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This number is the reason Republicans will end the shutdown

Ezra Klein's Wonkbook

Oct. 15, 2013

Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

According to the latest Washington Post/ABC News poll 74 percent of Americans disapprove of how the Republicans are handling the budget negotiations. That's three-out-of-four Americans.

Numbers like that shouldn't happen on highly visible issues in a competitive, two-party system. But when they do happen they can't go on for very long.

Republicans know they need a way out. In the Senate, Harry Reid and Mitch McConnell may have found one. Their deal would fund the government until January 15th and raise the debt ceiling until February 7th.

The deal would also create a bicameral budget committee that will report back by December 13th, and it delays Obamacare's reinsurance fee (more on that here) and strengthens the law's income verification procedures.

The thing about these concessions is that none of them is actually a concession -- for either party. Democrats have been begging for a budget conference for six months, and in recent weeks, Republicans began begging for one too. The reinsurance fee doesn't matter much to Obamacare and organized labor has been begging Democrats to get rid of it. The income verification is already in Obamacare, but the Obama administration was lagging on it.

"Democrats won't say it too loudly just yet, but the emerging budget agreement leaves Republicans with remarkably little to show for forcing the first government shutdown in 17 years," writes Politico's Carrie Budoff Brown. "They barely nicked Obamacare and their poll numbers are in tank."

There's a reason for that, though: Republicans never had the leverage necessary to get a better deal. In 2011, they did have leverage. They had won the last election. Both sides agreed they had a mandate for spending cuts. The mistake Republicans made was thinking that what worked from them in 2011 was simply the hostage taking. What worked for them in 2011 was winning in 2010. What made 2013 impossible was that they'd lost in 2012.

But Republicans should feel good about one thing: This process has been a reminder of how powerful that 2011 deal was and remains for them. Democrats are agreeing to fund the government at a level far beneath what they consider acceptable. Over the weekend, it became clear that Democrats are genuinely worried about sequestration's 2014 cuts, which trigger on January 15th (the Senate deal is designed so the government funding runs out just as the new cuts trigger -- which is to say, it's timed to make the next fight a fight over sequestration).

As Grover Norquist told me, with his characteristic understatement, "Sequester is the big win. It defines the decade." A decade is a long time. But sequestration definitely defines the coming spending clashes, and in terms of spending levels (though not spending priorities), it defines them on Republican terms.

The question now is whether the House can pass the Senate's deal -- and, if they can't, how quickly the resulting game of legislative ping-pong can be played. It may not seem possible for Republicans to push their disapproval higher than 74 percent. But if House Republicans cause an 800 point drop in the stock market by rejecting a deal Senate Republicans have signed off on and breaching the debt ceiling they may come to look back on 74 percent fondly.

Wonkbook's Number of the Day: 35,000 and 100,000. Those are the numbers of people who have signed up and completed applications for health plans in state insurance exchanges.

Wonkbook's Graph of the Day: What really decided the 2012 election, in 10 graphs.

Wonkbook's Top 5 Stories: 1) Senate deal would end the shutdown and raise the debt ceiling; 2) the mess at HHS; 3) knowledge from the Nobelists; 4) the never-ending NSA dump; and 5) EPA may cut biofuel mandate.

1) Top story: The end of the shutdown?

Senate leaders within striking distance of deal to end shutdown, raise debt limit. "Senate leaders said late Monday that they were closing in on a deal to raise the federal debt limit and end the two-week-old government shutdown, just days before the Treasury Department exhausts its ability to borrow. The emerging agreement would extend the Treasury Department's borrowing authority until Feb. 7, reopen the government and fund federal agencies through mid-January, according to aides and lawmakers familiar with the negotiations. In the meantime, policymakers would launch a new round of talks over broader budget issues in hopes of developing a plan to replace deep automatic spending cuts known as the sequester before Jan. 15...The framework under consideration includes only minor changes to President Obama's signature health-care law, falling well short of defunding it or delaying major provisions as conservative Republicans initially sought. Instead, Republicans would get only new safeguards to ensure that people who receive federal subsidies to purchase health insurance under the law are eligible to receive them." Lori Montgomery and Rosalind S. Helderman in The Washington Post.

