Bipartisan

These comments have been the occasion for much wailing and gnashing of teeth, as if anyone, anywhere, believed that the Republicans’ 2011 debt-ceiling antics were some sort of one-off. But Boehner was clear on Tuesday. “I will again insist on my simple principle of cuts and reforms greater than the debt limit increase,” he said.

Of course he will. For one thing, it worked well for him in 2011. Republicans got more than $900 billion in immediate spending cuts, as well as $1.2 trillion in triggered spending cuts — though they don’t much like the $500 billion or so of those cuts scheduled to fall on the Pentagon. They also drove President Obama’s approval ratings beneath 40 percent. And while I’m not one who thinks Republicans intentionally tank the economy to undermine Obama, there’s little doubt that the effect of the debt-ceiling debacle was to set back the recovery, brightening Republican prospects and darkening Democratic ones. The fact is that it’s easier to be sanguine about economic showdowns when you’re not the ones in charge.

For another, it’s Boehner’s only option in 2012. The Democrats, for once, have nothing but fiscal leverage. They’ve got the expiration of the Bush tax cuts, which all Republicans would hate and many Democrats would welcome. They’ve got the aforementioned spending trigger, which Republicans really have begun to fear for its cuts to defense spending. They can do nothing — or, more likely, offer Republicans a deal they can’t accept — and the resulting paralysis will swing fiscal policy far, far, far to the left. Threatening to default on the national debt is Boehner’s only piece of counter-leverage.

So of course Boehner will try and use the debt ceiling as leverage again. And again. And again. It’s pretty clear that, at this point, there’s no going back to the time when debt-ceiling increases came smoothly. If I were the market, I’d take the fact that the leader of one of the two parties has publicly said that he “welcomes” debt-ceiling showdowns as evidence that the United States is almost certain to default on its debt — if only temporarily — within the next decade or so.

The question is what, aside from complain, Democrats and the business community will do to stop him. Somehow, the debt ceiling needs to be taken off the table once and for all, either because Republicans forced a default in a way that they were blamed for the consequences and scared into never doing it again or because the president successfully pulled off one of the more creative maneuvers suggested during last year’s showdown (Bill Clinton, for instance, argued that Obama should invoke the Fourteenth Amendment — which says “the validity of the public debt of the United States … shall not be questioned” — to raise the debt ceiling unilaterally).

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Top stories

1) Boehner threatened another debt-mageddon “Washington braced Tuesday for a replay of last summeras tense battle over the burgeoning national debt as House Speaker John A. Boehner threatened again to block an increase in the federal debt ceiling without significant new cuts in spending. Treasury Secretary Timothy F. Geithner and other senior Democrats quickly blasted the Ohio Republican, arguing that his ultimatum could put the nationas credit rating — and the broader economy — at risk early next year, when the debt is expected to hit its $16.4 trillion limit.” Lori Montgomery in The Washington Post.

@damianpaletta: Boehner’s debt ceiling “line in the sand” is very similar to what he said last year; Definitely got the attention of White House and D’s

@ObsoleteDogma: Shorter Boehner: Regulatory uncertainty is bad. But default uncertainty is good.

INTERVIEW: Sen. Tom Coburn on defusing the debt bomb.

READ: Mitt Romneyas remarks on the debt.

@MichaelSLinden: As a fiscal policy analyst, I’d like to thank Mitt Romney for offering no specifics whatsoever so I can go home at a normal time tonight.

2) Greece failed to form a new government, triggering new elections. “The threat of a full economic collapse in Greece escalated Tuesday after warring political factions here failed to forge a new government, triggering fresh elections and heightening chances that this rudderless Mediterranean nation could be forced to abandon the euro…A nation in danger of running out of cash to operate the government, and where fearful residents in recent days have been rapidly withdrawing more of their savings from Greek banks, faces uncertain new elections next month. Opinion surveys have shown that Syriza, a party that wants to break the terms of Greeceas bailout deal and that came in a surprise second in the last vote, is polling in first place…European finance ministers — whose taxpayers have largely funded the bailout for Greece — were quick to push back Tuesday. Given the potential shock waves if Greece is forced to leave the euro zone, there have been suggestions in recent days that European officials might show more lenience with Athens.” Anthony Faiola in The Washington Post.

Surging bank withdrawals in Greece sparked fears of a bank run. “Greek depositors withdrew a!700 million ($898 million) from the country’s banks on Monday, fueling fears of a bank run amid the growing political disarray. With deposits falling, Greek banks become even more dependent on the European Central Bank to meet their funding needs, exposing the central bank to potentially huge losses if Greece leaves the euro area. Greek President Karolos Papoulias told the country’s political leaders that bank withdrawals plus buy orders received by Greek banks for German bunds totaled some a!800 million on Monday, a transcript of his comments said. A central bank official confirmed the figures…Monday’s deposit withdrawal far outpaced Greek banks’ steady decline in deposits since the start of the country’s debt crisis in 2009, as depositors withdraw cash and transfer funds overseas.” Brian Blackstone and David Enrich in The Wall Street Journal.

