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Posted at 6:19 AM ET, 12/27/2010

Wonkbook: Meet the Fed's new votes; Goldman Sachs sage says 2011 is 'year of the US'; don't expect more shake-ups in Obama's cabinet

By Ezra Klein

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Sewell Chan profiles the four new members of the Federal Reserve's Open market Committee: "One is an economist who fears that the Fed’s easy-money policies could lead to manias like the housing bubble that burst in 2007. Another is a Texas Democrat who served in the Clinton White House, but is wary of the Fed’s aggressive efforts to combat unemployment. A third is a precocious economist who graduated from Princeton at 19. And the fourth is the only one who agreed wholeheartedly with the Fed’s chairman, Ben S. Bernanke, that the economy was at risk of falling into a dangerous cycle of deflation last summer and that an additional monetary boost was needed...While Mr. Bernanke remains the dominant voice on which route the Fed takes, the change in voting composition is likely to give the committee a somewhat more hawkish cast. "

And Peter Diamond will remain in limbo, reports Luca di Leo: http://on.wsj.com/fVcf1e

Jim O'Neill, perhaps Goldman Sachs's most celebrated analyst, thinks the US will boom this year, reports Vinesh Kumar: "Jim O'Neill shot to fame by predicting the staggering rise of emerging-market economies. Now the head of Goldman Sachs (GS) Asset Management, O'Neill recommended investors buy into so called BRIC economies of Brazil, Russia, India and China a decade ago. Few economic trends have been more consequential since, and O'Neill deserves plenty of credit for spotting it early on...So, what economy is he predicting will shine in the coming year? The U.S...O'Neill anticipates strong stock market gains of 20% in the year ahead. And while the jobs picture has continued to struggle even as the market surprised to the upside, that could change as well."

The GOP is amending House rules to make sure that money saved in spending cuts funds deficit reduction rather than further spending, reports Richard E. Cohen: "House Republicans have unveiled a proposed change in House rules that would create a 'spending reduction' account to accompany each appropriations bill, the latest move by the GOP to show it’s serious about actually cutting spending next year. The new mechanism would set aside in a 'lock box' any spending that the House decides to cut, to ensure that money won’t simply be transferred to other federal accounts. The change was actively pushed by conservatives on the Republican Study Committee and at the House Budget Committee, led by incoming chairman Rep. Paul Ryan (R-Wis.). It was strongly opposed by GOP members of the Appropriations Committee."

Obama won't shake up his cabinet, reports Josh Gerstein: "Don't expect major shake ups in the Cabinet next year as President Barack Obama gears up for his reelection campaign, senior White House advisers said Sunday. 'I don't expect, quite honestly, big changes,' White House press secretary Robert Gibbs said on CNN's 'State of the Union.' He added, 'We've had a -- a very capable and -- and good cabinet that has helped move the president's agenda forward. I think there's obviously a lot that has to be done at Treasury to implement financial reform [and] at [the Department of Health and Human Services] to implement health care reform. And I think we have a very talented team.' Gibbs said Obama can be expected to name a replacement for departing National Economic Council Director Larry Summers in early or mid-January, filling the most senior open role on the White House staff."

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

British indie interlude: Johnny Boy's "You Are the Generation that Bought More Shoes and You Get What You Deserve".

Still to come:Vermont' stimulus-czar says the money failed in his state; the "death panels" furor may not have derailed end-of-life counseling; Obama is losing the fight against inequality; no one seems happy with the FCC's new net neutrality rules; the EPA will limit but not cap greenhouse gas emissions; and golfers try to hit clay pigeons.

Economy

Vermont's stimulus-czar says the money failed: "Part of my job was to coordinate stimulus money awarded directly to state government, both to assure that we complied with federal regulations and that we used this one-time money in ways that made sense. Complying with the regulations was the easy part. Using the money well was another story. Although I'd like to think Vermont did better than many states, much of the money ended up continuing bloated programs rather than providing a transition to a sustainable future."

