Oct. 20, 2013

Welcome to Wonkbook, Wonkblog’s morning policy news primer by Max Ehrenfreund (@MaxEhrenfreund). To subscribe by e-mail, click here. Send comments, criticism or ideas to Wonkbook at Washpost dot com. To read more by the Wonkblog team, click here. Follow us on Twitter and Facebook).

The wave of panic that knocked down international stock markets on Wednesday subsided by the end of the week, with equities recovering most of their lost value. But is the tide coming in?

If selling continues, it may be that investors are starting to buy the gloomy thesis of secular stagnation, according to which the world will struggle to avoid a long period of disappointing growth -- decades, or more. On this view, an aging global society, the end of a certain kind of technological innovation, a glut of saved-up cash moldering in banks worldwide, or some other combination of factors will hobble the economy for the foreseeable future. First it was Japan, next it will be Europe, and then it will be all of us.

Academic economists don't all buy into this theory, with one extremely notable exception. Larry Summers has argued that secular stagnation is on the way, and that there will be little central bankers can do to stop it. They'll do they most they can -- keeping interest rates at zero indefinitely, as they have been since the financial crisis, with the goal of discouraging people from saving money and encouraging them to borrow and spend.

If the global economy really is headed toward stagnation, then Janet Yellen and the Federal Reserve might have no choice but to keep interest rates there for a while longer, and maybe a little longer after that, and maybe even...

In a wry column on Saturday, Robert Shiller basically accuses Summers of giving investors Ebola (in a metaphorical sense, of course):

Fundamentally, stock markets are driven by popular narratives, which don’t need basis in solid fact. True or not, such stories may be described as “thought viruses.” When they are pernicious, they are analogous to the Ebola virus: They spread by contagion.

In other words, Summers hasn't convinced the academy, but he just might have won over the market. Shiller warns that Summers's pessimism about the economy could become a kind of self-fulfilling curse as squeamish investors pull back from the market, and less money trickles into the real economy.

If the stock market continues to wobble this week, that doesn't necessarily mean that Summers is right. It could just be that he's very persuasive. We won't know for years. In the meantime, the central bankers of the world, especially in Europe, must do everything in their power to prove him wrong.

What's in Wonkbook: 1). The outlook for the midterms 2). Opinions: Amazon, the economy and corruption 3). The Obama administration's Ebola push 4). In case you missed it.

Number of the day: 0. That's how many people with Ebola there are in Nigeria and Senegal, where the World Health Organization has declared the epidemic defeated.

Chart of the day: Poor college graduates have a 33 percent chance of ending up in the bottom two income quintiles. For the wealthy kids who drop out of high school, it's 51 percent. Matt O'Brien in The Washington Post.

Republican are favored to win control of the Senate. Most projections put the chances of a Republican victory at around seven in 10. The unanswered question is whether they're just getting lucky on the demographics in a few crucial states, or whether the electorate's mood is in their favor nationally. Nate Cohn in The New York Times.

If McConnell takes the gavel, look forward to debates on climate policy and health care. Republicans will try to force concessions from the administration on carbon dioxide regulation and Obamacare. David Leonhardt in The New York Times.

But the Senate isn't the real story: incumbent governors are in trouble like never before. Gubernatorial campaign spending is off the charts. Chris Cillizza, Aaron Blake and Sean Sullivan in The Washington Post.

After all, state and local politics shape American life in profound and invisible ways. On education, abortion, criminal law and housing, national office matters less. Matt Yglesias in Vox.

Meanwhile, the young have better things to do than vote. "Young people do care about politics: they just dislike it." The Economist.

KRUGMAN: Amazon has too much power. The online retailer's dominance is bad for the economy, as was the case with Standard Oil a century ago. The New York Times.

SHILLER: If investors show signs of nausea, they may have contracted a "thought virus." While there are reasons to be worried about the economy, predicting sustained global stagnation is going too far. The New York Times.

CROOK: Central banks have been playing a psychological game to reassure investors. What if investors are getting tired of playing along? (If anything, that's one more argument for central bankers to be as aggressive as they can, just in case the charm is wearing thin.) Bloomberg.

EL-ERIAN: The world needs a strategy to reduce inequality. Because wealthy households spend less and save more, an unequal economy is less dynamic. In Project Syndicate.

FRANK: We've given up the Founding Fathers' most important fight -- against money in politics. "Once upon a time, lobbying was regarded as obviously perfidious; in California it was a felony; and contracts to lobby were regarded as reprehensible by the Supreme Court..." A review of Zephyr Teachout's "Corruption in America." The New York Times.

THE FINANCIAL TIMES: Monetary policy can support global markets. There are reasons to be optimistic about the economy, including investors' optimistic response to statements by central bankers last week.

THE WALL STREET JOURNAL: Obamacare is failing to control costs. A program designed to replicate the successes of Kaiser Permanente and the Mayo Clinic has yielded mixed results in its first two years.

The Pentagon is assembling a team to respond when the next case is diagnosed in the United States. The group includes five military doctors, five trainers and 20 nurses.Paul Kane and Amy Ellis Nutt in The Washington Post.

And Obama named an Ebola czar on Friday. It's Ron Klain, former chief of staff to Vice President Joe Biden and a veteran of Democratic politics and policy. Carol Lee in The Wall Street Journal.

Klain is used to handling political crises. That's what the epidemic has become. Julie Hirschfeld Davis in The New York Times. 

That might not be enough for lawmakers who want a ban flights from West Africa. Sens. Cruz, McConnell and Rubio are all on the list, which includes dozens of Republicans and a handful of Democrats. The staff of The Hill.

The problem with a flight ban is that most passengers coming from West Africa would probably fly through another airport. There aren't many direct flights from Nigeria and Ghana to the United States, and it would be difficult to track passengers changing planes in Europe and the Middle East. Nate Silver in Five Thirty Eight.

A ban would also make it harder to control the epidemic in West Africa. Crucial personnel are relying on commercial flights to get in and out of the region -- and if the epidemic continues to spread, the odds comes here increase in the long-term. Jonathan Cohn in The New Republic.

KLEIN: Obama picked his Ebola czar wisely. The man knows "how to run an interagency process," a rare skill and exactly the one that the administration needs right now. In Vox.

In Houston, builders are using armed guards to prevent poachers from stealing their workers,according to the Fed's Beige Book. Sarah Portluck in The Wall Street Journal.

That's one more example of how far firms will go just to avoid giving their employees a raise. Jared Bernstein in The Washington Post.

BTW, this is not how capitalism is supposed to work. Matt O'Brien in The Washington Post.

Turkey will allow the Kurds to reinforce Kobani, the Syrian border city besieged by the Islamic State. Reuters.

IBRAHIM KALIN: The West doesn't have a real plan in Syria, which is why the Turks don't want to get involved. Probably fair. The Wall Street Journal.

The administration is filling senior technology positions with former Google employees. Not everyone is happy about the company's expanding influence in Washington. Nancy Scola in The Washington Post.

Chalk up one more for TARP. The treasury has almost completely sold its stake in Ally Financial, the last major company with bailout money, at a tidy profit of 6.4 percent. Ryan Tracey and Andrew Johnson in The Wall Street Journal.

Marijuana legalization in Colorado and Washington is making the world a better place. The example of those two states is an excuse for Latin American countries to consider reforms.Christopher Ingraham in The Washington Post.

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