Ezra Klein

Recap: Obama's approval ratings mirror Ronald Reagan's almost exactly; Mitch McConnell's plan is working perfectly; and politicians think "inflict unnecessary economic pain" is a more popular position than I would have anticipated.

Elsewhere:

1) Ted Stevens's obit.

2) Fashion copyrights are a bad idea.

3) "The Fed has take the minimum possible non-contractionary action."

4) I tried to read "Seeds of Destruction" and found it disappointingly partisan and laden with sound bites.

Recipe of the day: A perfect tomato sandwich.

Kombiz Lasvany sends along this graph showing the difference between serving in Washington and having to balance a state budget:

Photo credit: Kevork Djansezian/Getty Images.

The House passed legislation giving states $26 billion for Medicaid and teachers today. The Senate had already passed the legislation, so now it's off to the president's desk.

The end product has, after three months of negotiations and compromises, less than half the $50 billion-plus the House originally wanted. Moderate Senate Republicans forced the legislation to be fully offset, so the bill shifts money around rather than injecting new money into an economy that needs it. One of the offsets was a $12 billion cut to the food stamp program.

And the bill will help, but not enough. "In fiscal year 2011, state budget gaps are about $121 billion, and by the time the fiscal year is over, they could exceed $140 billion," says Jon Shure, deputy director of the State Fiscal Project at the Center for Budget and Policy Priorities. This will close less than a sixth of the gap. Passing it is an accomplishment for Democrats, but they will also be blamed for the consequences of its inadequacy, despite the fact that the bill's size is the result of Republican demands.

You'd think state aid would be uncontroversial during the most sever economic crisis since the Great Recession. Not so. Early on, there wasn't much controversy, but as the crisis continued, some began suggesting federal help was just another sloth-encouraging bailout. "We managed our way out of" the crisis, said Jane Jankowski, press secretary for Indiana Gov. Mitch Daniels. "Others didn’t."

That's not true, however. Indiana -- which had an unemployment rate above 10 percent in June -- didn't manage its way out of the crisis. It used federal funds to ride out the crisis. It used lots of stimulus money to plug some of its budget hole. It benefited hugely from the auto bailout, which kept the Midwest's manufacturing sector alive. And in February, Mitch Daniels joined 46 other governors and signed a letter asking for exactly the sort of Medicaid funding that Congress just passed. So throughout the crisis, Daniels and Indiana benefited from, and asked for, exactly the sort of help his administration is now dismissing.

And Indiana was right to take the money. "Managing" the collapse in revenue is another way of saying "cutting jobs and raising taxes." Republicans dislike at least one of those things, and so they might worry that since the start of the recession, 30 states have raised taxes. Forty-three other states have cut higher-education funding, and 33 have cut K-12. There's lots that states need to do to set themselves up for the future, but hiking taxes when consumers are already stressed and firing people amid 10 percent unemployment and tearing apart their educational system is not helping the economy get back on its feet. We don't want states to manage the crisis by worsening it, but that's exactly what further cuts and tax hikes will do. And though this bill will help, further cuts and tax hikes will be needed.

The Fed -- or at least the Federal Open Market Committee -- has spoken, and the new regime will be the same as the old regime. That is to say, interest rates will remain unchanged, and the Fed will keep a big balance sheet. As this is the Fed, not doing less is interpreted as being willing to do more, and so the stock market jumped on news that our monetary policymakers are attuned to the weakening economy and apparently willing to step in if things get worse.

"What we’re left to wonder," writes Matt Yglesias, " is would this have gone down differently if Barack Obama’s three nominees were in place? And if it would have, how different would the midterms look? This is the biggest political story of the week by far, and you’ll see virtually no coverage of it."

Photo credit: Mahmood Fazal/Bloomber.

They just don't study. Or, at the least, they just don't study like they used to. Students at four-year colleges devote about 14 hours each week to studying. In 1961, their parents were spending 24 hours each week studying.

There are a lot of things you could say about this number, but I'd just observe that it's common to justify high incomes by invoking hard work, but I'd much rather be a 20-year-old studying for two hours a day and hanging out with my friends than a 20-year-old working full time in retail because I didn't have the money or grades to go to college. There are perfectly good economic reasons to spend more money on people who the market values more highly, but our tendency to substitute a moral reason -- "hard work" -- is generally off base. Being a college-educated worker in the richest country the world has ever known is a pretty good deal, and given this country's crummy economic mobility, it's only rarely the result of an individual's hard labor.

