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Wonkbook: Election tops $2 billion; divided gov. does not mean deficit reduction; market believes in inflation


We're one week out from the election, and divided government seems a serious possibility. The optimistic spin on that goes something like this: Remember the 90s? Democrats and Republicans didn't like each other, per se, but they came together and took tough votes to reduce the deficit. This has led to more than a bit of Clinton-nostalgia among the very conservatives who once loathed the man.

Divided government, some say, is actually the only time we can really reduce the deficit. Deficit reduction is a second-order priority for both parties. When they control government, they work first on the things they want government to do, rather than the things they want government to stop doing. It's only when neither party can achieve any affirmative objectives that deficit reduction stands a chance.

And maybe that'll prove true again. But as Jackie Calmes argues in today's New York Times, it might not. For one thing, compromise has become a dirty word. "If I haven’t been clear enough yet," Rep. Mike Pence told conservative radio host Hugh Hewitt, "let me say again: No compromise." For another, the election is likely to wipe out a lot of the conservative Democrats who would've been party to a deal, and it's taken down a few of the establishment Republicans who would've joined them at the table. There is nothing intrinsic to divided government that will reduce the deficit. That's particularly true if the only compromises are to increase the deficit -- for instance by extending the Bush tax cuts. Reductions will require compromise. But compromise is likely to be in short supply come January.

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Top Stories

House and Senate campaign spending will pass $2 billion this year, reports Dan Eggen: "The Public Campaign Action Fund, a watchdog group, will release a study Tuesday predicting that House candidates alone could spend nearly $1.5 billion by the time the dust settles on Election Day. The calculation is based on previous elections in which about half of a campaign's money was spent in the final month of the contest. Senate campaigns are also on track to exceed the $550 million mark from 2006, bringing the likely total to $2 billion or more by the time the ballots are counted. The surge is driven in part by the unusually broad battlefield in the House, where an estimated 90 seats are in play, almost all of them held by Democrats."

A divided government does not necessarily mean more deficit reduction, writes Jackie Calmes: "In interviews, a number of Democrats and Republicans agreed on one thing: For all the pre-election talk that a divided government could force the parties to work together, especially on cutting annual deficits, the opposite could just as well be true."

"Democrats are all but certain to lose a number of seats and perhaps their majorities. Most of the casualties will be fiscally conservative Democrats from Republican-leaning areas, leaving a smaller, more solidly liberal caucus less inclined to support cost-saving changes in future Social Security benefits, for example. Republicans’ ranks will almost certainly be strengthened by a wave of conservatives, including Tea Party loyalists, who are opposed to raising any taxes and to compromising with Democrats generally — a stand Congressional Republican leaders have adopted. And incumbents otherwise inclined to make deals are now wary, Republicans say privately, mindful of colleagues who lost primary challenges from Tea Party candidates."

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The Treasury is selling bonds with negative interest rates, suggesting the market believes the Federal Reserve will succeed in boosting inflation, report Aline von Duyn, Michael Mackenzie, and Nicole Bullock: “'The Fed has been sending the message that its cheque book is ready and it will do what it takes to reflate the economy,' said Jan Loeys, head of global asset allocation at JPMorgan Chase. 'What no one knows is whether inflation will start to show in two weeks or two years.'”

This is "something I never in my wildest dreams thought I would see in my lifetime," says Brad DeLong.

Neil Irwin "interviews" Fed chair Ben Bernanke based on recent public statements: "Q: What do you mean, inflation levels consistent with your mandate? Doesn't the Fed always try to get inflation lower? A: FOMC participants generally judge the mandate-consistent inflation rate to be about 2 percent or a bit below...Recent readings on underlying inflation have been approximately 1 percent. Thus, in effect, inflation is running rates that are too low relative to the levels that the committee judges to be most consistent with the Federal Reserve's dual mandate in the longer run...A means of providing additional monetary stimulus, if warranted, would be to expand the Federal Reserve's holdings of longer-term securities."

Got tips, additions, or comments? E-mail me.

