy. "[A]fter including the latest figures for growth on Thursday, the economy has expanded at annual rate of 1.8 percent under President Obama, half the pace of growth in the first five years of the Clinton administration,and below the 2.5 percent annual growth rate for President Bush between December 2000 and December 2005 in the same years. The rise in disposable per capita income has also been weaker, inching up just 0.6 percent annually in the last five years, compared with almost 2 percent from 1993 to 2008." Nelson D. Schwartz in The New York Times.
U.S. housing market hits headwinds. "An index measuring contracts to buy existing homes fell 8.7% in December from November to its lowest level in more than two years, according to the National Association of Realtors. Pending sales stood 8.8% below the year-earlier level. Meanwhile, housing construction's contribution to gross domestic product, the broadest measure of goods and services produced across the economy, declined during the fourth quarter, subtracting one-third of a percentage point from economic growth. That was the first such decline in more than three years." Nick Timiraos and Kris Hudson in The Wall Street Journal.
Why the homeownership rate is so misleading. "Households can be one of two things: owners or renters. The homeownership rate equals the share of households that are owners. But look at people instead of households, and people have a third option: living under someone else’s roof. When young adults live with their parents, or older people live with their grown children, or people live with housemates, they count as part of someone else’s household. Those people are technically neither owners nor renters, and they don’t count in the homeownership rate. That’s why the homeownership rate can mislead: It omits people who are not in the housing market themselves as owners or renters." Jed Kolko in The New York Times.
U.S. banks start to ease limits on lending. "The U.S. Office of the Comptroller of the Currency said banks relaxed the criteria for businesses and consumers to obtain credit during the 18 months leading up to June 30, 2013...The comptroller's report said it would still classify most banks' standards as "good or satisfactory" but did strike a cautionary tone." Ryan Tracy and Saabira Chaudhuri in The Wall Street Journal. @BruceBartlett: Cuts in gov't spending a huge drag on 4th quarter GDP. Private sector doing better than people think
.... Jobless claims rise by 19,000. "Initial claims for jobless benefits, a measure of layoffs, increased by 19,000 to a seasonally adjusted 348,000 in the week ended Jan. 25. That was higher than the 330,000 forecast by economists and the highest level since mid-December. A Labor Department analyst said no special factors affected the data, though economists say holiday- and weather-related issues make seasonal adjustments difficult around this time of year. The four-week moving average for claims, which evens out bumpy week-to-week data, ticked up slightly to 333,000 from 332,250. They remain close to the five-year lows they hit last summer." Jonathan House in The Wall Street Journal.
Why aren't imports growing faster than GDP? "Part of the explanation involves the shale oil and gas revolution in the U.S., which is far from over. From 2002 to 2006, imports of petroleum (including related products) rose by 1 percent of GDP. Over the past couple of years, however, they have been declining. The shale revolution may also be causing some manufacturing activity to relocate to the U.S.; while imports of industrial materials and supplies rose by about half a percent of GDP from 2002 to 2006, they have barely budged during this recovery." Peter Orszag in Bloomberg.
@JimPethokoukis: JPMorgan; We still feel reasonably comfortable with the 2.5% [GDP] number we have pencilled in for Q1.
Both Obama and Republicans face dissent in their own ranks over fast track. "In the past, trade deals often faced congressional opposition and long parliamentary delays, but eventually they almost inevitably won approval. This time, Mr. Obama appears to be losing the argument. And without fast track, which ensures that lawmakers cannot make changes to either deal, foreign trading partners might hesitate to agree to American demands." Annie Lowrey in The New York Times.
Here’s why the dollar’s demise is overstated. "“The system is so rigged, the U.S. wins no matter what,” Prasad said Wednesday night at a reception to discuss his new book, “The Dollar Trap,” which develops the argument in detail. The thrust of it is that when times are good, the U.S. economy is attractive in its own right -- people buy a lot of stuff from overseas, other countries are happy to lend money to finance those purchases, and demand for dollars is strong. And when things are not so good, the United States is still the only place large enough to absorb the world’s spare change and (critically) that is trusted enough to pay it back." Howard Schneider in The Washington Post.
@djheakin: Government shutdown shows up, but effects should not be overstated. #GDP
State pension obligations can be crushing. But corporate welfare costs more. "When the pension system's investment portfolio grew bloated in the go-go 1990s, the state increased benefit levels, without increasing the amount either employees or the government paid into the fund...A new report out today from the research group Good Jobs First, which receives some funding from labor unions, finds that the annual cost of tax breaks and corporate subsidies often exceeds even the most out-of-control pension loads. In an examination of 10 states with some of the hottest battles over retirement plans for public employees, it calculated that they spend an average of 51 percent more to help out corporations than they do keeping up with contributions to pension systems." Lydia DePillis in The Washington Post.
