Wonkbook: Bernanke backs fiscal stimulus; corporate profits at record highs; Volcker rule battle
According to the New York Times' Sewell Chan, Federal Reserve Chairman Ben Bernanke wants more fiscal stimulus. Which is no surprise, as the case for more stimulus is, if anything, even stronger than the case for more monetary action, and in any case, it's reliant on the same recognition of continuing economic weakness. He thinks the first stimulus largely worked, and that the lagging economy needs more help. He thinks that the Fed's second round of quantitative easing would be more effective if paired with more fiscal stimulus, as that would ensure someone is actually using the low interest rates to create jobs (he's right about that).
The problem is, he's too shy to say so. Arguments over stimulus have become polarizing in the Congress. And though Alan Greenspan stepped into the middle of the debate over the tax cuts, that's not remembered as a happy experience for the Fed. But reticence has its dangers, too: As a Republican appointee who might be the most respected and independent economic policymaker in the country, no one but Bernanke has the credibility to even hope of convincing the next Congress to move in a different direction. But if he doesn't convince them to do it, then the Federal Reserve's quantitative easing might fail to help the economy, and that will harm the institution's credibility, too.
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Ben Bernanke wants more fiscal stimulus, reports Sewell Chan: "He believes that without the Obama administration’s $787 billion stimulus program, the nation would have been worse off, and that Congress needs to continue to prop up the economy in the short run. He agrees that fiscal measures to support the recovery would probably make the Fed’s unconventional monetary policy more potent. But Mr. Bernanke has been reluctant to prominently voice those views, which were gleaned from testimony, speeches and interviews with people close to him over the last several months. His predecessor, Alan Greenspan, did not display such hesitation, advocating for the Bush tax cuts of 2001 and 2003."
Why the Fed's quantitative easing might fail if Bernanke is unable or unwilling to convince Congress to move: http://wapo.st/bAyk7B
Peter Orszag argues that a second round of quantitative easing is misguided, and we just need more fiscal stimulus: http://nyti.ms/crwA2Z
Ryan Avent disagrees: http://econ.st/chsaii
Paul Volcker wants to keep his rule broad, while some Democrats want it implemented specifically, reports Deborah Solomon: "Mr. Volcker's concern, according to several people familiar with the matter, is that narrow or prescriptive rules would invite gamesmanship on the part of banks and could allow firms to evade the rule's intent. Already, some banks and their lobbyists are seeking to sway regulators and encourage them to narrowly define certain types of trading activities, according to government officials...On Thursday, a group of 18 Democratic senators sent a letter to the oversight council encouraging regulators to adopt strict and 'meaningful' definitions."
Corporate profits have grown faster than at any 18-month period since the 1920s, reports John Maggs: "Profits have surged 62 percent from the start of 2009 to mid-2010, according to the Commerce Department. That is faster than any other year and a half in the Fabulous ’50s, the Go-Go ’60s or the booms under Presidents Ronald Reagan and Bill Clinton...Noncorporate business has not thrived under Obama: Profits from those mostly smaller businesses are basically flat for the past 18 months, far worse than the gain under Bush and most other presidents just after recessions. Obama economic adviser Larry Summers has pointed to the profits data to argue that Obama isn’t anti-business, as his critics charge."
Minimalist rock interlude: The Kills play "No Wow" live.
Still to come: Obama will need to restock his economic policy team after the midterms; Halliburton knew its cement in the exploded Gulf oil well had problems; net neutrality will face a tougher road next Congress; and Sweden's youngest Royal Palace guard.
Obama's economic policy team will be understaffed following the midterms, reports Jonathan Weisman: "The National Economic Council has seen its influence wane with the announced resignation of Director Lawrence Summers and the difficult search for a successor, say former White House officials. The scope and scale of its economic proposals have shrunk drastically and gained little traction. The White House budget office remains without permanent leadership three months after the departure of former chief Peter Orszag, shifting responsibility to junior staff members as Congress struggles to pass a budget for fiscal 2011, which began this month... Former officials say their biggest concern is that Mr. Summers is the one White House policy aide who could routinely out-argue the political hands."