@grossdm: So, Greece is seeking to solves its economic problems through QE — quantitative electioneering

3) The Senate will vote on several GOP budget proposals today. “The Senate on Wednesday will hold six hours of debate and votes on four different Republican budget resolutions, in an apparent attempt to demonstrate that they will not be supported in the Democratic-led Senate. A fifth budget measure up for a vote, from Senate Budget Committee ranking member Jeff Sessions (R-Ala.), is based on President Obama’s budget and is seen as an attempt to embarrass the White House. But Senate Budget Committee Chairman Kent Conrad (D-N.D.) said Tuesday that debate and votes on the GOP proposals would show there is little appetite for these plans. He also said it would give the country a chance to understand that last year’s Budget Control Act already sets spending caps for Congress. Democrats have been under fire for failing to pass any budget resolution…One of the four GOP budget resolutions to be debated Wednesday is H.Con.Res. 112, the budget resolution approved by the House in March.” Pete Kasperowicz in The Hill.

4) The Justice Department started a criminal probe into JPMorgan Chase’s loss. “The Justice Department has initiated a criminal probe into the $2 billion trading loss at JPMorgan Chase, a law enforcement representative familiar with the situation said Tuesday. The inquiry is at a very early stage, said the person, who spoke on the condition of anonymity because the matter is private. Many details about the loss at JPMorgan are murky, so it is unclear what laws, if any, may have been violated. But the attention from federal officials indicates that regulatory pressure is rising on JPMorgan, and its chief executive Jamie Dimon, to explain what exactly led to the bankas multi-billion dollar misstep. That, in turn, has rekindled questions about whether government regulators are equipped to monitor banks making risky, complex trades…Dean Boyd, a Justice spokesman, declined to comment.” Jia Lynn Yang and Sari Horwitz in The Washington Post.

Too big to fail banks have gotten bigger. “JPMorgan Chaseas $2 billion blunder is throwing the spotlight on an awkward truth for President Barack Obamaas promise to end the era of big bank bailouts: The same institutions that were deemed ‘too big to fail’ before the financial collapse are even bigger now. Efforts to manage the size of such institutions were at the heart of the Dodd-Frank financial law passed in July 2010. But nearly two years later, many of the lawas regulations remain in limbo, as federal agencies muddle through long rule-making processes against stiff industry opposition…All the while, the countryas biggest financial institutions continue to grow. The five largest, which controlled $6.1 trillion in assets before the collapse, by the end of 2011 had assets worth $8.5 trillion — equal to more than half of U.S. economic output, according to Federal Reserve data.” Patrick Reis in Politico.

@BCAppelbaum: This whole JPM story underscores one reason we don’t have effective financial regulation: Our public officials don’t understand finance.

Top op-eds

1) PORTER: It’s time for the euro to come to an end. “Social upheaval across the euro area suggests that it may be time to call it quits and try to work out an orderly process to re-establish national currencies throughout the bloc. Europe would be in much better shape if the euro didnat exist and each member country had its own currency. Monetary union has shackled together nations with vastly different economies, depriving them of an independent monetary policy that can help them through rough times. The interest rate and exchange rate that serve Germany also have to serve Spain, though that country has more than four times Germanyas joblessness. The main problem is that while leaders eagerly embraced the monetary bond, they rejected its necessary complement: a central budget that would transfer money from successful regions to underperforming ones, as the United States government sends tax dollars collected in Massachusetts to pay for unemployment benefits in Nevada.” Eduardo Porter in The New York Times.

2) FROST: The FDIC shouldn’t protect investment banks. “I suggest that we divide the two functions into separately owned, managed and regulated entities. That’s the only way we can ensure that their riskier businesses don’t undermine the insured deposits that are the foundation of a stable and healthy economy. Taxpayer safety-net programs, such as the Federal Deposit Insurance Corporation (FDIC), should be available only to banks in business to provide insured deposits. Financial institutions that provide primarily investment, hedging and speculative services don’t deserve protection either by the FDIC’s explicit guarantees or by an implicit understanding that taxpayers will bail them out because there is no other alternative. Indeed, this kind of protection is a perversion of capitalism and can distort its good outcomes…We need a real and impregnable firewall that keeps one part of the banking system–and the economy–from being consumed when the other goes into flames.” Tom Frost in The Wall Street Journal.

3) ROSEN: Competitive bidding can hurt patients. “On the face of it, competitive bidding sounds like a very good idea. If one supplier can provide power wheelchairs or oxygen masks for 30 percent less than another, itas hard to argue for contracting with the more expensive supplier, especially at a time when everyone is looking for ways to save money. A one-year experiment with expanded competitive bidding that was recently conducted by Medicare yielded cost savings of 42 percent, without reducing the quality of care, and was hailed as a great success. But as a doctor working with patients on the ground, I have doubts about that quality-of-care measure, and I worry that those savings obscure a potentially serious problem…If competitive bidding is predicated on supplying equipment at the lowest possible price, something has to give. And more likely than not, that something will be patient care.” Dennis Rosen in The New York Times.

