Quote of the Day: Cantor Bails

From House Majority Leader Eric Cantor, explaining why he's bailing out of budget negotiations with the Obama administration:

I believe that we have identified trillions in spending cuts, and to date, we have established a blueprint that could institute the fiscal reforms needed to start getting our fiscal house in order. That said....Democrats continue to insist that any deal must include tax increases....Given this impasse, I will not be participating in today’s meeting and I believe it is time for the President to speak clearly and resolve the tax issue.

Roger that. Trillions in spending cuts already agreed to, but there can't be one dime in tax increases of any kind. Would any conservative apologists like to continue pretending that Democratic aversion to spending cuts is pretty much the same kind of thing as the Republican jihad against tax increases? Anyone? Ross?

GOP Mind Games, Job-Killing Edition

It's an article of faith among congressional Republicans that, if you repeat a talking point often enough, no matter how inaccurate it is, it will eventually take root in the minds of Americans. Case in point: A new Bloomberg poll finds that 55 percent of Americans believe spending and tax cuts are the best way to lift the US labor market and lower unemployment, now at 9.1 percent, as opposed to more government spending.

That's straight out of House Republicans' "cut-and-grow" playbook, in which the road to economic prosperity entails slashing corporate tax rates and billion-dollar cuts to "job-killing government spending."

Except that's not true.

Alan Blinder, a Princeton economics professor and former Fed vice president, thoroughly debunked the GOP's claims on Tuesday in a Wall Street Journal op-ed titled "The GOP Myth of 'Job-Killing' Spending." Blinder writes:

The generic conservative view that government is "too big" in some abstract sense leads to a strong predisposition against spending. OK. But the question remains: How can the government destroy jobs by either hiring people directly or buying things from private companies? For example, how is it that public purchases of computers destroy jobs but private purchases of computers create them?

Blinder easily knocks down claims that the 2009 federal stimulus—roughly $600 billion in spending and $200 billion in tax cuts—failed to create jobs, pointing to Congressional Budget Office data that shows the net job gain was at least 1.3 million and perhaps as high as 3.3 million. What's more, Blinder debunks the idea that the federal deficit and the uncertainty that comes with it has caused companies to scale back business investments, which in turn impacts hiring and economic growth. Except such investment soared in the past year, increasing 14.7 percent. Ultimately, Blinder argues for another round of stimulus—specifically, giving businesses that grow their payrolls a tax credit—while calling for a serious long-term deficit reduction package.

And Blinder isn't the only expert to dismantle the GOP's economic position. In an interview with Yahoo News' Lookout blog, a former top economic aide to George W. Bush said the GOP's cut-and-grow agenda doesn't make any sense. "That wouldn't square with the way we normally think about economic activity in a depressed economy," said Andrew Samwick, now an economics professor at Dartmouth. Samwick, like so many other economists, points out that increased spending is a proven way to ramp up hiring and spark economic growth. Slashing spending does the opposite.

Yet Republicans have hammered away with their cut-and-grow mantra so much that they've convinced a majority of Americans to believe the unbelievable. You've got to hand it to Republicans: They may be wrong, but they are convincing.

OK, maybe Ben Bernanke isn't willing to do much more to help out our anemic economy, but at least he did say this today:

I don't think that sharp, immediate cuts in the deficit would create more jobs. I think in the short run that we're seeing already a certain amount of fiscal drag coming from state and local governments from the withdrawal of previous federal stimulus, so I think in the short run, you know, the fiscal tightening is at best neutral and probably somewhat negative for job creation.

Am I wrong, or is this the bluntest he's been yet about the idiocy of his fellow Republicans and their austerity agenda?

Fed: The Economy Stinks, Our Work Is Done

Via the New York Times, the Federal Reserve announced today it's ending efforts to bolster the country's tepid economic recovery:

The nation’s central bank said Wednesday that it would complete the planned purchase of $600 billion in Treasury securities next week as scheduled, and then suspend its three-year-old economic rescue campaign, leaving in place the aid it already is providing but doing nothing more, for now, to bolster growth.

"The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected," the Fed said in a statement. "The committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline."

[...]

The statement offered hope that the pace of growth would increase, noting that many factors restraining the economy are likely to be temporary, including the impact of higher energy prices and the disruptions to manufacturing caused by the Japanese earthquake. Automakers already are planning sharp increases in production to compensate for the lost volume.