The Fed is consulting investors in putting together its asset purchases: http://bit.ly/9xmG8r
Elizabeth Warren wants the Consumer Financial Protection Bureau to be tech-savvy, reports Brady Dennis: "Traditionally, she said, financial firms have armies of lobbyists and lawyers monitoring every new regulation and aggressively pushing the industry's views on regulators. Consumers have little voice. Warren said the new consumer bureau will use technology to interact much more intimately with regular Americans, soliciting input on their experiences with consumer credit products...Warren suggested that tapping into such grass-roots data might have helped regulators prevent or alleviate the housing crash in 2008, as well as the recent foreclosure fiasco involving 'robo-signers' and fraudulent court filings."
Wells Fargo is serving as a model for cleaning up the foreclosure mess: http://bit.ly/cIv66M
Google's tax dodging proves we need corporate tax reform, writes Steven Pearlstein: "The "anti-business" president said he supported the idea of reducing the corporate tax rate to a more globally competitive level - 25 percent is the number frequently mentioned - but only as part of a package that tightened rules on inter-company transfers and eliminated enough corporate tax breaks so that there was no overall reduction in revenues or increase in the federal deficit...This reluctance of major business organizations to step out front on tax reform no doubt stems from the fact that their membership is deeply divided on what reform should look like. Right now, it's big global companies like Google that have the most to lose if rules are tightened and tax breaks eliminated, while smaller domestic firms would gain most from a reduction in the rate."
A GOP win on Tuesday would be an economic disaster, writes Paul Krugman: http://nyti.ms/cozA2H
Obama should cut government while increasing valuable investment, writes David Brooks: "Obama needs to redefine his identity. Bill Clinton gave himself a New Democrat label. Obama has never categorized himself so clearly. This ambiguity was useful in 2008 when people could project whatever they wanted onto him. But it has been harmful since. Obama came to be defined by his emergency responses to the fiscal crisis — by the things he had to do, not by the things he wanted to do. Then he got defined as an orthodox, big government liberal who lacks deep roots in American culture."
Businesses worried about policy uncertainty should fear the Tea Party, writes Robert Reich: "tea party candidates are targeting the central institutions of American government. The GOP Senate candidate from Kentucky, Rand Paul, is among several who want to abolish the Federal Reserve...In a Bloomberg poll a few weeks ago, 60% of tea party adherents wanted to overhaul or abolish the Fed (compared with 45% of all likely voters)...Another tea party target is the Internal Revenue Service. South Carolina Sen. Jim DeMint, who has emerged as the Senate's leading tea party incumbent, says that his 'main goal in the Senate will not only be to cut taxes, but to get rid of the IRS.'"
Adorable animals hanging out interlude: A kitten annoys a French bulldog.
Halliburton knew it was pouring faulty cement into the exploded Gulf well, reports Steven Mufson: "As early as February, oil-field service giant Halliburton was getting poor results in lab tests of the recipe for the cement it was planning to use, according to evidence collected by the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. Three separate tests suggested that the mixture would be 'unstable,' according to a commission staff letter released Thursday. Halliburton notified BP by e-mail about only one of the tests before the well explosion, according to the commission. The two companies went ahead with the cementing job anyway. Its failure became the first in a cascade of factors leading to the accident."
Oil profits are soaring: http://wapo.st/9oHUNx
Major solar power incentives are expiring, reports Todd Woody: "Solar developers depend on two federal programs to make their projects financially viable. The most crucial is a loan guarantee program, expiring next September, that allows them to borrow money on favorable terms to finance up to 80 percent of construction costs. The other is the option to take a 30 percent tax credit in the form of a cash payment once a project is built. Although the tax credit does not expire until the end of 2016, the option to take it as a cash payment disappears this year, making it far less valuable to a start-up company that is just beginning to generate revenue."