4) ORSZAG: Want good news on jobs? Look to big businesses. “Big business, we keep being told, has been so hampered by regulatory uncertainty over the past few years, it has been reluctant to hire workers. So it is surprising to read the results of a little-known survey from the Bureau of Labor Statistics: Very large businesses, it turns out, have been expanding their domestic workforces relatively rapidly. If, since January 2011, businesses of all sizes had hired at the same rate as those with 5,000 or more employees, we would have almost 4 million more jobs today…The JOLTS data highlight the importance of exploring how the continuing deleveraging process and resultant sluggish growth in demand is affecting smaller businesses in particular. With the percentage of working Americans stuck at a depressed level, we sure could use those extra 2 million to 4 million jobs.” Peter Orszag in Bloomberg.

5) ALEXANDER: Washington should take over Medicaid and let states handle education. “Staring down steep tuition hikes, students at the University of California have taken to carrying picket signs. As far as I can tell, though, none has demanded that President Barack Obama accept a Grand Swap that could protect their education while saving them money. Allow me to explain. When I was governor of Tennessee in the early 1980s, I traveled to meet with President Ronald Reagan in the Oval Office and offer that Grand Swap: Medicaid for K-12 education. The federal government would take over 100% of Medicaid, the federal health-care program mainly for low-income Americans, and states would assume all responsibility for the nation’s 100,000 public schools…If we had made that swap…states would have about $92 billion a year in extra funds, as they’d keep the $149 billion they’re now spending on Medicaid and give back to Washington the $57 billion that the federal government spends per year on schools.” Lamar Alexander in The Wall Street Journal.

Cover interlude: Screaming Females play Sheryl Crow’s “If It Makes You Happy” for the AV Club.

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

Still to come: Free trade with Colombia is in effect; Catholic bishops are close to suing over birth control; backlash against tests is growing; energy independence is within reach; and a puppies’-eye view of life.

Economy

The Senate will vote on two Fed nominees on Thursday. “Senate Majority Leader Harry Reid (D-Nev.) today set up a procedural vote for Thursday on two nominees to join the Federal Reserve whose nominations have stalled because of opposition from Sen. David Vitter (R-La.)…Vitter blocked attempts in March to quickly confirm Harvard University economics professor Jeremy Stein, a Democratic nominee, and former private-equity executive Jerome Powell, a Republican nominee…Asked whether he was confident that he would have the 60 votes to invoke cloture on the nominations, Reid said, ‘Well I sure hope so, weave been waiting months and months.’…Senate Minority Leader Mitch McConnell (R-Ky.) said he believes there is bipartisan support for the nominees…Without the two nominees in place, the Federal Reserve Board will remain short-handed as it attempts to support the economic recovery” Humberto Sanchez in Roll Call.

The dip in gas prices eased inflation. “The recent slide in gasoline prices in the U.S. has pushed the nation’s annual rate of inflation to its lowest level in more than a year, easing some economic strains on consumers. The consumer price index, which measures what Americans pay for everything from breakfast cereal to doctor visits, was unchanged from March to April, ending three months of increases, the Labor Department said Tuesday. A 2.6% drop in the gasoline-price index helped offset rising costs for many other items. Overall prices are now running 2.3% higher than a year ago, the smallest increase since February 2011…The inflation figures have mixed implications for the recovery. Lower gasoline and utility costs are keeping a lid on household expenses, effectively boosting Americans’ spending money. However, prices are climbing broadly, most notably for food, but also medical care, rents, autos and airfares.” Josh Mitchell in The Wall Street Journal.

States are using foreclosure prevention funds to plug budget gaps. “Hundreds of millions of dollars meant to provide a little relief to the nationas struggling homeowners is being diverted to plug state budget gaps. In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nationas biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the stateas debts. The money was part of a national settlement valued at $25 billion and negotiated with five big banks over abuses in their mortgage and foreclosure processes…As part of the settlement, the banks agreed to pay the states $2.5 billion, money intended to help homeowners and mitigate the effects of the foreclosure surge.” Shaila Dewan in The New York Times.

House Republicans are planning a vote on a ‘fast track’ proposal for tax reform. “Speaker John Boehner said in a speech Tuesday that House Republicans would try to attach a timeline to fast-track a broad tax overhaul to a vote extending the George W. Bush-era tax rates before the November elections…’Our bill to stop the New Yearas Day tax increase will also establish an expedited process by which Congress would enact real tax reform in 2013,’ Boehner (R-Ohio) said in remarks to a fiscal summit in Washington. ‘This process would look something like how we handle Trade Promotion Authority, where you put in place a timeline for both houses to act.’…GOP aides said that, even though Boehner specifically discussed Trade Promotion Authority on Tuesday, House Republicans are looking at a variety of expedited processes that have been used in the past, and have yet to settle on just one.” Russell Berman and Bernie Becker in The Hill.