The Senate's deal to end the shutdown is a deal to fight over sequestration. "The outline of the emerging Senate deal is this: The government is funded until Jan. 15. The debt ceiling is lifted until Feb. 7. There are a handful of small Affordable Care Act changes: Stronger income verification, which Republicans want, and a one-year delay on the reinsurance tax, which Democrats want. Oh, and there's a bicameral budget committee that needs to report back by Dec. 13. The timing of all this is designed to create a fight about sequestration. The Jan. 15 deadline means funding for the federal government runs out at the exact moment sequestration's deeper cuts kick in. The Dec. 13 deadline means that the full House and Senate would have time to consider any package of recommendations the bicameral committee comes up with, if the committee actually manages to come up with anything." Ezra Klein in The Washington Post.

Another poll shows Republicans losing the budget showdown. "When The Washington Post polled the public on how the Republicans were handling budget negotiations on Sept. 29 -- the eve of the shutdown -- the numbers already looked pretty bad for the GOP: 26 percent approved and 63 percent disapproved. Now they're even worse: 21 percent approve and 74 percent disapprove. Those numbers are barely even comprehensible in a competitive, two-party political system. I'd say the GOP's numbers can't fall much farther, but then I never thought they could fall this far to begin with" Ezra Klein in The Washington Post.

How the medical-device industry won. "Reps. Ron Kind (D-Wis.), Erik Paulsen (R-Minn.) and Jim Matheson (D-Utah) are among the lawmakers urging their colleagues to end the shutdown stalemate by ditching the new levy, created in 2010 as part of Obamacare. They also are among the top 12 House recipients of campaign cash from the medical supplies manufacturing industry, which is spending millions each year lobbying for repeal of the tax on items like pacemakers and X-ray machines, estimated to raise $30 billion over a decade." Rachael Bade in Politico.

@SuzyKhimm: If Congress can't come to a 2014 budget agreement in Dec, they can pass another 2 month CR & we can have CR/debt ceiling all over again #yay

...More on the medical-device tax. "The reason the lobbying effort has been so successful is that there are a lot of medical device companies in this country, and they're spread out across a lot of states and a lot of cities, and that's given them pull with a lot of different members of Congress. The other reason the medical device tax is weak is it hits a very specific, very organized industry that can mount a very aggressive, and reasonably persuasive, campaign against it." Ezra Klein in The Washington Post.

...But Congress might end up delaying a different tax. "Senate Republicans and Democrats are discussing a one-year delay of a different tax as part of a deal: The Transitional Reinsurance Fee...'s a temporary fee that is supposed to be imposed on most private health insurance plans for three years, from 2014 to 2016. In 2014, the fee would be $63 per insured person, a cost that will likely be passed on as higher insurance premiums. The fee has a specific purpose: It supports reinsurance funds that will compensate insurers that sell health plans to people who are disproportionately sick." Josh Barro in Business Insider.

@yeselon: Can any of reporters covering emerging deal closely explain why debt ceiling is revisited in less than four months? Who wanted this and why?

Hitting the debt ceiling would be terrible even if we didn't default. "Yes, it's possible that the Treasury Department could avoid an outright default on debt payments if the borrowing limit isn't increased before Oct. 17 -- though this is far from certain. But a failure to raise the debt ceiling would still be highly disruptive even if we don't default, raising the possibility of delayed Social Security checks and economic havoc." Brad Plumer in The Washington Post.

Investors are dumping Treasuries. "In the past two weeks, investors have sold mountains of short-term debt issued by the government. Banks have also reduced their holdings, trimming such debt by more than 50% over that period, according to data from the Federal Reserve Bank of New York. Amid anxiety about near-term finances, yields on U.S. debt that comes due in one month have risen to levels higher than for similar securities that don't mature for six months...Units of Boston-based bank State Street Corp. have been discussing which Treasury bills--or debt securities maturing in a year or less--it may restrict as collateral for loans and trades, according to a person familiar with the matter" Min Zeng in The Wall Street Journal.