So that's it. Apart from sticking with rock-bottom interest rates, the Fed is turning to a hope-and-wait strategy to see if economic growth, job creation, and consumer spending pick up in the coming months. Thanks a lot, Ben Bernanke.

Remember, front and center in the Fed's mission is crafting monetary policy "in pursuit of maximum employment." Right now, twenty-five million Americans can't find full-time jobs. Fourteen million Americans can't find any work. The Fed knows this: "Recent labor market indicators have been weaker than anticipated," the organization said today.

Ezra Klein nailed it this morning on the Fed's failure to fulfill its mission and spark a stronger, faster economic recovery:

[The Fed's efforts have had] a modest impact on the worst economy since the Great Depression. The anger at the Fed isn't coming because people have suddenly developed strong and nuanced views on quantitative easing. It's coming because people are angry about the state of the economy, and the Fed is one of the major forces in the economy. The way to have avoided it wouldn't have been to do less, but to do better, which would've meant doing more.

A growing number of economic policymakers—former Fed vice chairman Alan Blinder, former CEA chair Christina Romer, former associate director for the Fed's monetary affairs division Joseph Gagnon—believe that would've been, and in many cases, still is, possible. They argue that the bank's underwhelming impact on the recovery is evidence not of the Fed's inability to more effectively fight the recession, but its unwillingness to do what was needed to fight the recession. Larger and more aggressive asset purchases, price-level targeting, and various other dips into unconventional measures were and are needed. But all that would've been economically more effective and politically easier a year ago, or even two years ago, than it is today. Today, the Fed is under intense criticism, which limits its freedom of action. Having not done enough, they're now unable to do more.

On Jose Antonio Vargas, Undocumented Immigrant

Jose Antonio Vargas.

Kevin is on vacation, so Andy Kroll and I are filling in for a few days.

In April 2008, Jose Antonio Vargas, then a reporter at the Washington Post, shared a Pulitzer prize for the paper's coverage of the Virginia Tech shootings. Last September, he published a 6,200-word profile of Facebook's Mark Zuckerberg in the New Yorker—the result of what he later called his "dream assignment." By any yardstick of traditional journalism, Vargas had made it.

This morning, the New York Times published Vargas' confession: he's an undocumented immigrant, and he's apparently committed a number of fraud-related crimes in order to obtain the documents he needed to stay in the country and keep working. It's hard to summarize Vargas' story—he didn't even know he was undocumented until, at 16, he applied for a learner's permit—so you should read the whole thing.

I'm sympathetic to Matt Yglesias' view that we should empathize with all people who come to the United States in search of a better life, even if, unlike Vargas, they do so knowing that what they're doing is illegal. But I've also worked with foreign-born journalists who've paid thousands or tens of thousands of dollars and waded through miles of red tape and seemingly senseless regulations—including, sometimes, returning to their home countries for a period—in order to work in this country.* (This applies outside of journalism, too, of course.) I wonder how they're feeling about Jose Antonio Vargas this morning.

*UPDATE: As discussed in the comments, these senseless hurdles are a central part of the problem.

Wanted: Better Bank Regulators

Hello there, Drum readers! I'm Andy Kroll, a reporter here in MoJo's DC bureau. For the next week, I'll be one of the guest bloggers keeping the Drumbeat lively while Kevin lounges on a beach somewhere curled up with a McKinsey report and his new camera. (Kidding—I have no idea where he is.) My email is at the end of every post, so don't hesitate to drop me a note or give me an earful. Onward...

Regulatory capture: It's the wonky name for when an industry co-opts the watchdogs that are supposed to be regulating it. And there's no clearer example of that than the banking industry and the Office of the Comptroller of the Currency (OCC), which oversees about 1,400 US banks. For instance, it was the OCC in 2003 that squashed Georgia's efforts to outlaw the most toxic home loans on the market—think negative amortizing loans, NINJA (no income, no job, no assets) loans, you name it. How prescient.

On Tuesday, the OCC was at it again. Its chief, John Walsh, went before the Senate to testify against new bank capital requirements, calling for a "fundamental rethink" of rules that would force banks to keep more capital on their books to absorb losses and weather crises. "My view," Walsh said, "is that we are in danger of trying to squeeze too much risk and complexity out of banking as we institute reforms to address problems and abuses stemming from the last crisis." Translation: These rules will pinch bank profits.