@grossdm: Memo to Boehner, the markets, etc.: the House passing legislation won’t be sufficient to avert tax increases. They’ll have to make a deal

The euro zone narrowly missed recession. “The euro-zone economy narrowly escaped recession in the latest quarter thanks to a surprising rebound in Germany, which offset deepening downturns in Spain and Italy. Although the region avoided two straight quarterly drops in gross domestic product, the common benchmark for recession, the figures nonetheless reflect a deepening divide between Germany and the rest of the euro zone that complicates the bloc’s efforts to stem its debt crisis…Euro-zone GDP was unchanged from the previous quarter, said Eurostat, the European Union’s statistics agency. In annualized terms, GDP rose 0.1% from the fourth quarter, according to calculations by J.P. Morgan Chase. Economists had expected an annualized contraction of around 1%. GDP fell at a 1.2% rate in the fourth quarter…European stock markets rose initially on the figures, which eased fears that the debt crisis may trigger an economic free fall.” Brian Blackstone in The Washington Post.

Export-Import Bank reauthorization cleared the Senate by a wide margin. “On a broad bipartisan vote of 78 to 20, the Senate voted Tuesday to extend the life of the U.S. Export-Import Bank and expand its authority to make loans to U.S. exporters. In the ‘Schoolhouse Rock’ version of how Capitol Hill works, this is what Congress does all the time — passes legislation. But it made for big news on this Capitol Hill, where protracted partisan warfare has meant that lately the story has more often been about votes forced by one party or the other to indignantly demonstrate the otheras opposition…Tuesdayas bill was the rarest of breeds: a lasting compromise on an issue of substance. It renewed the charter of what is commonly referred to as the Ex-Im bank for three years and will over that time raise the cap on the total financing the bank can guarantee from $100 billion to $140 billion.” Rosalind Helderman in The Washington Post.

The U.S.-Colombia free trade agreement took effect. “A free-trade agreement between the U.S. and Colombia took effect Tuesday after years of negotiations and despite strong opposition from U.S. labor organizations, which are worried about jobs being sent abroad and union-busting violence in Colombia. The first products shipped tariff-free were crates of Colombian roses and other flowers that landed Tuesday morning at Miami’s airport…President Barack Obama signed the free-trade agreement with Colombia in October, days after Congress gave its final approval following heated debates. The deal was originally negotiated by the Bush administration, but President Obama reworked the deal to satisfy Democrats. The U.S. exported $14 billion of goods to Colombia last year, everything from cars to consumer electronics to food, and exports are expected to rise by more than $1.1 billion as a direct result of the pact, according to the International Trade Commission.” Dan Molinski in The Wall Street Journal.

Adorable children singing interlude: Two girls cover Gotye’s “Somebody That I Used To Know” from the back seat of the car.

Health Care

Catholic bishops are threatening to sue over the birth control mandate. “The Catholic Church’s U.S. hierarchy warned Tuesday that without quick action by Congress, it will sue the Obama administration for mandating that insurance plans provide birth control to women without a co-pay. ‘[F]orcing individual and institutional stakeholders to sponsor and subsidize an otherwise widely available product over their religious and moral objections serves no legitimate, let alone compelling, government interest,’ lawyers for the U.S. Conference of Catholic Bishops wrote in a letter to federal regulators. Several small Catholic universities have already filed suit over the policy…The bishops’ notice came in 20 pages of comments submitted to the Department of Health and Human Services (HHS) on a forthcoming rule to accommodate certain religious organizations, such as Catholic hospitals, that were not exempted from the original mandate.” Elise Viebeck in The Hill.

Obamacare will expand healthcare options for immigrants. “The Obama administrationas drive to cut down on Americaas uninsured is about to get multilingual. Come 2014, when core provisions of the Affordable Care Act kick in, millions of legal immigrants will have new options for gaining health coverage. And like U.S. citizens, most will be subject to the individual mandate, under which they will be required to get coverage to avoid a penalty. The national health law explicitly excludes illegal immigrants — a politically explosive topic — and bans them from the new state insurance exchanges, even if they use their own money. They will make up a big chunk of the remaining uninsured population. But advocates say states have good reasons to reach out and get uninsured legal residents covered — especially as the federal government picks up most of the tab…In 2014…legal immigrants will be able to shop for health coverage through the new state insurance exchanges.” Kyle Cheney in Politico.

Domestic Policy

The backlash against standardized testing is growing. “The increasing role of standardized testing in U.S. classrooms is triggering pockets of rebellion across the country from school officials, teachers and parents who say the system is stifling teaching and learning. In Texas, some 400 local school boards–more than one-third of the state’s total–have adopted a resolution this year asking lawmakers to scale back testing. In Everett, Wash., more than 500 children skipped state exams in protest earlier this month…The efforts are a response to the spread of mandatory testing in the past decade. Proponents say the exams are needed to ensure students are learning and teachers’ effectiveness is measured. Critics say schools are spending disproportionate time and resources on the tests at the expense of more-creative learning. They also contend the results weigh too heavily in decisions on student advancement, teacher pay and the fate of schools judged to have failed.” Stephanie Banchero in The Wall Street Journal.