Derek Thompson talks to Eric Spiegel, CEO of Siemens USA, and finds that he'd like to see the government reduce uncertainty by ... passing activist legislation that he likes:

Siemens, which engineers and sells equipment for the new green economy (among a thousand other things), needs assurances that the government will take more action to tip the scales toward clean energy.

Spiegel mentioned three key areas where Washington's failure to act had created uncertainty. First, the failure of the climate change bill means the country could go years without a carbon price to advantage clean tech. Second, he lamented the absence of a national renewable energy standard. Third, he expressed concern about the future of the wind turbine investment tax credit, which expires in 2011.

"If you don't do anything on carbon and you don't have renewable energy standards or investment tax credit, every utility company would go out tomorrow and build coal," he said.

Usually, business argues for their legislative preferences "because it would be good for business." Right now, the preferred phrasing is that "it would reduce uncertainty." And I'm sure it would! If the government would pass the "Give Ezra Klein a Billion Dollars Act of 2010," my financial future would become a lot more certain. But I only support that legislation because I'd like the particular future it makes certain. The "Throw Ezra Klein in Jail Act of 2010" would also increase my ability to do long-term planning, but I'm voting against it.

Yesterday, I put health-research funding into the basket of stimulus policies that wouldn't do much in the short term but could do a lot in the long term. Today, a reader e-mailed to say I'm wrong and that this money pays out more quickly and directly than I'd anticipated. She passed along this report (pdf) from a medical research group that tries to explain more clearly where the money is going. The stimulus was so big that a lot of the projects it funded are totally unknown. But when you drill down into them, they're the sort of things that most of us will eventually be glad were done. Building up our medical research infrastructure is very much one of those.

By Dylan Matthews

roquelaure_79 asks:

We keep hearing about how the stimulus was too small. True. But it also wasn't the last word on stimulus/rescuing the economy. Congress has passed numerous fixes, assistance, etc since then. How much TOTAL money has Congress thrown at the problem. After all, unemployment assistance, food stamps, state aid, etc is not *only* stimulative when it's in the stimulus bill.

As roquelaure_79 says, Congress has passed a lot of stimulus-related legislation. Most of these were small-scale measures like the HIRE Act or Cash for Clunkers. The question is how to tally it all up.

Luckily, in their recent paper (PDF) measuring the effect of federal policy on the recovery from the recession, Mark Zandi and Alan Blinder (read their interviews with Ezra here and here) add up all this miscellaneous spending, as well as the stimulus signed into law by the Bush administration in the Economic Stimulus Act of 2008. They also assume that, through 2011, Congress will pass another $80 billion in stimulus: $50 billion in extended unemployment benefits, $25 billion in aid to states and $5 billion in lending funds for small businesses and other measures. Considering that a $33 billion unemployment benefit extension not included in the paper has been signed into law, and $26 billion in state aid and $30 billion in small business lending are being considered, this might actually low-ball the real figure. Add these three bills to the Blinder/Zandi estimates and the combined fiscal stimulus from 2008 to the present amounted to $1.156 trillion:

As you can see, the ARRA is still responsible for the vast majority of fiscal stimulus since the economic downturn. It would be tempting to look at the $1.156 trillion figure and note that this is close to Christina Romer's $1.2 trillion initial estimate for the stimulus bill, but it's important to note that the largest other measure, the Economic Stimulus Act of 2008, had already been passed during the 2009 stimulus debate, and that many of the unemployment insurance extensions and other measures might have been passed following a larger stimulus anyway. That is, even with these other bills, the actual stimulus was still much smaller than Romer said it needed to be.

A clip from "60 Minutes'" look at D.C. superchef Jose Andres:

I've got an upcoming reservation at Minibar, I'm stoked.

There are economic problems that we can't do much about. An oil embargo from OPEC, for instance. Or an asteroid hitting Wall Street. But then there are economic problems we can do something about.

Cities firing hundreds of thousands of workers is a problem we can do something about. It's a simple question of money: The recession has destroyed state revenues and most states can't run deficits. Luckily, the federal government can give states aid until unemployment falls back down to 6 percent. It could even give them aid in a form they have to pay back.