A leader in the Northeast climate change initiative is becoming New York's head environmental official: http://bit.ly/ahewuq
Propositions other than Prop 23 in California would affect climate change, writes David Roberts: "Prop 23's somewhat obscure cousin Prop 26 would also do serious damage to California's clean energy efforts. As you may know, raising any tax in California requires a two-thirds vote in the legislature. That's part of why the state's budgetary situation is such an unholy mess -- the hard-core Republican minority can sabotage any effort to govern responsibly. Prop 26 would impose the same two-thirds requirement on state and local fees (which are different than taxes), including fees on pollution."
The New York-New Jersey rail project should be saved, writes Mary Forsberg: "The region is in desperate need of the tunnel. Every day, about 275,000 New Jerseyans commute across the Hudson River to New York. During rush hour, Amtrak and regional trains are full and the two Hudson River tunnels are near or at capacity. The third tunnel would provide room for 70,000 more New Jerseyans to reach Manhattan each day... For starters, New Jersey should raise its gas tax to improve the state’s transportation network...It’s a fair deal for drivers, because more commuters traveling by train would mean less traffic congestion on the roads."
Small children guarding palaces interlude: A little boy mimics guards at the Royal Palace in Stockholm.
Net neutrality will take a hit post-midterms, reports Cecilia Kang: "Analysts say the FCC could also find itself in a more hostile political environment as its embattled chairman pushes for rules that Republicans are expected to argue would hurt the telecom and cable companies responsible for a large chunk of American jobs....But the move to regulate the broadband industry is what has businesses and public interest groups on the watch. The public interest groups fear that a Republican-dominated Congress could stall or weaken any new rules on net neutrality. FCC Chairman Julius Genachowski, they said, could buckle under pressure from lawmakers who would deem the measures anti-business."
Verizon has settled with the FCC over false data charges: http://wapo.st/bnnp5B
Chuck Schumer is the frontrunner to become majority leader if Harry Reid loses, reports Maggie Haberman: "Among the factors working in Schumer's favor are that he has developed respect among his colleagues as a political practitioner...As my colleague Manu Raju reported recently, Schumer has given about $4 million to his colleagues this cycle, money that boosts them in their own races and which could be remembered down the road in a leadership fight...Durbin, meanwhile, is close with the White House - a fact that has its benefits but also its negatives, especially given that Tuesday is widely going to be interpreted as a referendum on President Obama."
Blue Dog Democrat Heath Shuler may challenge Nancy Pelosi for the House speakership: http://politi.co/atWxVu
Welfare reform is failing some single mothers, writes Melinda Burns: "Federal funding for Temporary Assitance for Needy Families, the program that replaced AFDC, has remained at $16 billion since 1996, representing a 28 percent decline in real dollars. Congress provided an extra $2.5 billion in emergency funds for 2009 and 2010, and, as Miller-McCune went to press, the House had approved an additional $2.5 billion for 2011. But Congress was not expected to significantly expand the program long term...Ron Haskins, a Brookings economist and an architect of the welfare overhaul, said, 'The 1996 reforms were successful when the economy was strong, and even during a mild recession like that of 2001. But that recession was nothing more than a modest thunder storm; the current recession is a hurricane.'"
Judicial elections reduce corruption, write David Rivkin and Andrew Grossman: http://bit.ly/9NtI7f
The country needs better wireless broadband, writes Julius Genachowski: "The FCC's National Broadband Plan recommended a policy innovation: 'incentive auctions.' Current spectrum licensees, such as TV broadcasters, could voluntarily relinquish some of their spectrum; the FCC would auction this spectrum for wireless broadband, with a portion of the proceeds shared with the old licensee. These incentive auctions would be a win-win-win: The country would benefit from more spectrum freed up for mobile use. Taxpayers would benefit from billions in auction revenue. And the spectrum holders would receive a fair capital infusion and have the option to share spectrum or rely on other platforms."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams.
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