The NLRB suspended implementation of its union elections rule. “The National Labor Relations Board (NLRB) suspended implementation on Tuesday of a rule that would speed up union elections. On Monday, U.S. District Judge James Boasberg struck down the regulation. In his ruling, the judge said the labor board only had two members vote on the final rule in December 2011 when it needed three members to form a quorum. In the wake of the court decision, the agency is temporarily suspending the rule’s implementation, which went into effect on April 30. Further, Lafe Solomon, the NLRB’s acting general counsel, withdrew guidance he sent to the labor board’s regional offices and told those offices to follow the old union election rule instead. The agency is still considering its response to the court ruling…’We continue to believe that the amendments represent a significant improvement in our process and serve the public interest by eliminating unnecessary litigation,’ said NLRB Chairman Mark Pearce.” Kevin Bogardus in The Hill.

Dog’s-eye view interlude: Life from on top of puppies.

Energy

Energy independence is no pipe dream. “Every president since Richard Nixon has called for the U.S. to wean itself from needing oil from unstable or unsavory countries. The nation’s new-found energy riches are likely to bring that ambition closer to reality in the next two decades, according to many forecasters. It’s no pipe dream. The U.S. is already the world’s fastest-growing oil and natural gas producer. Counting the output from Canada and Mexico, North America is ‘the new Middle East,’ Citigroup analysts declare in a recent report. The U.S. Energy Information Agency says U.S. oil imports will drop 20% by 2025. Oil giant BP projects the U.S. will get 94% of its energy domestically by 2030, up from 77% now, as oil imports fall by half…Most enticing, a team of analysts and economists at Citigroup argues that the U.S., or at least North America, can achieve energy independence by 2020.” Tim Mullaney in USA Today.

@umairh: So consider how our political institutions are paralyzed by a financial crisis. Now think about energy, water, etc crises. Sweet!

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending.

The halls of the U.S. Capitol are already teeming with people warning of disaster if lawmakers fail to defuse a New Yearas budget bomb scheduled to raise taxes for every American taxpayer and slash spending at the Pentagon and most other federal agencies.

Last week, hospital executives came to complain about big scheduled cuts in Medicare payments. Next month, university presidents plan to raise the alarm about big scheduled cuts in federal research grants. And the chief executives of Lockheed Martin and other aerospace giants last Wednesday passed out digital countdown clocks ticking off the seconds until aover 1 million American jobsa will be lost to big scheduled cuts in defense.

aHow do you plan for chaos?a Marion Blakey, president of the Aerospace Industries Association, sighed during a break between meetings with lawmakers, who could provide little assurance that the spending cuts would be averted. aItas almost a unique moment in government because thereas so much at stake. And thereas nothing that inspires confidence that this will get done.a

The uncertainty is already prompting some firms to take action. Many more say they will be forced to contemplate layoffs and other cost-cutting measures long before the end of the year unless the Republican House and the Democratic Senate come up with an alternative path to tame deficits. But with control of the White House and both chambers of Congress in play on Nov. 6, aides say it is impossible to begin mapping a strategy for compromise until they know who wins the election, by how much and on which issues.

In the meantime, political leaders are focused less on finding solutions than on drawing lines in the sand. In a speech Tuesday, House Speaker John A. Boehner (R-Ohio) plans to address the issue of national debt, which will once again be nearing its legal limit in January, just as the tax hikes and spending cuts are due to hit.

According to advance remarks provided to The Post, Boehner will insist that any increase in the debt limit be accompanied by spending acuts and reforms greater than the debt limit increasea a the same demand that pushed the Treasury to the brink of default during last summeras debt-limit standoff.

aThis is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance,a Boehner plans to say at the Peter G. Peterson Foundation fiscal summit. aIf that means we have to do a series of stop-gap measures, so be it.a

Last week, the House approved a plan to protect the Pentagon in January by reconfiguring $110A billion in across-the-board spending cuts a known as asequestrationa a so they would fall exclusively on domestic programs, such as food stamps and health care for the poor.

But one aerospace lobbyist glumly noted that the House bill will be adead on arrivala in the Senate, where Majority Leader Harry Reid (D-Nev.) has vowed to block any effort to undo the defense cuts unless Republicans drop their opposition to higher taxes for the wealthy.

aThe answer is very simple to our Republican colleagues who want to help with defense: Revenues,a said Sen. Charles E. Schumer (D-N.Y.). aThe way to deal with sequestration is put revenues on the table.a

As lawmakers bicker, the approaching deadline has taken on the nightmarish aaspect of a slow-motion train wreck,a said Ajay Rajadhyaksha of Barclays Capital, with onlookers helpless either to prevent the carnage or to get out of the way.

aI feel like weare really in uncharted waters,a said Robert Greenstein, president of the left-leaning Center on Budget and Policy Priorities. aOn the one hand, you say: aWeare a functioning country. Somehow, weare going to work this out.a But then you ask: aWhatas the scenario for a potential solution?a And you canat come up with anything that you can see actually passing Congress.a

The impending upheaval is the result of multiple policy changes all set to hit at the same time. The George W. Bush-era tax cuts are scheduled to expire in December, along with a temporary payroll-tax holiday sought by President Obama. Meanwhile, Congress last summer paired a debt-limit increase with $1.2 trillion in across-the-board spending cuts over the next decade that almost no one wants to see happen.