Music recommendations interlude: Ben Selvin and the Crooners, "Happy Days Are Here Again," 1930.
KRUGMAN: Troubled Turkey. "The larger point is that Turkey isn’t really the problem; neither are South Africa, Russia, Hungary, India, and whoever else is getting hit right now. The real problem is that the world’s wealthy economies — the United States, the euro area, and smaller players, too — have failed to deal with their own underlying weaknesses. Most obviously, faced with a private sector that wants to save too much and invest too little, we have pursued austerity policies that deepen the forces of depression." Paul Krugman in The New York Times.
BROOKS: The opportunity coalition. "[H]e will have the opportunity to build what he himself could have used over the past few years: An Opportunity Coalition. He’ll have the chance to organize bipartisan groups of mayors, business leaders, legislators, activists and donors into permanent alliances and institutions that will formulate, lobby for, fund and promote opportunity and social mobility agendas for decades to come." David Brooks in The New York Times.
YGLESIAS: Why opportunity is not enough. "Because whether focus groups want to hear it or not, the idea of equal opportunities is a toxic blend of the incoherent and undesirable. It makes no sense whatsoever as a social objective...The concept necessarily veers between opportunity-as-randomness and opportunity-as-hereditary-aristocracy, and neither comes across as particularly appealing." Matthew Yglesias in Slate.
Also: Matt has a new longread out on Amazon. Slate.
COHN: Hate Obamacare? Hate the alternative. "Obamacare does this too, because—like the Coburn bill—it reduces the value of the existing tax break, albeit in a more indirect way. And the conservative method of reducing the tax break is actually preferable because it's more direct. But Obamacare’s reduction is relatively modest. The Coburn bill might envision a larger reduction...[T]he disruptions to employer insurance would be precisely the sort of changes that Republicans say they hate about Obamacare." Jonathan Cohn in The New Republic.
DELONG: Is America turning Japanese? "According to all evidence, the US economy’s fall from its long-run growth path has left America 7% poorer today (and into the indefinite future) than expected back in 2007. And this assumes that there is only a one-time permanent downward shock, with no additional slowdown in the rate of potential output growth...One thing is clear: economists no longer dare to assume that trend is trend and cycle is cycle, and that their reciprocal interactions are small enough to neglect on the first pass. That approach has left many economists themselves living in countries that are considerably poorer than they expected." J. Bradford DeLong in Project Syndicate.
WILENTZ: The paranoid libertarians. "Snowden, Greenwald, and Assange hardly subscribe to identical beliefs, and differ in their levels of sophistication. They have held, at one time or another, a crazy-quilt assortment of views, some of them blatantly contradictory. But from an incoherent swirl of ideas, a common outlook emerges. The outlook is neither a clear-cut doctrine nor a philosophy, but something closer to a political impulse that might be described, to borrow from the historian Richard Hofstadter, as paranoid libertarianism. Where liberals, let alone right-wingers, have portrayed the leakers as truth-telling comrades intent on protecting the state and the Constitution from authoritarian malefactors, that’s hardly their goal. In fact, the leakers despise the modern liberal state, and they want to wound it." Sean Wilentz in The New Republic.
PONNURU: So long to Bernanke and his tight-money Fed. "There's another view of the Fed's role in the crisis, though, that has been voiced by economists such as Scott Sumner of Bentley University, David Beckworth of Western Kentucky University and Robert Hetzel of the Richmond Fed. They dissent from the prevailing view that the Fed has been extremely loose since the crisis hit. Instead, they argue that the Fed has actually been extremely tight, and that when its performance during the crisis is measured against the proper yardstick, the central bank emerges as the chief villain of the story." Ramesh Ponnuru in Bloomberg.
My apologies interlude: Apparently the link did not work for the vocabulary quiz in yesterday's Wonkbook. Try this one.
2. Is this what successful health reform looks like?
Why three letters -- ACO -- could help the U.S. save billions on health care. "Nearly half of the 114 hospitals and doctor groups that began Accountable Care Organizations under the health law in 2012 managed to slow Medicare spending in their first year, but only 29 of them saved enough money to qualify for bonus payments, the Centers for Medicare and Medicaid Services said Thursday...The 29 ACOs that met that goal during the first 12 months divided $126 million in savings while generating an additional $128 million in net savings for the Medicare Trust Fund...[Palm Beach Accountable Care Organization] CEO Kelly Conroy said the ACO, which includes 200 primary-care physicians and specialists, and about 30,000 Medicare patients, "did a lot of simple things to save money." One was encouraging more patients to get annual checkups. When the ACO began, only 13% of its patients made such visits. Now, about 45% do, compared with a national average of 10%." Melinda Beck in The Wall Street Journal.
