Wonkbook: Our $900 billion problem; support builds for Fed action; Jill Biden's community college summit
Neil Irwin has a crystal-clear explanation (complete with crystal-clear graphs) of what -- and why -- the economy is so poor right now. "About 7 million working-age people and 5 percent of the nation’s industrial capacity are sitting idle, not producing what they could," he says. That's it. The economy is underachieving. We can make things, but for a variety of reasons, we aren't. Importantly, these reasons do not include all the workers are sick or none of the machinery is functional. The workers can work. The machinery is fine. here's just no demand, as households are filling the hole that the credit bubble left in their balance sheets and businesses are waiting until the economy recovers to begin investing again.
And as for the government? The particular problems in the economy, in fact, match up quite well with its needs: Lots of excess labor and capacity in the construction market, cheap raw materials, and low borrowing costs are a blessing for a country that needs 2 trillion work of infrastructure repairs and upgrades. What the government can, and should, do to get the economy producing closer to its potential is obvious. But since when do 60 votes in the Senate care about obvious?
Welcome to Wonkbook.
At 3 percent growth, unemployment wouldn't return to 5 percent until 2020, reports Neil Irwin: "The nation’s economic woes boil down to this. Compared with a healthy economy, about 7 million working-age people and 5 percent of the nation’s industrial capacity are sitting idle, not producing what they could. The economy is growing again, but at a rate -- less than 2 percent in recent months -- that’s too slow to keep up with a population that keeps increasing and workers who keep getting more efficient. This is the output gap, the divide between the amount the United States can produce and what it is actually producing. The gap, currently $900 billion, explains why we feel so miserable more than a year into what is technically classified as an economic recovery."
Don't miss the interactive graphs: http://wapo.st/bxXnGh
Might I suggest some infrastructure spending? http://wapo.st/9qvGQi
Chicago Fed president Charles Evans has called for bond purchases and a shift in inflation targeting, reports Jon Hilsenrath: "The Fed is now considering whether to add to its $2.3-trillion portfolio of securities and loans by ramping up purchases of U.S. Treasury bonds, in an effort to drive down long-term interest rates and boost growth. Mr. Evans says he favors that, but worries that alone 'would not be enough' to address his concerns. The Fed also needs to push down 'real' interest rates, nominal interest rates minus inflation, to induce households and businesses to part with savings and borrow and spend more, he said. One way to push real interest rates lower is to get inflation higher. The Fed might aim to overshoot its informal 2% target for a time to make up for lost ground, Mr. Evans said."
Paul Krugman and Goldman Sachs's Jan Hatzius worry that Fed overcaution will underpower and thus discredit the effort: http://wapo.st/9zZDcc
Nancy Pelosi and other lawmakers want a Justice Department probe of foreclosure paperwork, report Brady Dennis and Ariana Eunjung Cha: "In a letter to U.S. Attorney General Eric H. Holder Jr., Pelosi and dozens of other Democrats accused the nation's biggest banks of making it difficult for struggling borrowers to get foreclosure relief while the firms routinely evicted them with flawed court papers...The request from Democrats puts pressure on the Obama administration to get more involved on a matter that it so far has said little about publicly. The move is also likely to stoke cries for a broad moratorium on foreclosures across the country."
Jill Biden hosted a White House summit on community colleges, reports Nia-Malika Henderson: "The administration wants to boost the number of community college graduates in the United States by 5 million by 2020, part of its goal of having the highest proportion of college graduates of any country in the world. At the summit, the White House will announce partnerships with corporations and nonprofit organizations that will invest millions of dollars in community colleges. Last year, President Obama tapped Jill Biden to lead the administration's efforts to burnish the reputation of the country's community colleges - she has called the highly accessible, low-cost institutions 'one of America's best kept secrets.'"
But that was a sad consolation prize after $10 billion of proposed funding for community colleges vanished in the Senate: http://bit.ly/cpA6Wx
There's a stimulus plan even deficit hawks should love, writes Maya MacGuineas: http://bit.ly/d5vk3Q
Got tips, additions, or comments? E-mail me.
Handclap interlude: Glasser's "Home".
Still to come: The cost of bailouts; Obama vs. Orszag; the federal government approved solar projects on federal land; stem cell restrictions threaten scientists' careers; and a cat falls out of a ceiling.
The IMF warns that slow growth and high debt are destabilizing the financial system: http://bit.ly/ca78qN
All told, the 2008-2009 bailouts cost $29 billion, reports Louise Story: "In a report released on Tuesday, the administration said it expected a $17 billion loss from its investments in General Motors, Chrysler and the auto finance companies, as well as a $46 billion loss from housing programs like the mortgage modification program known as the Home Affordable Modification Program. The new figures, which include profits that offset some of the losses, come just as the Obama administration tries to wind down the bailout program known as the Troubled Asset Relief Program, or TARP. Last week, the government announced a plan to exit its investment in the insurer the American International Group."