But Republicans are blocking state aid bills. This doesn't make a lot of sense, even on their own terms. On Sunday, John Boehner said, "I am not for raising taxes on the American people in a soft economy." That's fine: Tax rates are a part of the economy we can control, and Boehner sensibly doesn't want to let them become contractionary while we're in a recession. But that same thinking applies to state employees: No one should be for laying off hundreds of thousands of public-sector workers in a soft economy. This is something we can control; it's a contraction we can stop. We just ... aren't.

And that's not all: We could pass a payroll tax holiday, a seriously large tax credit to help business hire, much more infrastructure investment, and on and on. We could do lots of things. We just ... aren't.

The same goes for the Federal Reserve. I haven't seen really persuasive estimates of how much they could do to support the economy, but everyone agrees they could do more. They just ... aren't.

There's much in the economy that's out of our control. But there's a lot that's in our control. But Republicans in our political system and hawks inside the Federal Reserve have, for very different reasons, decided to back off. So while the economy we can't control is slowly, slowly getting better, the economy we can control is getting a lot worse. We saw this in July, when the 71,000 jobs the private sector created were wiped out by the 200,000 jobs the public sector lost. Economic pain is bad, but unnecessary economic pain is appalling.

With the Federal Reserve's policy-setting body meeting today for the first time in months, Neil Irwin runs down the Fed's various options and how likely each of them is. The takeaway? The Fed isn't likely to do more but isn't likely to do less, either. And because some people thought they were getting ready to do less, saying they're not going to do less is a way of doing at least a bit more.

Got that, grasshopper?

From a poll conducted by the Young Presidents' Organization:

American CEOs responding to the YPO Global Pulse economic sentiment survey during the first two weeks of July 2010 expressed weakened confidence about the outlook for their sales and employment levels and the overall business climate compared with the April survey, driving a 3.5-point drop in the U.S. CEO Confidence Index to 57.5 from 61.0 in April. This was the first downturn in the YPO U.S. Index in the five quarters since the survey’s launch 12 months ago. ...

Looking to the future, the percentage of CEOs bullish about their company’s sales outlook declined in July compared with the April survey. The percentage of respondents expecting sales increases of 10% or more over the coming 12 months fell from 69% in April to 57% in July, while the percentage of those expecting sales to remain about the same grew from 26% to 35%.

A solid majority (62%) expects their employee count to be about the same a year from now as it is today. This is a slight increase from 58% in April. The percentage of CEOs expecting to increase their staff by 10% or more declined to 30% from 36% three months earlier.

Adam Serwer tweets a good point on the contretemps between Robert Gibbs and "the Professional Left." Whatever the two sides' feelings for each other, "they're not the ones filibustering jobs bills."

This is the beauty of obstruction, of course: The minority creates outcomes that the majority gets blamed for. The country points its fingers at the majority party for not passing legislation, as it's the majority party's job to pass legislation. The majority party points fingers at one another -- but especially at the White House -- because it's their job to pass legislation, and surely the White House could be doing more to whip recalcitrant Democrats and moderate Republicans into support. And plus, what's the use of the left complaining about Republicans? The Republicans don't care what the left thinks, and so there's a limited upside -- and even less press coverage -- when the left attacks about them.

Coincidentally, I've been reading Nelson Polsby's "How Congress Evolves," which focuses on changes in the House of Representatives during the '40s and '50s and '60s. People forget this, but back then it was the House, rather than the Senate, that was the primary impediment to liberal legislation. The Rules Committee, which was led by an arch-segregationist, could kill legislation on its own and did so regularly.

This led to the predictable circular firing squad, as everyone spent a lot of time arguing over who deserved the blame for the failure of these bills. But it wasn't until John F. Kennedy came into office and partnered with Speaker Sam Rayburn to reform the Rules Committee that the underlying situation changed (and I'll note that you never hear people demanding that the Rules Committee regain its power to hold legislation). And so it is here: The left is angry at the White House, and the White House is angry at the left, and both may be justified in their annoyance and tactical critiques, but the tension is actually a result of the rules allowing 41 senators to block the will of 59.