Capital is the protective cushioning, if you will, that banks keep on hand in case disaster strikes. In the financial crisis of 2008 and 2009, plenty of banks didn't think it was necessary to stash away capital, and when the crisis arrived, they suffered serious enough damage to necessitate a government rescue. Research by the World Bank and the International Monetary Fund shows definitively [PDF] that large banks with too little capital suffered far more during the crisis than those who chose the safer route.

Which is where the new requirements come in. As Kevin noted last fall, the Basel III proposals would hike capital requirements three- and four-fold, depending on the type of capital. There's also a more recent proposal circulating to make larger banks hold still more capital as they grow in size. While technical, these reforms shouldn't be scoffed at: Treasury Secretary Tim Geithner has called higher capital requirements the most important piece of financial reform.

But Walsh's testimony adds to the growing drumbeat to weaken these requirements. He joins JPMorgan Chase exec Jamie Dimon and a host of other banking big-wigs in opposition.

One lawmaker who's unequivocally onboard is Sen. Carl Levin (D-Mich.). A staunch defender of tighter financial regulations, Levin was so angered by Walsh's testimony that he demanded his ouster in the middle of the hearing: "It is past time for the president to nominate new leadership at the OCC to protect American families and businesses from the excesses of Wall Street." However, it'll take more than one angry senator to beat back the banking lobby and put these rules into action.

Vacation Time

I'll be on vacation for the next week, but fear not for the blog. Nick Baumann and Andy Kroll, who are both great and who you should be following anyway, will be filling in, and a few other MoJo writers will be popping in as well from time to time. I might even pop in myself occasionally, depending on the vagaries of my mood and my WiFi connections. Catblogging, of course, will appear as scheduled.

I'll be back next Thursday. Don't let the world collapse while I'm gone.

Will Obamacare Destroy Private Insurance?

I haven't been blogging about the great McKinsey Obamacare study flap, but in a nutshell, McKinsey conducted a survey of employers and concluded that 30% of all companies would stop providing health coverage once Obamacare kicked in in 2014. Conservatives immediately sounded the alarm, but McKinsey refused to explain their methodology or divulge anything about either the questions they asked or how they "educated" respondents before getting their answers.

Under considerable pressure, McKinsey finally released a brief summary of their methodology along with a weasely clarification that their report wasn't meant to be a prediction and had only said that 30% of companies "might" stop providing health insurance, not "would." Whatever. It was too late: the 30% estimate had long since become a piece of conservative lore about the dire effects of Obamacare.

But how likely is it to be true? No one can say for sure, but the reason the McKinsey study provoked so much outrage — aside from the peculiar fact that they refused to explain how the study was conducted — is that it was light years away from every other estimate that had been done. In fact, a team of health economists had just recently done a (very well documented) simulation of the effects of Obamacare and came to a very different conclusion: the decrease in private insurance rates would be on the order of 3%, over two decades, not 30% over two years. They looked at the likely effect of three things: (1) the expansion of Medicaid, (2) the creation of subsidized insurance via exchanges, and (3) the Cadillac tax. The chart on the right, kindly sent to me by Steve Pizer, one of the authors of the study, summarizes the results of their simulation. The number of uninsured goes down to nearly zero, the number of publicly insured goes up to about 15%, and the number of people covered by private insurance declines only a smidgen.

Is this estimate correct? Who knows. But it's carefully done and the methodology is open to all for criticism. All things considered, it's probably way more likely to be close to the mark than McKinsey's study. You probably don't have to worry much about your employer suddenly deciding to end your healthcare coverage when Obamacare starts up for real in 2014.

Unions Finally Catch a (Small) Break

The NLRB, protector of management rights when Republicans are in charge and protector of labor rights when Democrats are in charge, announced today that it plans to change the rules governing union recognition elections in order to "curb unnecessary litigation, streamline procedures before and after elections, and enable the use of electronic communications, such as requiring employers to give union organizers access to electronic files containing workers' addresses and emails." Sounds boring. So why should you care? I'll let Peter Kirsanow, an avowed labor-phobe, explain:

In a nutshell, the NLRB’s proposed rules would implement “quickie elections,” a process that would allow unions to organize a workplace as easily as they could have had the Employee Free Choice Act (also known as “card check”) passed.