Obama is losing the fight against inequality, writes Jacob Weisberg: "If Obama has declared war on inequality, inequality seems to be winning. In the deal he just cut with congressional Republicans, the president not only agreed to extend the Bush tax cuts for the highest earners but also to eliminate the estate tax for all but the microscopic percentage of people passing down more than $5 million...And despite the role skewed financial rewards played in cratering the global economy, the Obama administration's policy response has failed to address outsized Wall Street and CEO compensation in any meaningful way...Obama deserves fault for failing to articulate this abstract threat in a way ordinary people can appreciate. Like the deficit, income inequality never killed anybody—it merely has the potential to sap the entire country's health and spirit. Moving toward an income distribution like Brazil's threatens individual happiness, social peace, and American values. But so far, the president hasn't figured out how to get the public to relate to the issue."

The White House is split on how to handle Fannie and Freddie: http://on.wsj.com/eQc6eK

Rising commodity prices don't mean inflation -- they mean global growth, writes Paul Krugman: "Oil is back above $90 a barrel. Copper and cotton have hit record highs. Wheat and corn prices are way up. Over all, world commodity prices have risen by a quarter in the past six months. So what’s the meaning of this surge? Is it speculation run amok? Is it the result of excessive money creation, a harbinger of runaway inflation just around the corner? No and no. What the commodity markets are telling us is that we’re living in a finite world, in which the rapid growth of emerging economies is placing pressure on limited supplies of raw materials, pushing up their prices. And America is, for the most part, just a bystander in this story."

Stimulus paid for with tax hikes could be effective, writes Robert Shiller: "The balanced-budget multiplier is simpler to judge: If the government spends the money directly on goods and services, that activity goes directly into national income. And with a balanced budget, there is no clear reason to expect further repercussions. People have jobs again: end of story. What kind of jobs? Building highways and improving our schools are just two examples...At present, however, political problems could make it hard to use the balanced-budget multiplier to reduce unemployment. People are bound to notice that the benefits of the plan go disproportionately to the minority who are unemployed, while most of the costs are borne by the majority who are working."

Move mashup interlude: I Am Legend vs. Home Alone.

Health Care

Regulators will implement an end-of-life counseling rule excised from the health care reform bill, reports Robert Pear: "When a proposal to encourage end-of-life planning touched off a political storm over 'death panels,' Democrats dropped it from legislation to overhaul the health care system. But the Obama administration will achieve the same goal by regulation, starting Jan. 1. Under the new policy, outlined in a Medicare regulation, the government will pay doctors who advise patients on options for end-of-life care, which may include advance directives to forgo aggressive life-sustaining treatment. Congressional supporters of the new policy, though pleased, have kept quiet. They fear provoking another furor like the one in 2009 when Republicans seized on the idea of end-of-life counseling to argue that the Democrats’ bill would allow the government to cut off care for the critically ill."

Jonathan Cohn explains why defunding health care reform could harm it: http://bit.ly/eBlcQQ

Childhood obesity shouldn't be a partisan issue, writes Fred Hiatt: "If Michelle Obama is for it, someone will be against it. Someone like Glenn Beck, for example, who was moved to rail against carrot sticks, or Sarah Palin, who warned that Obama wants to deprive us all of dessert. And when you look a little deeper, it's not surprising that a crusade seemingly beyond questioning would become a political battle. Interests that might feel threatened by Let's Move include the fast-food industry, agribusiness, soft-drink manufacturers, real estate developers (because suburban sprawl is implicated), broadcasters and their advertisers (of sugary cereals and the like), and the oil-and-gas and automotive sectors (because people ought to walk more and drive less)."

Medicare reform should be unfair to Baby Boomers, writes Robert Samuelson: http://wapo.st/g4czZ6

Domestic Policy

Neither net neutrality opponents or backers are pleased by the FCC's rules, writes Jamelle Bouie: "Net neutrality advocates are disappointed; they point to the wireless agreement and loopholes in broadband regulations as evidence that this decision grossly privileges broadband providers. For instance, the rules exempt "managed services" offered by broadband carriers. In other words, carrier-provided email and music services can live on faster connections than their unaffiliated counterparts...Net neutrality advocates aren't alone in their disappointment. Opponents are close to furious over the FCC's broader decision to involve itself in internet regulation. In the Wall Street Journal, Republican FCC Commissioner Robert McDowell called net neutrality a 'threat to internet freedom.'"