The rest of the world can't understand why we're doing this to ourselves. "To the rest of the world, the United States looks insane right now. They're dealing with real problems that their political systems are struggling to solve. The United States' political system is creating fake problems that it may choose to leave unsolved...At best, the United States is slowing its recovery -- and that of the rest of the world. At worst, it's going to trigger another global crisis. That's why, Gurria says, his concern isn't that the United States' economy is weak, but that its political system is." Ezra Klein in The Washington Post.

@samsteinhp: Shutdown has cost the economy $4.2 billion so far. fyi

...And the shutdown makes it all the way to Antarctica. "The research season in Antarctica typically starts around now, when things warm up enough to be merely frigid and scientists from around the world flock far south to conduct studies that affect our understanding of climate change, volcanoes, the family life of Weddell seals and much more. But with the United States government partly shut down, federally financed research has come to a halt for Dr. Levy and hundreds of other Americans. Even if a budget deal is struck, these scientists will have less time on the ice, and some will lose a full year's worth of work as the narrow window of productive time closes." John Schwartz in The New York Times.

Interview: How big business lost the Republican Party. Lydia DePillis in The Washington Post.

The political consequences of the shutdown? Who knows. "First, it isn't like the public approves of his handling of the budget negotiations either -- in the new Post/ABC poll 53 percent disapprove, a slight but not statistically significant increase from two weeks ago. Second, Gallup's tracking polls suggest that his overall approval rating has declined...Thanks to Scott Clement of the Post's polling unit, I got some more detailed information about how approval breaks down among party lines. Assuming that the fraction of independents who lean Republican is what Gallup's data suggests, and assuming that Republican-leaning independents have attitudes similar to Republicans (a decent assumption), the Post's numbers suggest this: if Republicans and Republican-leaning independents in the electorate approved of congressional Republicans as much as Democrats approve of Obama (71% do), congressional Republicans would be no less popular than congressional Democrats are." John Sides in The Washington Post.

Debate: Is America a good investment? Wonkblog in The Washington Post.

YGLESIAS: Repeal the debt ceiling. "[T]here is one way in which Obama could make some concessions to Republicans without engendering endless rounds of debt ceiling brinkmanship, and that's if Republicans get over their ignorant aversion to authorizing government borrowing and offer a deal that eliminates the debt ceiling once and forever...The debt ceiling is the legislative equivalent of an infected appendix--an aspect of the political system that no longer has any constructive role to play in the governance of the nation but can nonetheless cause trouble. " Matthew Yglesias in Slate.

SUNSTEIN: Obama and Boehner find strength in weakness. "Thomas Schelling, the recipient of the 2005 Nobel Memorial Prize in Economic Sciences, wrote the book on this topic. Speaking of those who represent workers in a labor-management dispute, Schelling drew attention to the strategic benefits of powerlessness on the part of labor's representatives. If the workers are themselves intransigent, their representatives may be able to obtain an excellent deal "because they no longer control the members or because they would lose their own positions if they tried."" Cass R. Sunstein in Bloomberg.

@RyanLizza: Ending how most predicted: cons force shutdown>public support collapses>O doesn't negotiate until he does>Sen deal w/figleaf>Boehner jammed.

MACGILLIS: One big fat gift to K-Street. "It's awfully telling that it's come down to this bargaining chip. I've spent plenty of time over the past few years talking with people at the conservative grass roots, and am pretty sure that none of them broached as one of their burning issues the plight of big medical device manufacturers." Alec MacGillis in The New Republic.

SALMON: The default has already begun. "The best way to look at this, I think, is that there's a spectrum of default severities. At one end, you have the outright repudiation of sovereign debt, a la Ecuador in 2008; at the other end, you have the sequester, which involves telling a large number of government employees that the resources which were promised them will not, in fact, arrive. Both of them involve the government going back on its promises, but some promises are far more binding, and far more important, than others." Felix Salmon in Reuters.

