Wonkbook: A deficit rorschach test; Ireland gets a bailout; QE2 vs. its skeptics
Here's a Wonkbook rorschach test: Do today's top two stories make you optimistic about our ability to deal with the deficit, or pessimistic?
The case for optimism: The recommendations of the various deficit commissions aren't perfectly aligned, but they're not that far, either. Defense cuts are on the table, and so is non-security discretionary spending. Higher taxes will be part of the solution, as will cuts in tax expenditures. Entitlement benefits will need to be pulled back -- but in a progressive fashion (maybe even including benefits boosts for low-income beneficiaries), and their revenues will have to increase as part of the deal. Better yet, the combination of a coming vote to lift the debt ceiling and a Republican Party that doesn't want to be seen as abandoning its anti-deficit mandate will move these policies from white papers to statute.
Here's the case for pessimism: The recommendations of the various deficit commissions aren't perfectly aligned, but they're not that far, either. They're a bunch of stuff that neither party would dream of passing. Defense cuts? Tax increases? You think lawmakers are going to go after Social Security and the mortgage-interest deduction at the same time? You've got to be kidding. Congress is about to blow up the deficit to extend the Bush tax cuts. That's where you're seeing their true colors on the debt. And the mixture of Republican newcomers who won't compromise and deficit plans that can't pass mean there's a real chance that the vote on the debt ceiling will lead to some sort of total meltdown, which will in turn freak the bond markets out, which will hurt our economy and overwhelm anything the Fed was hoping to achieve with QE2.
So, Wonkbook readers. Which is it?
There may be more consensus on the deficit than people realize, reports Lori Montgomery: "After an election dominated by vague demands for less debt and smaller government, the sacrifices necessary to achieve those goals are coming into sharp focus. Big cuts at the Pentagon. Higher taxes, including those on home ownership and health care. Smaller Social Security checks and higher Medicare premiums."
"Even Republicans who initially opposed the commission's creation are still at the negotiating table. 'I'm open to everything if it gets us where we need to go,' said Sen. Tom Coburn (Okla.), who is emerging as one of the GOP's most influential voices on budget issues. 'This is going to require compromise, even from someone as conservative as me.'... Over the holiday break, Bowles and Simpson are rewriting their plan to accommodate the concerns of commission members, though the two insist, in Simpson's words, that it will not be watered down to 'mush' for the sake of winning votes."
The GOP is split on an upcoming debt ceiling vote, reports Naftali Bendavid: "Minority Leader John Boehner (R., Ohio), who is set to become House speaker in January, said last week he has been talking to Republican freshmen about the need to raise the federal debt ceiling to meet the country's obligations. 'We're going to have to deal with it as adults,' Mr. Boehner said. 'Whether we like it or not, the federal government has obligations, and we have obligations on our part.'...GOP leaders hope to package a debt-limit vote with significant spending cuts, making it easier for Republicans to vote for it. But it isn't clear that will be enough for many of the GOP freshmen.
Ireland is receiving an emergency bailout from the IMF and the EU in the wake of its debt crisis, reports Anthony Faiola: "Moving to contain fears of a debt crisis in Europe, the International Monetary Fund and European Union agreed Sunday to support an emergency bailout for near-bankrupt Ireland after the desperate government here abruptly requested a lifeline following days of denying it needed help."
Skepticism about the Fed's quantitive easing could be hampering its effectiveness, reports Sudeep Reddy: "Amid widely publicized skepticism about the efficacy and wisdom of the bond buying, investors and traders are questioning whether the Fed would be able to expand its bond purchases beyond $600 billion—even if inflation continues falling and unemployment remains high. Those doubts have contributed to an increase in yields on U.S. Treasury bonds since the Fed announced the program on Nov. 3, they say...The more the public and investors believe the Fed is likely to keep buying bonds to depress long-term interest rates until the economy comes back, the more likely the markets are to keep long-term rates from rising."
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Garage rock interlude: Guided by Voices play "I Am a Tree".
Still to come: Joe Klein can't believe we've named the deficit job one; John Cassidy thinks investment banking is socially useless; states are considering eliminating Medicaid to make up budget gaps; a record number of applicants entered the green card lottery this year; the White House is dialing back its climate action commitments ahead of the next climate summit; and Bronte sisters action figures feature awesome book-throwing action.
What madness had led us to name the deficit priority number one when we've got 10% unemployment, asks Joe Klein: "The release of another budget-balancing proposal, this from the Obama deficit-reduction commission's co-chairmen, has unleashed a volcanic eruption of hurrahs from the Olympian peaks of the Establishment — and reflexive harrumphs from the left and right. In the past, I've been a reliable hurrah monger. We do have a long-term structural deficit problem...[but] you'll excuse me if I muffle my deficit-reduction cheerleading this time. There is much of value in the co-chairs' proposal...We could go through the proposal line by line — but why waste the lines? There is a larger problem: Why are we spending so much time and effort bloviating about long-term deficits and so little trying to untangle the immediate economic mess that we're in?"
The distinction between raising taxes and cutting spending is often semantic, writes Greg Mankiw: "Should the government cut spending or raise taxes to deal with its long-term fiscal imbalance? As President Obama’s deficit commission rolls out its final report in the coming weeks, this issue will most likely divide the political right and left. But, in many ways, the question is the wrong one. The distinction between spending and taxation is often murky and sometimes meaningless."