For the moment, most economic forecasters are taking a sanguine view. Mark Zandi of Moodyas Analytics predicts that the lame-duck Congress will make a deal to rescind half the spending cuts and raise taxes for the wealthiest 2 or 3 percent of households a but leave everyone else alone.

aThereas a lot of room for compromise,a Zandi said, noting that Boehner and Obama came close to agreement last summer.

But others are skeptical that lawmakers, fresh from the combat of the campaign trail, will be able to agree on anything. Federal Reserve Chairman Ben S. Bernanke recently warned that the Fed would have aabsolutely no .a.a. ability whatsoevera to cushion the shock to the economy if the nation sails over what he calls the afiscal cliffa in January. And many analysts worry that the uncertainty will itself begin to dampen economic growth long before New Yearas Day.

Kaman Corporation chief executive Neal Keating said his firm is already scaling back hiring in Jacksonville, Fla., where the company builds cockpits for Blackhawk helicopters. He was hoping for new contracts to refit the nationas aging fleet of A-10 Warthog attack planes.

aSo many of those things are now uncertain,a Keating said, adding that plans to hire 200 workers have been put on hold. Without further clarity, Keating said, he could be forced to start ramping down purchases and cancelling shifts sometime this summer.

aOne of the most frustrating things is [that] people in Washington say, aWell, we donat think sequestration is going to happen,aaa he said. aBut weare responsible for planning and running a business.a

Nicholas Wolter, chief executive of the Billings Clinic, a chain of nonprofit medical facilities in Montana, said a scheduled 2A percent cut in Medicare payments would hammer his finances. But options being circulated to replace those cuts could also hurt, he said. In addition, a formula that maintains Medicare rates for doctors is also set to expire.

aYouare not sure which of them might end up in legislation,a Wolter said. aTheyare all potentially real.a

Tax policy is also causing heartburn. Kate Barton of Ernst & Young said she is advising clients not to count on the renewal of a slew of popular business tax breaks that expired in December. Even incentives for research and development, which are revered in both parties, could get caught in the year-end logjam.

aWeare not trying to be alarmist. But itas a time when the telescope and the crystal ball are really foggy,a Barton said. aYou talk to one person and you hear one thing; you talk to another and you hear something else.a

This month, about 120 university lobbyists gathered near Metro Center in hopes that top aides to Reid and Boehner would shed light on the fiscal end game. They didnat. Instead, Reidas deputy chief of staff for policy, Bill Dauster, cited a agood, if dour,a independent analysis that amany election outcomes would produce dynamics not conducive to getting a deala at all before the new Congress takes office in January.

aYou just donat get the sense that thereas even a secret plan yet. Itas scary,a said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, who has been meeting with corporate leaders in an effort to build support for a comprehensive deficit-reduction plan.

During a recent dinner in Washington, Lawrence H. Summers and Robert Rubin mulled the situation. Both men led the Treasury Department during the Clinton administration, and Summers was Obamaas top economic adviser in 2009 and 2010. They concluded that, whatever happens on Election Day, exhausted lawmakers are likely to resort to a short-term deal that extends all the tax cuts, postpones the spending cuts and pushes the deadline for fiscal calamity into the spring of 2013.

But even that move would be risky, Rubin argued, potentially inviting another downgrade of the U.S. credit rating, roiling financial markets and shattering confidence that the United States will ever get its debt problem under control.

Solutions are easy to come by awhen youare sitting at the Council on Foreign Relations in New York,a said Rubin, the councilas co-chairman. aItas a lot harder to do it when youare sitting in Washington and itas one minute of midnight.a

Itas truly an honor to be with you in the historic Mellon Auditorium. It was here in the spring of 1949 that the United States and our closest allies gathered to sign the North Atlantic Treaty, giving birth to NATO.

On that occasion, President Truman declared that people awith courage and vision can still determine their own destiny. They can choose freedom or slavery.a

In our time, all of these great nations face a grave threat to freedom, one from within, and that is debt. It is shackling our economies and smothering the opportunities that have blessed us with so much.

Once again the world looks to the United States for what it always has: an example. It is the example of a free people whose hard work and sacrifice make up the sum total of thriving towns and a vibrant economy. Itas a humble government that lives within its means and unleashes the potential of first-rate ideas and world-class products. Itas a nation never content with the status quo and always on the make.

I got a glimpse of this example growing up working at my dadas tavern just outside Cincinnati, and then lived a piece of it running my own small business.