BARTLETT: For some hardliners, default is the goal. "In his 1987 essay, "The Ethics of Debt Default," Buchanan made an argument often repeated by libertarians and Tea Party members: if the Treasury were to default, no one would ever lend it money again, thus imposing a balanced budget; the government could only spend as much as tax revenue permitted." Bruce Bartlett in The New York Times.

Music recommendations interlude: M. Ward, "Never Had Nobody Like You."

Top opinion

STEPHENS: Nobels and national greatness. "A better metric for greatness is the ability of nations to produce, cultivate, attract and retain intellectual greatness. What is the ratio of Nobel laureates living in any one country to the total population...Since 2000, Americans have won 21 of the 37 physics prizes, 18 of the 33 medicine prizes, 22 of the 33 chemistry prizes and an astonishing 27 of the 30 economics prizes. Pretty impressive considering our nonstop anxiety about failing schools, mediocre international test scores, undergrads not majoring in math or the sciences, and the rest." Bret Stephens in The Wall Street Journal.

HOLDEN AND WOLFERS: In the Nobel, both the wisdom and madness of crowds. "Eugene Fama is the intellectual godfather of the view that financial markets are efficient, while no one has done more than Robert Shiller to highlight their inefficiencies. Lars Peter Hansen developed statistical techniques that both sides have used to help resolve their differences. The central issue is whether the prices of stocks, bonds and other financial assets reflect the workings of a well-functioning market. That is, do financial prices reflect the wisdom of crowds, or do they mirror popular delusions? The answer determines whether you should try to beat the stock market, whether the Federal Reserve should respond to rising housing prices, and how the U.S. should regulate financial markets." Richard Holden and Justin Wolfers in Bloomberg.

MATTHEW C. KLEIN: What Fama and Shiller didn't teach us about finance. "[W]hile Fama and Shiller may seem to offer contradictory insights, both men have more in common with each other than either does with the newer brand of finance researchers. That's because both economists agree that asset prices reflect investor expectations. Their disagreements boil down to differing views about the sources of those expectations...There is a newer generation of researchers, however, that recognizes the importance of expectations but also looks at other real-world factors determining asset prices, such as the structure of financial markets. Andrei Shleifer and Robert Vishny, wrote a crucial paper in 1997 explaining that smart traders can't bet against bubbles if they have to endure margin calls, for example." Matthew C. Klein in Bloomberg.

YERGIN: Why OPEC no longer calls the shots. "A lasting lesson of the crisis years is the power of markets and their ability to adjust to disruptions, if government allows them to. The iconic images of the 1970s--gas lines and angry motorists--are trotted out whenever some new disruption happens. Yet those gas lines weren't the result of markets...The 1970s were also years of natural-gas shortages, which turned into a bitter political issue, particularly within the Democratic Party. Many at the time attributed these shortages to geology, but they too were the result of regulation and price controls...The real lesson of the shock of 1973 and the second oil shock set off by the overthrow of Iran's shah in 1979 is that they provided incentives--and imperatives--to develop new resources" Daniel Yergin in The Wall Street Journal.

SWAGEL: Obamacare's hurdles. "With the main provisions of the Affordable Care Act kicking in only in 2014 and the health insurance and health care industries adjusting to it for some time, it will take years for a proper evaluation of the law's overall impact on the economy. The question is whether the objective of helping many people to obtain insurance coverage can be accomplished at a cost that is acceptable to society, both in terms of the cost to taxpayers who ultimately will pay and the possible effects of slower economic growth from those taxes and other distortions introduced in the law." Phillip Swagel in The New York Times.

LEE: How the Tea Party broke the Constitution. "Tea Partiers are the most enthusiastic advocates of America's system of government, with its divided powers, checks and balances and representative government. So it's ironic that their innovative organizing techniques have revealed a major weakness in America's system of government...The tea party's rapid-response activism and the constant threat of primary challenges has made it difficult for Republican members of Congress to exercise the kind of independent judgement the Founders envisioned. That is producing a kind of slow-motion constitutional crisis, as our elected leaders find it harder and harder to reach the compromises necessary to keep the system functioning." Timothy B. Lee in The Washington Post.