The SEC will require hedge funds to register with the government: http://nyti.ms/d6oDD0
Investment banking is a socially useless activity, writes John Cassidy: "In effect, many of the big banks have turned themselves from businesses whose profits rose and fell with the capital-raising needs of their clients into immense trading houses whose fortunes depend on their ability to exploit day-to-day movements in the markets. Because trading has become so central to their business, the big banks are forever trying to invent new financial products that they can sell but that their competitors, at least for the moment, cannot. Some recent innovations, such as tradable pollution rights and catastrophe bonds, have provided a public benefit. But it’s easy to point to other innovations that serve little purpose or that blew up and caused a lot of collateral damage, such as auction-rate securities and collateralized debt obligations."
Commercial parody interlude: Bronte sisters action figures.
Some states are considering eliminating Medicaid, report Janet Adamy and Neil King: "Elected and appointed officials in nearly a half-dozen states, including Washington, Texas and South Carolina, have publicly thrown out the idea. Wyoming and Nevada this year produced detailed studies of what would happen should they withdraw from the program...Some policy experts say the most feasible scenario would be withdrawing from Medicaid in 2014 when the new health-care law overhaul is set to add 16 million Americans to the program's ranks. A quirk in the law passed in March suggests that a portion of the new Medicaid enrollees could instead qualify to get a tax credit to buy private insurance on state-run exchanges, although Democrats say that wasn't the intent of the law."
The Obama administration is giving bonuses to merely average Medicare Advantage plans: http://bit.ly/9ZsMQR
States will not be allowed to require that every insurer is accepted into the health exchanges, writes Timothy Jost: "Many consumer advocates favor an active exchange that would demand value for money from health plans, while insurers favor an 'any willing insurer' model. While the Guidance blesses both, it should be noted that, in the prior paragraph, the Guidance notes that the exchange must have 'discretion to determine whether health plans offered through the Exchange are ‘in the best interests of qualified individuals and qualified employers' as Section 1311(e)(1) [of the ACA] requires.' A state statute that required an exchange to certify any health plan that met all other explicit statutory requirements could not, therefore, be in compliance with the ACA"
Health care reform is spurring hospital mergers: http://nyti.ms/cJUWba
A record 15 million people entered the green card lottery this year, reports Miriam Jordan: "The so-called 'diversity visa program' lottery drew nearly 25% more entries than last year, according to the State Department. The limit of 50,000 green-card recipients through the program was established years ago by Congress. Some lawmakers are now calling for an end to the program...Critics say the program poses security risks, lures uneducated immigrants and enables individuals with no connection to the U.S. to get into the country more quickly than those sponsored by relatives and employers. 'More and more people are learning about this program and are dumbfounded that we have it in the first place,' said Rep. Bob Goodlatte (R., Va.), who has introduced legislation to abolish it."
Homeland Security is not letting local jurisdictions opt out of a immigration enforcement program: http://wapo.st/cyh2nU
Sen. Ron Wyden has killed a bill that would have given the government more power to shut down copyright-violating websites, reports Stephen Webster: "'Deploying this statute to combat online copyright infringement seems almost like using a bunker-busting cluster bomb, when what you need is a precision-guided missile,' Wyden said. The act was unanimously approved by the Senate Judiciary Committee yesterday. 'Few things are more important to the future of the American economy and job creation than protecting our intellectual property,' said Senator Patrick Leahy, a Democrat from Vermont who co-sponsored the bill."
States whose unemployment insurance funds have been depleted are raising payroll taxes to correct the shortfall: http://on.wsj.com/c3718X
Earmarks are good for America, writes Mark Greenberg: "I should know. I'm a Washington lobbyist who has practiced for more than two decades. I've secured earmarks for a bioscience park in Aurora, Colo., regional transit in Denver and a job-training program in Richmond. Earmarks don't bankrupt our government. They make it run more smoothly...Beyond the merits of any specific program, Congress modifies the budget at will. And this process - like the presidential submission process - produces political winners. Even when earmarks help particular communities, anti-earmarkers are disingenuously selective, charging that the practice is somehow illegitimate because someone, somewhere derives a political benefit."
Covert adorable animals interlude: Kittens hiding other kittens.
The White House is dialing back its climate action promises in advance of the Cancun summit, report David Fahrenthold and Juliet Eilperin: "The Republican wins will finally bury the Obama administration's Plan A, which included passing a landmark climate bill in Congress...The new GOP majority will have few easy options for undoing the White House's Plan B, a set of new regulations that will cut emissions from power plants and factories...Environmentalists now say their best hope in Cancun is not for a grand global deal - which was the ambition they brought to Copenhagen - but rather for a series of small agreements on how to pay for measures such as reducing deforestation or how to help poor countries adapt to a warming climate."
Obama has been promoting electric cars on his Europe trip: http://wapo.st/avexFw
China is starting to import coal from the United States, reports Elisabeth Rosenthal: "The United States now ships coal to China via Canada, but coal companies are scouting for new loading ports in Washington State. New mines are being planned for the Rockies and the Pacific Northwest. Indeed, some of the world’s more environmentally progressive regions are nascent epicenters of the new coal export trade, creating political tensions between business and environmental goals. Traditionally, coal is burned near where it is mined — particularly so-called thermal or steaming coal, used for heat and electricity. But in the last few years, long-distance international coal exports have been surging because of China’s galloping economy, which now burns half of the six billion tons of coal used globally each year."
Gas prices are on the rise: http://on.wsj.com/b2g1oJ
Regulations promoting compact florescent light bulbs are working fine, writes Brad Plumer: "The case for the law is still straightforward: CFLs and other more-efficeint bulbs help reduce power-plant emissions and, over the long run, save consumers money—the EPA estimates that if every household in America swapped out one incandescent for a more efficient bulb, it'd be the same as taking 800,000 cars off the road. True, there are more economically elegant ways to reduce emissions, but Republicans are opposed to carbon taxes and the like, which means that clumsy regulations are the only things that attract political support."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Photo credit: Movie Banter.
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