I understand why the White House is frustrated by the criticism from the "professional left" and feels progressives should focus on all the progressive things the administration has done rather than all the things it hasn't been able to do or interested in doing. What I don't understand is why Robert Gibbs would voice that frustration to the press. His comments just turn this into a "story," giving the very professional lefties whose criticism is rankling the White House another high-profile opportunity to criticize the White House.

Baffling. Meanwhile, it's worth noting that this is largely a Beltway phenomenon: According to Gallup, Obama is at 81 percent among self-described Democrats and 76 percent among self-described liberals. His problem is that he's at 38 percent among self-described independents and 55 percent among self-described moderates. Now, this might tell you less than meets the eye: Maybe independents would like Obama better if he'd followed the professional left's advice and really hammered the banks or sped up the withdrawal from Afghanistan.

But so far as the polls go, Obama is doing okay among the left. In fact, as the graph below shows (click on it for a larger version), his approval trends among Democrats, independents and the country mirror Ronald Reagan's ratings among Republicans, independents and the country almost exactly.

The Federal Open Market Committee is meeting today amidst speculation -- and in some quarters, fervent hope -- that they'll take a more aggressive role in accelerating the recovery. The House is also heading into session, with the $26 billion education and Medicaid bill and a $600 million border security bill on the dockets. Meanwhile, BP is nearing a deal with the US government to secure funding for its $20 billion Gulf cleanup fund, and former Bush administration officials are objecting to Republican calls for changing the 14th amendment.

Irt's Tuesday. Welcome to Wonkbook.

Top Stories

The Fed's policymaking organ is meeting today, reports Neil Irwin: "One key option on the table will be to state that the Fed will maintain the current size of its balance sheet, $2.3 trillion, by buying new assets as the mortgage-backed securities in its portfolio mature. That would have only a moderate impact in terms of increasing the money supply, but would signal that the Fed has become more worried about growth. Similarly, the Fed could strengthen its statement that economic conditions 'are likely to warrant exceptionally low levels of the federal funds rate for an extended period.' The policymakers could state how long an 'extended period' might be, such as two or three years."

The House is back in session today to pass the $26 billion state-aid bill and a $600 million border security bill: http://bit.ly/9VW4LL

BP and the Obama administration are near a deal on the $20 billion Gulf cleanup fund, reports Monica Langley: "The Justice Department and BP said Monday they had completed talks to establish the fund, which is designed to cover damage claims from residents and businesses hurt by the spill and clean-up efforts by state and local governments. BP paid $3 billion into the fund ahead of schedule...BP has said it expects to be able to make the required payments to the $20 billion fund through its ongoing operations and asset sales. However, the administration wanted security in the form of collateral in the event that BP couldn't meet its obligation due to financial or legal problems."

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Republican opposition to the 14th amendment's provision of birthright citizenship is facing a backlash from Bush-era officials, reports Scott Wang: "Cesar Conda, who served as domestic policy adviser to Cheney, has called such proposals 'offensive.' Mark McKinnon, who served as media adviser in Bush’s two presidential campaigns, said Republicans risk losing their 'rightful claim' to the 14th Amendment if they continue to 'demagogue' the issue."

Experimental pop interlude: Menomena play "Taos".

Still to come: Freddie Mac's losses are shrinking but it still needs government aid; China is shuttering more than 2,000 factories over pollution concerns; Obama's doubling down on his education policies; and a park ranger befriends a group of lions.

Recap: I wondered whether people really want the Senate the Founders envisioned and Dylan Matthews asked economists, commentators and politics where, exactly, the Laffer curve bends.

1) Romer's choice.

2) "No matter how you examine the numbers, the Bush expansion was significantly weaker than the expansions of the 1990s and 1980s."

3) The problem with generous public-sector pensions is stingy private-sector pensions.

4) I'll be talking state budget cuts with Rachel Maddow at the top of the hour.

Recipe of the day:We made some spaghetti amatriciana this weekend that might be the best pasta-based dish I've ever tasted. Here's Babbo's recipe for it. Here are some other takes. We used fresh tomatoes, which meant a sweeter sauce.