One in nine federal judgeships are vacant: http://bit.ly/i7pk9q

Sen. Lisa Murkowski (R-AK) is showing more interest in backing Democratic legislation, reports Meredith Shiner: "Murkowski is already showing a fierce independent streak, becoming the only Republican to cast votes on all four items on President Barack Obama’s wish list: a repeal of 'don’t ask, don’t tell,' a tax-cut compromise, the START deal and cloture for the DREAM Act. The lame-duck votes capped a strange political odyssey for the Alaska Republican -- one that started Aug. 31 when she conceded the GOP primary to tea-party-backed Joe Miller, continued when she resigned her leadership job in September and ended when she waged Alaska’s first successful statewide write-in bid to retain her seat. Now, she heads back to the Senate with a fresh six-year term without owing much to either her home state party establishment or her Washington leadership."

The lame duck session signaled Congress' return to a bipartisan norm, writes Ross Douthat: http://nyti.ms/gQQjtu

Great moments in projectile sports interlude: Pro golfers attempt to hit a clay pigeon with a golf ball.

Energy

EPA climate regulations will not include a carbon cap, reports Robin Bravender: "the EPA plans to issue a draft greenhouse gas performance standard for power plants by July 2011 and a final rule by May 2012...The draft rule for refineries is due by December 2011 and a final rule by November 2012...And, she insisted, the new rules will not involve a cap-and-trade program like the failed climate bill from Capitol Hill. “This is not any type of a cap approach,” McCarthy said. 'This is about taking a look at what technologies are available that can cost-effectively achieve reductions in greenhouse gases.' But despite the EPA’s best efforts to pre-empt a political firefight, the new climate rules are certain to come under attack from the agency’s foes on Capitol Hill."

The real EPA action on global warming will come next year, writes David Roberts: http://bit.ly/fOHfU8

Climate hawks are not optimistic about 2011, reports Kate Galbraith: "Budget deficits and a still-sluggish economy in the United States and elsewhere may complicate investments in clean-energy technologies. And international negotiators have plenty of tough work ahead, the progress at Cancún notwithstanding...Next year, some big milestones are set to be reached. The United States is to begin regulating greenhouse gas emissions for the first time in January. The rules at first will be mild and will apply only to new or expanding big plants. But last week, the U.S. Environmental Protection Agency announced a timetable for issuing rules to control greenhouse gas emissions from power plants and refineries -- two major sources of the heat-trapping gases -- in 2012."

Excessive packaging could be responsible for half of all trash: http://bit.ly/f8iijg

Global warming is contributing to the Northeast's cold spell, writes Judah Cohen: "As global temperatures have warmed and as Arctic sea ice has melted over the past two and a half decades, more moisture has become available to fall as snow over the continents. So the snow cover across Siberia in the fall has steadily increased. The sun’s energy reflects off the bright white snow and escapes back out to space. As a result, the temperature cools. When snow cover is more abundant in Siberia, it creates an unusually large dome of cold air next to the mountains, and this amplifies the standing waves in the atmosphere, just as a bigger rock in a stream increases the size of the waves of water flowing by. The increased wave energy in the air spreads both horizontally, around the Northern Hemisphere, and vertically, up into the stratosphere and down toward the earth’s surface."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Photo credit: (AP Photo/The Brunswick News, Bobby Haven.

By Ezra Klein  | December 27, 2010; 6:19 AM ET
Categories:  Wonkbook  
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Next: Why we're not likely to get tax reform

Comments

The FCC decision to take control of the Internet signifies the beginning of the politicalization and commercialization of the Internet.

Now that the Obama admin is tweaking internet rules, it is easy to imagine what rules would come into effect should corporate shills like Palin or another BushJr someday take over.

The internet will never be as free and lawless as it is today, and that is a bad thing. There will soon come a day when we can't load our favorite website or it will take a long time to do it (unless you pay a high monthly fee for that service).

A point in time will come when we ask ourselves why did we bother creating such a fast internet when in the end we come back to dialup speeds (unless we pay large sums of money to the AT&T's of the world to let the info flow).

The good news is that extremely slow loading sites like Ezra's will have to become faster to have a snowball's chance in hell to load in a world where even more simpler pages take minutes to load.

The only rule the FCC should have made was the rule that said "Only engineers can make rules how the internet works."

Posted by: lauren2010 | December 27, 2010 7:35 AM | Report abuse

Question for Ezra...

If Obama truly follows up on his idea to reform the tax system, and if such reform led to a major simplification of the tax code, such that 99% of Americans and businesses could do their taxes in one hour on one single piece of paper (the kind of goal many reformers demand), how many jobs would be lost in America?