'90s video interlude: Material Issue's "Diane".

Still to come: Foreclosure processors could be criminally charged; TARP's inspector general says Treasury is lowballing the cost of the AIG bailout; the medical lobby is blocking release of some of the best data on American health care; Obama does not like having his record on immigration reform questioned; and a water buffalo takes a swim.


Fannie and Freddie have suspended foreclosures emanating from a suspect Florida lawyer, reports Nick Timiraos: "Fannie and Freddie had previously stopped referring new cases to the Law Offices of David J. Stern, of Plantation, Fla., earlier this month. On Monday, Fannie said its latest move would affect all cases that 'are not already subject to a foreclosure pause' by banks and other firms that service mortgages owned by Fannie, said a company spokeswoman. Freddie Mac said late Monday it had also suspended new referrals and current activity."

Andy Kroll's profile of David J. Stern:

Criminal investigations of foreclosure processors are moving ahead, reports Ariana Eunjung Cha: "Law enforcement authorities on both state and federal levels are probing whether individuals at these foreclosure companies and at the banks that hired them committed an array of possible crimes - mail and wire fraud, money laundering, conspiracy and racketeering. No charges have been filed. These officials say they are taking a well-tested approach in their investigations: press low-level employees to implicate higher-up executives. Already, investigators have obtained in sworn testimony detailed descriptions of what took place inside the foreclosure companies."

What would happen if a state went bankrupt?

TARP's inspector general says Treasury's estimate of the AIG bailout's costs is too optimistic, reports Brady Dennis: "The report complained that the Treasury's recent $5 billion loss estimate on its TARP investment in AIG - which is far below previous estimates and was announced last month after a complex restructuring deal with the insurance giant - 'does not account for the volatility in AIG's stock price, which may result in losses or gains that are either greater or less than the projected amounts.' The change in the estimated losses is largely a result of the methods used to value Treasury's changing types of AIG stock. The core of the restructuring deal involves Treasury swapping more than $49 billion of preferred shares in AIG for 1.7 billion shares of common stock."

Bernanke says the Fed is investing Bank of America and Ally's handling of foreclosures:

China is a not a beleaguered developing nation, writes Gideon Richman: "If China was simply a medium-sized country, the world could shrug off its currency policies. But it is now the world’s largest exporter, the world’s largest manufacturer and its second-largest economy. And yet it is the only major trading nation to use capital controls to prevent its currency rising to market levels. It is that anomaly that is at the heart of current global economic tensions. Even the Americans are not asking China to move to a fully-convertible currency overnight. The country’s banking system is probably still too unsophisticated to cope with the flows of 'hot money' that would generate."

We should amend, not end the mortgage interest deduction, writes Daniel Indiviglio:

The US benefits from Chinese currency policy, writes John Cochrane: "What's the right policy toward China? They put a few trillion dollars worth of stuff on boats and sent it to us in exchange for U.S. government bonds. Those bonds lost a lot of value when the dollar fell relative to the euro and other currencies. Then they put more stuff on boats and took in ever more dubious debt in exchange. We're in the process of devaluing again. The Chinese government's accumulation of U.S. debt represents a tragic investment decision, not a currency-manipulation effort. The right policy is flowers and chocolates, or at least a polite thank-you note."

Intimidating animals relaxing interlude: A water buffalo finds its way into a family's swimming pool.

Domestic Policy

Medicare data could offer a window into the US's cost problem, but is kept secret, report Mark Schoofs and Maurice Tamman: "Known as the Medicare claims database, it is a computerized record of the bills Medicare pays for medical treatment, and it is widely considered the single best source of information on the U.S. health-care system... But the Medicare data come with a severe limitation: While the services and earnings of hospitals and other institutional providers can be publicly identified, such information is kept strictly confidential for doctors and other individual providers. The reason is that the American Medical Association, the doctors' trade group, successfully sued the government more than three decades ago to keep secret how much money individual physicians receive from Medicare."