Anthem to raise some premiums as much as 25 percent. "Thousands of Anthem Blue Cross individual customers with older insurance policies untouched by Obamacare are getting some jarring news: Their premiums are going up as much as 25%. These increases, 16% on average, are slated to go into effect April 1 for up to 306,000 people — unless California regulators persuade the state's largest for-profit health insurer to back down. Amid the fury last fall over canceled health policies, consumer advocates and state officials warned people that holding onto grandfathered policies purchased before the federal healthcare law was enacted in 2010 wouldn't shield them from significant rate hikes." Chad Terhune in The Los Angeles Times.
Americans don’t know what’s in Obamacare, do know they don’t like it. "Fifty percent of Americans now say they oppose the Affordable Care Act. This is the highest number that Kaiser's poll has seen since October 2011, when Republicans were in the midst of a primary cycle and lots of anti-Obamacare rhetoric was in the air. The easiest explanation for the recent upswing in negative sentiment would be that lots of Americans tried, but failed, to buy insurance through HealthCare.gov. They ran into technical barriers that plagued the site in October and November. But Kaiser's data don't really bear out that thesis. There's actually only been a tiny uptick in the number of Americans who say the health-care law has affected their lives over the past three months. A full 59 percent of Americans still report no personal experience with the law." Sarah Kliff in The Washington Post.
There is no Great Stagnation interlude: You can 3D print a car.
3. Ross Douthat is winning. The Republican perestroika has arrived.
House Republicans unveil their immigration plan. "As expected, the GOP outline called for a path to citizenship for young people brought to the U.S. as children and granting a form of legal status allowing many other immigrants now in the U.S. illegally to stay here. It also would make changes to the visa system for high-tech and agriculture workers, improve border security and mandate the use of a biometric system—using markers such as fingerprints—for visitors exiting as well as entering the U.S...To gain legal status, adults would have to admit guilt in breaking U.S. law, pass background checks, pay fines and support themselves without public assistance. It also makes clear there will be "no special path to citizenship," but doesn't preclude immigrants accessing existing paths, an idea the GOP is working to put into legislation." Kristina Peterson and Laura Meckler in The Wall Street Journal.
Primary source: Here's the plan.
Here's the case that this immigration stuff still won't be easy for Republicans. "Many Republicans rejected the one-page “standards for immigration reform” outright, and others said now was not the time for a legislative push on a number of contentious issues in an election year with trends going their way...A closed-door discussion on immigration at the retreat was described by a House member as “very passionate,” with a “sizable bloc” opposing the leadership’s position. Members took turns expressing their distrust of President Obama and Senate Democrats as negotiating partners, and many of the Republicans said they were torn over whether to turn the principles into an actual legislative effort." Jonathan Weisman and Ashley Parker in The New York Times.
House to vote on Obamacare alternative. "House Majority Leader Eric Cantor told his Republican colleagues that he will hold a vote in 2014 on an alternative to Obamacare. The message was delivered here at the House Republican retreat on Maryland’s Eastern Shore...The theory from Republicans - and the overarching theme of this retreat - is to be an alternative party, not only an opposition party. But it could also provide political ammunition for Democrats if the plan doesn’t meet their standard." Jake Sherman in Politico.
Holtz-Eakin group finds GOP Obamacare bill would lower premiums. "An analysis from a think tank formed by conservative economist Douglas Holtz-Eakin finds the Senate GOP alternative to ObamaCare would lower premium prices and save $1.4 trillion while covering roughly the same number of people...It found that the GOP proposal would lower premiums by 2 percent to 11 percent for single policies by 2023, primarily because of its pledges to end junk lawsuits” and “defensive medicine.” It also said the government would spend less because of the fewer number of people covered by Medicaid." Jonathan Easley in The Hill.
To what extent does racism motivate Republican opposition to immigration reform? "[A]lthough there are a variety of reasons for inaction, one Republican lawmaker recently offered a frank acknowledgement that for many House Republicans, there’s one issue at play that’s not often discussed: race. “Part of it, I think — and I hate to say this, because these are my people — but I hate to say it, but it’s racial,” said the Southern Republican lawmaker, who spoke on the condition of anonymity. “If you go to town halls people say things like, ‘These people have different cultural customs than we do.’ And that’s code for race.”" John Stanton in BuzzFeed.