Stan Collender puts a fine point on one of the themes from my column this week, which is that the people demanding that Washington reduce "policy uncertainty" are usually just demanding that Washington pass whatever policies they like -- even if that increases uncertainty. Here's Stan:

There already is absolute certainty about the tax cuts enacted in the early 2000s: Under existing law they expire at midnight December 31, 2010. Do nothing and we can all be absolutely certain that rates will go up. Somehow, however, that certainty is being defined as creating uncertainty.

By contrast, the changes to the existing law the business community is saying are so important to economic growth will require new legislation and, especially these days, the legislative process is about as unpredictable as you can get. So pushing for the three changes the business community says are so important to the economic recovery -- keeping the current rate on upper income individuals and the existing rates on capital gains and dividends -- has nothing to do with certainty and everything to do with lowering taxes compared to what they would be under current law.

This White House has "vilified industries," complains the U.S. Chamber of Commerce. America is burdened with "an anti-business president," moans the Weekly Standard.

Would that all presidents were this anti-business: According to the St. Louis Federal Reserve, corporate profits hit $1.37 trillion in the first quarter -- an all-time high. Businesses are sitting on about $2 trillion in cash reserves. Business spending jumped 20 percent last quarter and is up by 13 percent against 2009. And the Obama administration has cut taxes for small businesses and big ones alike. Maybe the president could be anti-me for a while. I could use the money.

The reality is that America's supposedly anti-business president has led an extremely pro-business recovery. The corporate community has recovered first, and best. The populist tone that conservative magazines and business groups decry is partly in reaction to this: As corporate America's position is getting better and better, the recovery is looking shakier and shakier. Unemployment is high. Housing looks perilously close to a double dip. Job growth is weak. And so businesses, for all their profits and capital, aren't hiring. The 71,000 jobs the private sector added in July aren't sufficient to keep up with population growth, much less cut into the ranks of the unemployed.

That is the catch-22 of the recovery: Businesses will start hiring when the economy recovers. And the economy will start to recover when businesses start hiring.

Read the rest...

By Dylan Matthews

With the Bush tax cuts due to expire soon and debates about raising top rates further to cut the budget deficit soon to follow, the Laffer curve is bound to come up again. The idea, popularized by economist Arthur Laffer and writer Jude Wanninski in the 1970s and '80s, is simple. Tax rates of zero percent produce no revenue, for obvious reasons. Rates of 100 percent should produce no revenue either, as no one would bother making the money that falls into that bracket knowing it would all be taken away. Thus, presumably, there is some rate in between the two that maximizes revenue. Go above it and revenue would fall because people would avoid taxes or stop working; go below it and revenue would fall because less money would be taxed.

I decided to ask some tax experts and political activists where, in the current personal income tax, and particularly in the top tax bracket, they think that Laffer curve peaks -- that is, what that revenue-maximizing rate is. The responses were varied, to say the least. Let's start with the experts.

Lately, Republicans have been shocked and appalled that Democrats are even considering arguments that could lead to them considering changes to the Senate's rulebook. At the same time, Republicans are planning to introduce no fewer than two major amendments to the United States Constitution. One would change the way the country grants citizenship. The other would remove Congress's discretion to run budget deficits and surpluses. And both these changes would be to the Constitution, which the Founders made very difficult to change, rather than to the Senate's rules, which they made very easy to change.

I think the word you're looking for here is "principled."

I'm very sympathetic to the idea that there should be more tax brackets as you travel higher and higher up the income scale. There's not an obviously good reason why someone who makes $30,000 and someone who makes $40,000 should be taxed at different rates, but someone who makes $400,000 and someone who makes $40,000,000 are in the same 35 percent bracket.

Well, I guess there is one good reason: The rich have better lobbyists than the poor. So I'm interested by James Surowiecki's -- and Matt Miller's -- argument that you could reshape the politics of taxes by cleaving this undifferentiated mass of wealthy earners who are currently all clustered in the same 35 percent bracket. It would be a lot easier to fight the super-rich than to fight the super-rich, the really rich, the pretty rich, and well-off. But when you're talking about raising the 35 percent bracket that affects everyone making more than $375,000, that's what you're talking about. If you were just creating a new bracket above $1,000,000, the politics might be a bit easier.

But not that much easier. Remember: We haven't even been able to close the hedge fund loophole.