This is a very big deal....Right now, initial elections normally are conducted within 38–40 days of the filing of a petition by the union....That’s not much time for the employer to get his message out. Indeed, in 2009 and 2010 unions won approximately 68 percent of elections (this does not include the number of petitions withdrawn by unions). Yet the “quickie election” rules proposed by the NLRB will shorten the time frame to a mere 10–20 days. Make absolutely no mistake: That’s not enough time for even the largest and most sophisticated employers to counter what the union has been telling employees while organizing them for the last 6–8 months. The union win rate will far exceed 68 percent. In fact, it’s likely that many employers will choose to not even go through the expense of an election that he’s sure to lose, but will simply voluntarily recognize the union upon a showing of authorization cards.

Sounds good to me! And don't get too excited about that two-thirds rate of union victories, either. It's true that in 2009 unions won 66% of all NLRB elections compared to 51% in 1997, but that's 66% of 1,304 elections compared to 51% of 3,261 elections. Contra Kirsanow, organizing a new workplace has gotten so hard in recent years thanks to corporate-friendly NLRB rule changes and increasingly aggressive union avoidance campaigns, that unions simply don't bother waging all that many recognition elections anymore. They know that most of them are hopeless. The result is that the net number of election wins has dropped nearly in half in just the last decade alone.

That's not good enough for Kirsanow and his allies, of course, who would like unions to disappear completely. But among workers themselves, the anti-union skepticism of the 70s and 80s has mostly disappeared in the face of stagnant wages and skyrocketing executive pay. Survey research a few years ago by Harvard's Richard Freeman suggests that "if workers were provided the union representation they desired in 2005, then the unionization rate would be about 58%" — almost eight times higher than the actual private sector rate of 7.4%. The fact that so many workers would welcome union representation but don't have it is compelling evidence that far from being unfair to management, the current legal regime for union elections is tilted dramatically in their favor. For workers, rule changes that slightly reduced that tilt and once again gave unions a fighting chance to organize workplaces would be a welcome change.

Obama's Spending Cuts

Matt Yglesias points out that last December, when Democrats cut a deficit-busting deal with Republicans to cut taxes and increase stimulus spending, would have been a perfect time to raise the debt ceiling. But:

It didn’t happen. Obama said he trusted John Boehner. Harry Reid said he didn’t want the debt limit to be raised by the 111th Congress because he wanted to force the incoming 112th Congress to take ownership over it. The results of these decisions have been a disaster.

What’s more, not only was the disaster predictable but even once it was visibly on the horizon the White House bungled it. There was a brief opportunity for the President to dig in his heels and simply refuse to compromise. Then the debate rapidly would have become “can John Boehner round up the votes in his caucus necessary to avoid a default.” Instead, the White House conceded the unprecedented point that even though Boehner and Obama agreed about the desirability of raising the debt ceiling that the White House should make concessions to the Speaker in order to obtain it. Consequently, you get what we have here this week.

For what it's worth, I continue to think that this probably wasn't a bungle. More likely, during his first two years in office Obama had gotten enough deficit religion from the likes of Peter Orszag and Tim Geithner that he actually welcomed the opportunity to put in place some long-term spending cuts. He couldn't very well admit that publicly, of course, since his base would go bananas, so instead he punted on the debt ceiling, knowing that Republicans would then use it to "force" spending concessions out of him. Mission accomplished: long-term spending is reduced, and Republicans get all the blame. Democrats mostly forgive him because everyone knows Republicans are crazy, and as a bonus, Republicans don't even get much of a boost from their own base out of this since any real-world spending cut won't come close to the demands of the tea party crowd.

How sure am I of this? Not very. Maybe 60%. But think of it this way: the kind of negotiating position Matt is talking about isn't rocket science. It's not even Negotiation 101. It's more like the fifth grade version. There's just no way that Obama and Reid and the rest of the Democratic brain trust were literally so stupid that they didn't understand this. A far more parsimonious explanation is that this is roughly what Obama wanted. He wanted spending cuts, but he wanted Republicans to be the ones to take the lead. And that's what happened.

Bottom line: I don't think we should try to figure out what Obama "really" thinks about stimulus spending vs. deficit reduction. His actions suggest that he wants long-term spending cuts. Like it or not, that's the real Obama.

UPDATE: Jon Chait has the same reaction as Matt, saying this about the failure last December to tie a debt ceiling increase to the tax and spending package: "It was clear that the time that Republicans were committed to pushing the boundaries of their formal powers as far as they would go, and Obama utterly failed to anticipate this."

Seriously? Does anyone really believe that Barack Obama and his team, all with high IQs and decades of Washington experience, utterly failed to anticipate this? I don't. A third grader might fail to anticipate this, but not Obama.