Obama criticized Peter Orszag's tax plan as politically unrealistic: http://politi.co/bOerZa
The Treasury Department expects to incur "substantial losses" from Fannie and Freddie, reports Damian Paletta: "The Treasury Department today said it expects 'to incur substantial losses' from the two government-sponsored mortgage companies, which have operated under federal control since 2008. But the administration believes a 'substantial part' of these losses will be offset by income from two other areas, according to an evaluation of the Troubled Asset Relief Program it released today. (Somewhat confusingly, the government assistance to Fannie Mae and Freddie Mac had nothing to do with TARP)."
George Soros thinks Obama's caving to the right on the deficit: http://bit.ly/blQNCz
FinReg won't do enough to fight payday loans, writes Timothy Noah: "One of the sketchier provisions in Dodd-Frank affirmatively prohibits Warren's new agency from setting a maximum interest rate on payday loans...You might think the banking industry would pressure Congress to shut down payday lenders because they give lending a bad name. But a recent report by National People's Action, a network of community activist groups, and the nonprofit Public Accountability Initiative revealed that big banks extend $2.5 to $3 billion in financing to payday-loan companies."
Letting estate tax cuts expire will create a windfall for states, writes Bob Williams: http://bit.ly/9AQggG
Economic inequality leads to financial bubbles, writes Steven Pearlstein: "Because so much of the nation's income is siphoned off to the super-rich, Reich says, a struggling middle class trying to maintain its standard of living had no choice but to take on more and more debt...The more conservative version of this argument comes from University of Chicago economist Raghuram Rajan. In his new book, 'Fault Lines,' Rajan argues that in order to respond to the stagnant incomes of their constituents, politicians took a number of steps to keep the 'American Dream' within reach, including subsidization of home mortgages and college loans."
Adorable animals having adorable mishaps interlude: A cat falls out of a ceiling.
Waiting for Superman places too much blame on teachers, writes Harold Meyerson: http://wapo.st/9jXe7x
A court order against federal stem cell funding threatens to end scientists' careers, reports Amy Harmon: "At stake are about 1,300 jobs, as well as grants from the National Institutes of Health that this year total more than $200 million and support more than 200 projects. The turn of events has introduced what researchers say is unprecedented uncertainty to a realm of academic science normally governed by the laws of nature and the rules of peer review. 'We’re used to people telling us, ‘That was a stupid idea, we’re not going to fund it,’ and we turn around and think of a better one,' said James Wells, who heads the laboratory where Dr. Spence has a postdoctoral position. 'But there’s nothing we can do about this.'"
Elena Kagan asked her first questions as a Supreme Court justice yesterday: http://nyti.ms/92IWmk
Government worker pensions are increasing targets of cuts, reports Michael Fletcher: "New Jersey Gov. Chris Christie (R) calls reform of public employee pensions essential to fixing the state's enormous fiscal problems. Michigan Gov. Jennifer M. Gran-holm (D) recently signed a change to her state's teacher pensions that increases employee contributions. Illinois has pushed back the retirement age for new employees. Detailing his agenda for New York, Democratic gubernatorial nominee Andrew M. Cuomo has said, 'We simply can't afford to pay benefits and pensions that are out of line with economic reality.'"
Arizona wants to prevent Mexico and other governments from filing briefs in the lawsuit over its immigration bill: http://wapo.st/aqXLQg
Health care reform will vastly improve the health-care options open to low-wage workers, writes David Leonhardt: "In 2014, however, the choice for McDonald’s workers will no longer be between a bad policy and no policy. Through the exchanges, they will be able to buy a real health insurance plan -- one that covers cancer, heart attacks, surgeries, M.R.I.’s and hospital stays. Dr. Carroll notes that many families will end up paying less than they are now paying out of pocket and will get more access to care, too. For insurance companies, these changes won’t be quite so positive. They will no longer be able to sell plans that devote 30 percent of revenue to salaries for their workers. They will not be allowed to compete over which company can come up with the most ingenious ways to say no to the sick."
Lip dub interlude: Zach Galifianakis sings "You Bring Me Joy".
An international business group called for a 50% reduction in greenhouse gas emissions by 2050: http://bit.ly/bmn8mp
It's up to Arnold Schwarzenegger to save California's climate bill, writes Tom Friedman: "
'And they are very deceptive when they say they want to go and create more jobs in California,' the governor added. 'Since when has [an] oil company ever been interested in jobs? Let’s be honest. If they really are interested in jobs, they would want to protect A.B. 32, because actually it’s green technology that is creating the most jobs right now in California, 10 times more than any other sector.'”
"Fracking" for natural gas creates too many jobs to be stopped, writes Holman Jenkins: http://bit.ly/bLkGTL
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Graph credit: Alicia Parlapiano.
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