Federal workers are planning a march to defend their jobs:

Obama defended his record on immigration, reports Carrie Budoff Brown: "Eddie “Piolin” Sotelo, the influential host of Univision’s “Piolin por la Manana,” questioned how the president could even ask for the Latino vote, saying the community believes 'you haven’t worked that hard' to pass a bill. The question drew a sharp response from Obama: 'With all due respect, even though I’m in your studio. The notion that we haven’t worked is just not true. There is a notion that somehow if I had worked hard enough, we could have magically done it. That’s just not the way our system works.' The White House’s post-election strategy on immigration reform rests on whether Latinos turn out to vote next week, Obama said."

Arizona has received millions in outside contributions to help fight lawsuits against its immigration law:

The gun lobby is limiting the ATF's ability to perform oversight:

America's infrastructure problem is a failure of leadership, writes Bob Herbert: "A survey to be released this week by the ITT Corporation, which makes and sells water infrastructure equipment, shows that nearly 70 percent of respondents agreed with the statement 'I generally take my access to clean water for granted.' But a similar percentage said they would be willing to pay a modest additional amount every month to upgrade their water system and ensure their long-term access to clean water. If public officials would provide honest leadership on this and other infrastructure issues, making a sound case for the investments that are needed and the benefits that would accrue from rebuilding America’s infrastructure, the public would be likely to sign on."

Star Wars interlude: "The Imperial March (Darth Vader's Theme)", Beethoven-ized.


GOP presidential candidates face pressure to reject the scientific consensus on global warming:

Republicans will likely seek an energy compromise with Congressional Democrats, reports Darren Samuelsohn: "Some of their ideas will no doubt be controversial, including opening up Alaska’s Arctic National Wildlife Refuge to oil drilling. But after several bruising years fighting with Democrats over caps on greenhouse gas emissions, they are just as likely to pitch some suggestions that would be prime fodder for compromise, including tax breaks and incentives for investment in nuclear power, clean coal and renewable energy."

95 percent of consumer products are guilty of "greenwashing":

California's climate change law will likely survive a ballot challenge, reports Evan Halper: "Proposition 23, which would put the new emissions standards on hold, is trailing 48% to 32% among likely voters, according to the survey... The push to suspend the global warming law has been bankrolled in large part by out-of-state oil refining companies that stand to see profits decline as a result of the state's new regulations. The ballot measure would suspend implementation of the new air pollution rules until unemployment drops to 5.5% or less for a full year. State analysts say that could take many years, as the unemployment rate has stayed that low for a sustained period only three times since 1970."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Photo credit: David Smith-AP.

By Ezra Klein  | October 26, 2010; 5:27 AM ET
Categories:  Wonkbook  
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Next: Can you see the messaging effect?


The GOP did not in any significant way help Clinton reduce the deficit in the 90s.

- the hi-tech revolution was the primary reason tax revenues skyrocketed in the 90s as over 30 million new hi-tech related jobs were created.

- the 94 tax raises were the second most important reason.

- budgetary discipline was an early stated goal of Clinton, and the GOP tried ardently and in vain (even closing down gvmt twice) to get budgets they preferred, though in the end Clinton instead always got the budgets he wanted.

- welfare reform was a minor factor, but AL Gore from the start supported such reform and was the primary reason Clinton went along with welfare reform.

- clinton did not double defense spending like W did. Instead, Clinton made sensible defense investments and kept the DOD budget from exploding. The GOP preferred a different approach but did not get their way.

Posted by: Lomillialor | October 26, 2010 6:42 AM | Report abuse

Anyone that believes that Clinton had anything to do with America's prosperity during his term, might as well believe in the tooth fairy. The tooth fairy is closer to the truth.

Actually neither party had much to do with it ............ tax cuts took much of the credit, but it was not so.

We actually had innovation and things produced here ........... neither is true no.
That is largely thanks to our Congress putting their special interests above this country. Neither party is exempt from this.

No means of production, no new wealth, no new jobs. Simple...........

Posted by: bkarpus | October 26, 2010 6:51 AM | Report abuse

Of the two billion spent on campaigns, what is the effective tax rate of that money?