Instead of this shining example, what does the world now see?

A president on whose watch the United States lost its gold-plated triple-A rating for the first time in our history;

A Senate, controlled by the presidentas party, that has not passed a budget in more than three years;

And, earlier this month, another unemployment report showing that the worldas greatest economy remains unable to generate enough jobs to spur strong and lasting growth.

If you should know one thing about me, itas that Iam an optimist.

Yes, times are tough, but our future doesnat need to be dark. We donat have to accept a new normal where the workplace looks more like a battlefield and families have to endure flat incomes, weak job prospects, and higher prices in their daily lives.

We have every reason to believe we can come out of this freer and more prosperous than ever. And we will, if we confront our challenges now while we still have the ability to do so.

For the solution to what ails our economy is not government a itas the American people.

The failure of astimulusa a a word people in Washington wonat even use anymore a has sparked a rebellion against overspending, overtaxation, and overregulation.

Americans, who take pride in living on a budget, recognize we canat go on spending money we donat have, and that our economy is stuck in large part because itas stuck with debt.

Nationwide, weare seeing a groundswell of support for bold ideas that reject small politics, cast off big government, and return us to common sense and first principles a the kind of ideas that will restore prosperity and substantially improve the trajectory of our economy.

In March, as part of our Plan for Americaas Job Creators, the House passed an honest budget with real spending cuts, pro-growth tax reform, and serious entitlement reform. Itas a far-reaching effort to control governmentas worst habits and capitalize on the American peopleas best. This budget gets our fiscal house in order AND promotes long-term growth. Far from settling for stability, it offers a true path to prosperity.

Various bipartisan commissions and coalitions have devised ambitious plans as well. The math and the mix are different, but the goals are mainly the same.

And of course, there are summits like these that bring together people who just get it. Of course, while Iam happy to be here and Iam sure we all enjoy each otheras company, we can also agree that weave talked this problem to death.

Itas about time we roll up our sleeves and get to work.

For all the focus on Election Day, another date looms large for every household and every business, and thatas January 1, 2013.

On that day, without action by Congress, a sudden and massive tax increase will be imposed on every American a by an average of $3,000 per household. Rates go up, the child tax credit is cut in half, the AMT patches end, the estate tax returns to 2001 levels, and so on.

Now, it gets a little more complicated than that. What will expire on January 1 is cause for concern a as is what will take effect. That includes:

Indiscriminate spending cuts of $1.2 trillion a half of which would devastate our men and women in uniform and send a signal of weakness;

Several tax increases from the health care law that is making it harder to hire new workers;

As well as a slate of energy and banking rules and regulations that will also increase the strain on the private sector.

But a| it gets even more complicated than that.

Sometime after the election, the federal government will near the statutory debt limit.

This end-of-the-year pileup, commonly called the afiscal cliff,a is a chance for us to bid farewell a permanently a to the era of so-called atimely, temporary, and targeteda short-term government intervention.

For years, Washington has force-fed our economy with a constant diet of meddling, micromanagement, and manipulation. None of it has been a substitute for long-term economic investment, private initiative, and freedom

Previous Congresses have encountered lesser precipices with lower stakes, and made a beeline for the closest lame-duck escape hatch.

Let me put your mind at ease. This Congress will not follow that path, not if I have anything to do with it.

Having run a business, I know that failing to plan is planning to fail. The real pain comes from doing nothing a| aausteritya is what will become necessary if we do nothing now. Weall wake up one day without a choice in the matter.

Thereas also no salvation to be found in doing anything just to get by, just to get through this year.

aNothinga is not an option, and aanythinga is not a plan. To get on the path to prosperity, we have to avoid the fiscal cliff, but we need to start today.

To show my intentions are sincere, Iall start with the stickiest issue, and that of course is the debt limit.

On several occasions in the past, the debt limit has been the catalyst for budget agreements. Last year, however, the president requested a quote-unquote acleana debt limit increase a business as usual.

Well Iave run a business, and thatas no way to do it. Itas certainly no way to run a government either, especially one that has run up a debt bigger than the entire economy. Business as usual will no longer do.

So last year around this time, I accepted an invitation to address the Economic Club of New York. I went up there and said that in my view, the debt limit exists in statute precisely so that government is forced to address its fiscal issues.

Yes, allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without taking dramatic steps to reduce spending and reform the budget process.

We shouldnat dread the debt limit. We should welcome it. Itas an action-forcing event in a town that has become infamous for inaction.

That night in New York City, I put forth the principle that we should not raise the debt ceiling without real spending cuts and reforms that exceed the amount of the debt limit increase.

From all the way up in Midtown Manhattan, I could hear a great wailing and gnashing of teeth. Over the next couple of months, I was asked again and again if I would yield on my aposition,a what it would take, if I would budgea|

Each and every time, I said anoa a| because it isnat a apositiona a itas a principle. Not just that a itas the right thing to do.

When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase. This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance.