PONNURU: Yellen shouldn't apologize for helping Wall Street. "[One] criticism that Yellen may face seems to have more evidence going for it: that the Fed's loose policies have boosted the stock market rather than the economy...The most important argument she should make is that the steps the Fed has taken to loosen money have, in fact, helped the economy.... In a depressed economy, though, the market starts rooting for looser money because it alleviates the depression. If that's right, then the conflict between Wall Street and Main Street that the Fed's critics posit doesn't really exist: Looser money lifts real asset values -- including the real value of stocks -- when it increases expectations of future economic growth." Ramesh Ponnuru in Bloomberg.

Trying this at home interlude: 3 minutes to a proper British dialect with a theater master.

2) The mess at HHS

State health-insurance exchanges gain traction. "At least 38,000 people have signed up for new health plans in the state-run insurance exchanges that opened Oct. 1, while more than 100,000 have completed applications and are close to finishing the process, according to state data. The data, tabulated by The Wall Street Journal, provide an early but incomplete glimpse of how the centerpiece of President Barack Obama's health law is faring. They show that health-law supporters are still a long way off from making a significant dent in the nation's uninsured population, but suggest that the prospect of buying insurance without being asked about medical history has drawn considerable interest across the nation. The data come from the 14 states that are running their own insurance exchanges, where consumers can shop for coverage." Amy Schatz in The Wall Street Journal.

...But the federal Obamacare launch? A disaster. "So far, the Affordable Care Act's launch has been a failure. Not "troubled." Not "glitchy." A failure. But "so far" only encompasses 14 days. The hard question is whether the launch will still be floundering on day 30, and on day 45...In the weeks leading up to the launch I heard some very ugly things about how the system was performing when transferring data to insurers -- a necessary step if people are actually going to get insurance." Ezra Klein in The Washington Post.

Beneficiaries of Medicare left confused by exchanges. "Medicare beneficiaries can sign up for private health plans starting Tuesday, but federal officials fear that many of them, out of confusion, might go to the new federal insurance exchange...In fact, people with Medicare generally cannot buy insurance through the exchange. Policies sold there duplicate many benefits provided by Medicare, and it is illegal for insurance companies, agents and brokers to sell such polices to people known to have Medicare, federal officials said Monday." Robert Pear in The New York Times.

Movie buffs alert interlude: The trailer for Wes Anderson's next movie comes out tomorrow. In the meantime, here's the poster for it, "Grand Budapest Hotel."

3) What you need to know about the Nobel winners

Eugene Fama, Lars Hansen, and Robert Shiller pick up the 2013 economics Nobel. "Fama and Shiller are considered direct opposites in their views of how markets sort out the prices of financial assets. Fama, 74, is a father of the "efficient markets hypothesis," the idea that because markets are very good at incorporating all known information about the value of an asset, it can be a fool's errand to try to predict in what direction the price of a stock or bond will go. Shiller is a leading proponent of the idea that markets, driven as they are by human psychology, can create large and sustained mispricings, such as in the late 1990s when excessive optimism drove the stock market into bubble territory. He is a student of "behavioral economics," the study of how quirks in human psychology can create results that traditional economic theory would not predict. With the joint award, the Nobel committee was in effect fusing those competing schools of thought into a unified theory to recognize what economists now understand about where asset prices come from" Neil Irwin in The Washington Post.

A slowdown on the road to recovery. "One in nine of the country's 607,380 bridges is structurally deficient and 42% of the country's major urban highways are congested, according to an American Society of Civil Engineers estimate, the result of years of inadequate funding and deferred maintenance. Trucks ship the bulk of the country's goods. But trucking companies and their customers complain those shipments are being rerouted--sometimes by hundreds of miles--or traveling at lower speeds over deteriorating or traffic-clogged highways. That causes higher costs for fuel, maintenance and other expenses, including drivers...Inadequate surface transportation is projected to cost U.S. businesses $430 billion more in operating expenses by 2020 and cause $1.7 trillion in lost sales opportunities, according to the ASCE." Bob Tita in The Wall Street Journal.