How many CPAs and CPA schools would go under?

How many tax software companies and jobs lost?

Posted by: lauren2010 | December 27, 2010 7:41 AM | Report abuse

"Rising commodity prices don't mean inflation -- they mean global growth, writes Paul Krugman: "Oil is back above $90 a barrel. Copper and cotton have hit record highs. Wheat and corn prices are way up. Over all, world commodity prices have risen by a quarter in the past six months. So what’s the meaning of this surge? Is it speculation run amok? Is it the result of excessive money creation, a harbinger of runaway inflation just around the corner?"

The nice thing about being Paul Krugman is that your audience is people who have no idea what you're talking about, and so think you a God. In that, he most resembles Alan Greenspan, whom history has judged somewhat more harshly than the awestruck befuddled Congreemen who used to vie in unctious praise of him at hearings.

Notice that few of any stature in the world of finance ever bother to refute Krugman, because his universe consists of sycophants, not people of influence. Remember when he famously declared that Treasury rates were unimportant, about one month and 100 basis points ago? Look for the 30 year mortgage to creep back above 5.0 percent early in the new year, and no lower than 5.5 by summer, possibly as much as 5.75.

Posted by: 54465446 | December 27, 2010 10:32 AM | Report abuse

"The only rule the FCC should have made was the rule that said "Only engineers can make rules how the internet works."

But lauren, engineers don't pay to build out the internet, and to maintain it. They don't bring it to your home. They don't offer you $250 phones free because you're going to use it.

I think your lament may be similar to those who decried the coming of the traffic lights and stops signs, the licensing of drivers, and the creation of speed limits.

This is just another accomodation that we live in the real world.

Posted by: 54465446 | December 27, 2010 10:39 AM | Report abuse

"The GOP is amending House rules to make sure that money saved in spending cuts funds deficit reduction rather than further spending, reports Richard E. Cohen:"


That sound terrific. Certainly much better than the abysmal failure that is paygo.

Posted by: krazen1211 | December 27, 2010 11:17 AM | Report abuse

Ezra,

serious question. Why don't we see more of these types of articles linked to? If some on here are looking for single payer healthcare maybe it'd do your readers some good to see the bad with the good?

http://www.guardian.co.uk/politics/2010/dec/26/nhs-cuts-shortfall-report

Liberals often chastise conservatives that even mention wait times in socialized countries but they mention it right here.


"The NHS typically deals with such shortfalls by limiting treatments, leading to increased waiting times. The government will be faced with a choice between dealing with the fallout from increased waiting times or increasing the DH budget"


Sure our healthcare system is fractured and incorrectly diverts care to those that can afford to pay as opposed to need but its not as if liberals even respond to these issues either. How can we have a serious discussion if we don't lay EVERYTHING on the table?

Posted by: visionbrkr | December 27, 2010 12:09 PM | Report abuse

555

AT&T and other companies willfully invested in the internet when it was lawless, before there was any guarantee that rules would change to favor them.

They have already reaped great rewards for doing so.

The idea that they don't make reasonable profits now is naive.

The internet works fine as is (with engineers deciding how to make it work and grow).

Posted by: lauren2010 | December 27, 2010 12:09 PM | Report abuse

lauren:

You must not be a Comcast customer! LOL

My point was that going from relatively free and unrestricted to organized and controlled is the order of life in all things.

In fact, you can argue that the internet enables a much tighter control of society by authorities of all kinds, and so was never in any way free and lawless to begin with.

Posted by: 54465446 | December 27, 2010 3:11 PM | Report abuse

lauren,

and if the internet turned out to be a fad that faded and AT & T invested billions in it and it was a failed investment would you cry for them? That's the risk they take and then they're rewarded when and if it works out for them. Should they not be rewarded for taking risks in investments that pay off just as they should take responsibility for poor investments that fail?

Posted by: visionbrkr | December 27, 2010 5:29 PM | Report abuse


The market rates may have gone down, or remained the same. For the homeowner to get qualified for lower rates, there are certain prerequisites but I would recommend you search online for "123 Mortgage Refinance" before you decide because they can find the 3% refinance rates.

Posted by: janetlandis | December 28, 2010 3:21 AM | Report abuse

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