Last week, John McCain and Tom Coburn put out a list of supposedly dumb projects that had been funded with stimulus dollars. A lot of the items focused on grants for scientific studies, as they can sound sort of funny when explained. But as Emily Badger demonstrates, things like studying ant colonies and the atmosphere around Venus only sound funny until you take a moment to understand why we're doing it (hints: global warming, antibiotic preservation, biodiversity).

To be more generous to the McCain/Coburn report than it probably deserves, its implicit attack is against the use of stimulus funds for projects that are aimed at long-term growth rather than short-term stimulus. Some of that isn't the fault of Democrats. Arlen Specter, then a Republican, demanded billions for the National Institutes of Health as a precondition for his vote. But the Democrats pushed some of these policies, too, with health IT, comparative effectiveness review, educational technology and other programs aimed at helping tomorrow's economy rather than stimulating today's.

The decision to push some long-term investments in the stimulus bill as a way to accelerate long-term growth never quite penetrated in the public discussion. As such, those policies, though defensible on their own terms, have provided an opening for Republicans who want to argue that the policy was badly designed.

Oh my:

MR. GREGORY: Leader Boehner, he puts it right to you.

REP. BOEHNER: The only way we're going to get our economy going again and solve our budget problems is to get the economy moving, get more people back to work where they can care for their own families and begin to expand the tax rolls to bring more revenue to the federal government. And what we have to do is we have to get our arms around the spending spree that's going on in Washington, D.C.

MR. GREGORY: But Leader Boehner...

REP. BOEHNER: That's the only way we solve the budget problems.

MR. GREGORY: ... I'm sorry, you're -- that -- you're not, you're not being responsive to a specific point, which is how can you be for cutting the deficit and also cutting taxes, as well, when they're not paid for?

REP. BOEHNER: Listen, you can't raise taxes in the middle of a weak economy without risking the double-dip in this recession. President Obama's favorite Republican economist, Mark Zandi, came out several weeks ago and made it clear that raising taxes at this point in, in the economy is a very bad idea.

MR. GREGORY: But do you agree that tax cuts cannot be paid for...

REP. BOEHNER: You cannot balance the budget without a...

MR. GREGORY: But tax cuts are not paid for, is that correct?

REP. BOEHNER: I am not for raising taxes on the American people in a soft economy.

MR. GREGORY: That's not the question, Leader Boehner. The question...

REP. BOEHNER: And the people that the president wants to tax...

MR. GREGORY: ...is, are tax cuts paid for or not?

REP. BOEHNER: Listen, what you're trying to do is get into this Washington game and their funny accounting over there. You cannot get the economy going again by raising taxes on those people who we expect to create jobs in America and to get the economy going again. If we want to solve the budget problem, we've got to have a healthy economy and we have to get our arms around the runaway spending that's going on in Washington, D.C.

MR. GREGORY: I just want to clarify this. I mean, if you -- I'm relying on what Chairman Greenspan said. Maybe -- if you're accusing him of funny Washington games. He says that tax cuts that aren't paid for are not -- they are not cutting the deficit, that they are not actually paid for, it's borrowed money. And so do you believe tax cuts pay for themselves or not?

REP. BOEHNER: I do believe that we've got to get more money in the hands of small businesses and American families to get our economy going again, and the only way to get that economy going again is to do that and to get our arms around the spending.

Photo credit: Bill Clark/Getty/Roll Call.

The history of the Soviet Union told through Tetris, and to the theme of Tetris.

The economics of a POW camp:

True, a prisoner is not dependent on his exertions for the provision of the necessaries, or even the luxuries of life, but through his economic activity, the exchange of goods and services, his standard of material comfort is considerably enhanced. And this is a serious matter to the prisoner: he is not "playing at shops" even though the small scale of the transactions and the simple expression of comfort and wants in terms of cigarettes and jam, razor blades and writing paper, make the urgency of those needs difficult to appreciate, even by an ex-prisoner of some three months' standing.

Nevertheless, it cannot be too strongly emphasized that economic activities do not bulk so large in prison society as they do in the larger world. There can be little production; as has been said the prisoner is independent of his exertions for the provision of the necessities and luxuries of life; the emphasis lies in exchange and the media of exchange.

Everyone receives a roughly equal share of essentials; it is by trade that individual preferences are given expression and comfort increased.