Republicans make overtures to middle class in effort to counter Obama, Democrats. "In the past few days alone, three senior GOP senators unveiled an alternative to Obama’s health-care law that offers a conservative vision for covering the uninsured, House Budget Committee Chairman Paul Ryan (R-Wis.) summoned experts to a Capitol Hill hearing to discuss new ways to help the poor, and Sen. Marco Rubio (R-Fla.) proposed making childless adults eligible for a lucrative tax credit currently available only to working families...Ideas are rapidly percolating among Republicans in both chambers of Congress. House Majority Leader Eric Cantor (R-Va.) has urged more competition in the public school system, pushing vouchers and charters to give poor children a better chance of climbing the economic ladder. Sen. Mike Lee (R-Utah) has promoted an expansion of the child tax credit to provide additional support to low-income families. And Ryan has touted government grants for businesses to train the workers they need." Zachary A. Goldfarb in The Washington Post.
Mother Earth interlude: Methane bubbles frozen underneath the surface of Alberta, Canada's Lake Abraham.
4. Policy changes in the wake of the State of the Union
Obama establishes reassessment of job-training programs. "Obama described the effort as a "soup to nuts" assessment that would yield concrete steps to make the training system more job-driven. He called for an end of what he dubbed 'train and pray programs' that give people a skill and then pray that they can get a job...The Republican leaders wrote that the Government Accountability Office has conducted a similar review of training programs, and the House has passed legislation that would consolidate job training efforts and focus resources on programs that work." Colleen McCain Nelson in The Wall Street Journal. Obama, who once disdained Clinton's small steps, takes his own. "While he may not be talking about school uniforms as Mr. Clinton did, the agenda outlined by Mr. Obama in his State of the Union address and in stops across the country is full of initiatives that sound like the former president’s work. At a General Electric gas engines plant in Waukesha, Wis., on Thursday, Mr. Obama signed an executive memorandum ordering a review of federal job-training programs and promised more grants for community colleges to partner with regional employers." Peter Baker in The New York Times.
Lew says we need a debt-ceiling hike pretty soon. "Leaving a party lunch, the ideologically diverse Democratic Caucus appeared largely united in supporting a lift in the country’s borrowing authority without offering concessions to Republicans. Along with liberal senators, moderates like Sens. Mark Pryor (D-Ark.) and Mary Landrieu (D-La.) both indicated they would prefer a clean bill over one laden with policy changes...The Treasury Department says it will begin using extraordinary measures to pay U.S. financial obligations on Feb. 8, which will buy lawmakers perhaps a few weeks of wiggle room on the debt limit. The Bipartisan Policy Center estimated on Thursday that Congress could have until mid-March to lift the country’s borrowing authority, though that deadline could come as early as Feb. 28 depending on how funds flow in and out of Treasury coffers." Burgess Everett in Politico.
London Review of Books interlude: "Ghosts of the Tsunami."
5. NSA faces serious challenge
Warrantless surveillance challenged by defendant. "A Colorado resident charged with terrorism-related offenses challenged the constitutionality on Wednesday of a 2008 law allowing the National Security Agency to conduct a sweeping program of surveillance without warrants on American soil. The challenge — the first of its kind — could lead to a Supreme Court test of the program...In the Colorado case, lawyers for the defendant, Jamshid Muhtorov, filed a filed a 69-page brief asking a federal judge to bar prosecutors from introducing evidence derived from warrantless surveillance by the N.S.A. They argued that the program violates the Fourth Amendment." Charlie Savage in The New York Times.
Obama to nominate Navy cybersecurity chief to head NSA. "Vice Adm. Michael Rogers, currently the commander of U.S. Fleet Cyber Command, will be named to the post, said Defense Secretary Chuck Hagel on Thursday. If confirmed by the Senate, he will succeed Gen. Keith Alexander, who has held the NSA post since 2005...Mr. Hagel also said that a civilian official, Rick Ledgett, would become deputy director of the NSA. Mr. Ledgett currently serves as chief of the NSA response unit handling the fallout from the leaks by former agency contractor Edward Snowden. Mr. Ledgett's appointment doesn't require Senate confirmation." Siobhan Gorman, Julian E. Barnes and Adam Entous in The Wall Street Journal.
Reading material interlude: The best sentences Wonkblog read today.
Here’s why the dollar’s demise is overstated. Howard Schneider.
Keystone report from State Department likely to disappoint foes. Jim Snyder, Mark Drajem and Jonathan Allen in Bloomberg.
Obama to commute more drug sentences. Andrew Grossman in The Wall Street Journal.
Got tips, additions, or comments? E-mail us.
Wonkbook is produced with help from Michelle Williams.