Women don't commit as much corporate crime as men. "Just nine percent of those who commit major corporate fraud are women, according to a recent study published in the American Sociological Review. And when they team up with men to commit the fraud, they reap less of a profit than their male co-conspirators...Even if women had equal opportunities to commit a serious corporate crime, they are less likely to take risks for economic gain, according to the study." Dina ElBoghdady in The Washington Post.

History interlude: Electronic music's grandaddy.

4) Only thing deeper than NSA data trove, apparently, is the potential for stories about it

NSA collects millions of e-mail address books globally. "The National Security Agency is harvesting hundreds of millions of contact lists from personal e-mail and instant messaging accounts around the world, many of them belonging to Americans, according to senior intelligence officials and top-secret documents provided by former NSA contractor Edward Snowden. The collection program, which has not been disclosed before, intercepts e-mail address books and "buddy lists" from instant messaging services as they move across global data links. Online services often transmit those contacts when a user logs on, composes a message, or synchronizes a computer or mobile device with information stored on remote servers. Rather than targeting individual users, the NSA is gathering contact lists in large numbers that amount to a sizable fraction of the world's e-mail and instant messaging accounts. Analysis of that data enables the agency to search for hidden connections and to map relationships within a much smaller universe of foreign intelligence targets." Barton Gellman and Ashkan Soltani in The Washington Post.

Primary sources: The NSA's problem? Too much data. How the NSA collects less data. An excerpt from the NSA's Wikipedia. The Washington Post.

Sen. Wyden is trying to tell us something about the opinion justifying the phone records program. ""The original legal interpretation that said that the Patriot Act could be used to collect Americans' records in bulk should never have been kept secret and should be declassified and released," Sen. Ron Wyden (D-Ore.) said in a statement to The Washington Post. "This collection has been ongoing for years and the public should be able to compare the legal interpretation under which it was originally authorized with more recent documents." That last part suggests that there are some meaningful differences between what has been disclosed so far and the full story." Andrea Peterson in The Washington Post.

Yahoo to make SSL encryption the default for Webmail users. Finally. "Beginning Jan. 8, Yahoo will enable encryption by default for users logging into its Web-based mail service, the company has told The Washington Post. "Yahoo takes the security of our users very seriously," the company said in an e-mailed statement. Yahoo began offering users the option to use the SSL encryption standard earlier this year. The option "encrypts your mail as it moves between your browser and Yahoo's servers," according to the company." Andrea Peterson, Barton Gellman, and Ashkan Soltani in The Washington Post.

Science interlude: How to get smarter, more interesting than you think.

5) EPA may cut biofuel mandate

Leaked proposal shows big cut to biofuels mandate. "A precipitous decline in the market for US ethanol credits accelerated after a leaked proposal showed Washington examining deep cuts to its biofuels mandate. Renewable Identification Numbers, or Rins, traded at about 32 cents per gallon early on Monday, down 25 per cent from last week...In leaked documents, the US Environmental Protection Agency outlined a plan to require only 13bn gallons of corn ethanol use next year, well below the 14.4bn dictated by law. This would let oil refiners purchase fewer Rins." Gregory Meyer in The Financial Times.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

The economics Nobel goes to: Eugene Fama, Lars Hansen and Robert Shiller. Neil Irwin.

What really decided the 2012 election, in 10 graphs. John Sides and Lynn Vavreck.

The rest of the world can't understand why we're doing this to ourselves. Ezra Klein.

Women don't commit as much corporate crime as men. Dina ElBoghdady.

How the Tea Party broke the Constitution. Timothy B. Lee.

Five thoughts on the Obamacare disaster. Ezra Klein.

This is why the medical device tax is in so much trouble. Ezra Klein.

Another poll shows Republicans losing the budget showdown. Ezra Klein.

Hitting the debt ceiling would be terrible even if we didn't default. Brad Plumer.

The Senate's deal to end the shutdown is a deal to fight over sequestration. Ezra Klein.