I.e. how much is returned to the federal gvmt as tax revenues?

I think we should seriously tax all campaign TV advertisements.

Posted by: Lomillialor | October 26, 2010 6:52 AM | Report abuse

wow I wonder why doctors would sue to keep their payments from becoming public knowledge???

Posted by: visionbrkr | October 26, 2010 8:35 AM | Report abuse

California Public Employee salaries:
Arcadia CA, population: 56,000. City Manager $214,000
Barstow CA, population: 24,000. City manager: $237,000
Buena Park CA, population: 83,000. City Clerk, $147,480, City Manager $254,000
Calimesa CA, population: 7500, City Manager $175,000
Tustin CA, population 74,000. City Manager: $242,000
Yucca Valley CA, population 21,000: Town manager $176,000.
Walnut Creek CA population: 65,000, Administrative Services Assistant, $119,0000

Posted by: betterdays1 | October 26, 2010 9:12 AM | Report abuse

"China is a not a beleaguered developing nation, writes Gideon Richman: "If China was simply a medium-sized country, the world could shrug off its currency policies. But it is now the world’s largest exporter, the world’s largest manufacturer and its second-largest economy"

China remains a very poor nation. It's GDP per capita in 2009 was under 8% of U.S. levels, and still under 14% if you adjust for purchasing power parity.

China has a big economy because a fifth of humanity happens to live there.

If you aggregated Latin America you'd have the fourth largest economy in the world (after US, China and Japan, bigger than Germany), but it would remain a fairly poor place - even if you found the occasional subway or skyscraper.

Likewise, if you split up China into South Korea-sized countries, they wouldn't be on anyone's economic radar.

If China produced as much as the U.S. per capita in 2009, it's GDP would be $63.5 trillion, compared to $14.1 trillion in the U.S. and the $4.9 trillion which China actually produced.

As the article notes, China has 150 million people living at what the U.S. would consider 3% of the federal poverty line.

China is not a rich country. While its market interventions are counterproductive, we aren't going to get anywhere claiming the place is actually rich and is sandbagging the U.S.

Posted by: justin84 | October 26, 2010 9:24 AM | Report abuse

"There is nothing intrinsic to divided government that will reduce the deficit. That's particularly true if the only compromises are to increase the deficit -- for instance by extending the Bush tax cuts. Reductions will require compromise"

Actually, the alternative to compromise is running the government by continuing resolution which seems to do a pretty good job at controlling spending growth.

Posted by: jnc4p | October 26, 2010 10:23 AM | Report abuse

Look at that picture. When did Bill Clinton turn into Boris Yeltsin?

Posted by: tomtildrum | October 26, 2010 1:04 PM | Report abuse

I'm curious about the origins and destinations of the $2 billion spent on the campaign. In terms of the overall economy, $2 billion isn't much, but it's certainly not chump change. Is anyone looking at the demographics of who gives the money and who gets the money?

A first assumption is that most of the money in this cycle is coming from corporations, really rich people (the Koch, Perry, etc.), unions, and regular donors (who are probably on the upper end of the demographic). The recipients of the money include campaign consultants, TV stations, ad production companies, and so forth. Spending on ads leads to paychecks for script writers, camera operators, editors, executives, advertising salespeople, and so on. Unfortunately, the lack of transparency on the donor end prevents much good analysis on that side. On the spending side, there are probably some estimates that could be made about how a dollar of spending is divided up among various professions.

Posted by: meander510 | October 26, 2010 1:29 PM | Report abuse

"Remember the 90s? Democrats and Republicans didn't like each other, per se, but they came together and took tough votes to reduce the deficit"


Please point out that every single Republican in both houses of congress -- 100%! -- voted against Clinton's, Deficit Reduction Act of 1993. There was absolutely zero bipartisanship.

It wasn't divided government that got it passed, it was that the filibuster didn't apply. Ending the filibuster is what really gets things done.


Posted by: RichardHSerlin | October 27, 2010 3:17 AM | Report abuse

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