If that means we have to do a series of stop-gap measures, so be it a but thatas not the ideal. Letas start solving the problem. We can make the bold cuts and reforms necessary to meet this principle, and we must.

Just so weare clear, Iam talking about REAL cuts and reforms a not these tricks and gimmicks that have given Washington a pass on grappling with its spending problem.

Last year, in our negotiations with the White House, the president and his team put a number of gimmicks on the table. Plenty of thought and creativity went into them a things like counting money that was never going to be spent as savings.

Maybe in another time, with another Speaker, gimmicks like these would be acceptable.

But, as a matter of simple arithmetic, they wonat work.

They wonat work, and as I told the president, weare not doing things that way anymore.

What also doesnat count as acuts and reformsa are tax increases. Tax hikes destroy jobs a especially an increase on the magnitude set for January 1st. Small businesses need to plan. We shouldnat wait until New Yearas Eve to give American job creators the confidence that they arenat going to get hit with a tax hike on New Yearas Day.

Any sudden tax hike would hurt our economy, so this fall a before the election a the House of Representatives will vote to stop the largest tax increase in American history.

This will give Congress time to work on broad-based tax reform that lowers rates for individuals and businesses while closing deductions, credits, and special carveouts.

Eyebrows go up all over town whenever I talk about this, but when I say abroad-baseda tax reform, I mean it. We need to do it all a| deal with the whole code, personal and corporate itas fairer and more productive for everyone.

Thatas why our bill to stop the New Yearas Day tax increase will also establish an expedited process by which Congress would enact real tax reform in 2013. This process would look something like how we handle Trade Promotion Authority, where you put in place a timeline for both houses to act.

The Ways Means Committee will work out the details, but the bottom line is: if we do this right, we will never again have to deal with the uncertainty of expiring tax rates.

Weall have replaced the broken status quo with a tax code that maintains progressivity, taxes income once, and creates a fairer, simpler code.

And if we do THAT right, we will see increased revenue from more economic growth.

Again, change doesnat need to be sudden or painful.

Last fall, when I addressed the Economic Club of Washington, I said that making relatively small changes now can lead to huge dividends down the road in terms of debt reduction. As we approach the issue of the debt limit again, we need to continue to bear this in mind.

As you know, we could eliminate all of the unfunded liabilities in Social Security, Medicare and Medicaid tomorrow, and the effect within the Congressional Budget Office 10-year window could be minimal.

Thatas because changes to these programs take time and are phased-in slowly.

For example, when Congress last increased the retirement age for Social Security, the increase a a mere two years a was scheduled to fully take effect 40 years after the law was enacted.

Another example: take the House Budget Resolution and its assumptions for Medicare reform. Those would not even begin until after 2022.

Smart and modest changes today mean huge dividends down the line.

Now, I can already hear the grumbles a| partisans getting all worked up or people saying, eh, letas wait until after the election.

We canat wait. Employers large and small are already bracing for the coming tax hikes and regulations, which freeze their plans. The markets arenat going to wait forever; eventually theyare going to start reacting.

We now know that we ignore these warnings at our own peril.

Thatas why the House will do its part to ease the uncertainty surrounding the fiscal cliff. And I hope the president will step up, bring his partyas Senate leaders along, and work with us.

Because if thereas one action-forcing event that trumps all the rest a even the debt limit a itas presidential leadership.

Ladies and gentlemen, I believe President Obama cares about this country and knows what the right thing to do is. But knowing whatas right and doing whatas right are different things.

The difference between knowing whatas right and doing whatas right is courage, and the president, Iam sorry to say, lost his.

He was willing to talk about the tough choices needed to preserve and strengthen our entitlement programs, but he wasnat ready to take action.

As it turned out, he wouldnat agree to even the most basic entitlement reform unless it was accompanied by tax increases on small business job creators.

We were on the verge of an agreement that would have reduced the deficit by trillions, by strengthening entitlement programs and reforming the tax code with permanently lower rates for all, laying the foundation for lasting growth.

But when the president saw his former colleagues in the Senate getting ready to press for tax hikes, he lost his nerve. The political temptation was too great. He moved the goalposts, changed his stance, and demanded tax hikes.

We ended up enacting a package with cuts and reforms larger than the hike. But it could have been so much more.

The letdown was considerable. And, in turn, our nationas credit rating was downgraded for the first time.

Well it should also be the last time that happens, which is why I came here today.

If the president continues to put politics before principle a or party before country, as he often accuses others of doing a our economy will suffer and we may well miss our last chance to solve this crisis on our own terms.

But if we have leaders who will lead a| if we have leaders with the courage to make tough choices and the vision to pursue a future paved with growth, then we can heal our economy and again be the example for all to follow.

Iam ready, and Iave been ready. Iam not angling for higher office. This is the last position in government I will hold. I havenat come this far to walk away.

All my life, Iave operated by a simple code: if you do the right thing for the reasons, good things will happen.

Well, NOW is the time to do the right thing.

Letas do it for the right reasons a we donat need to be dragged kicking and screaming. Thatas not the American way. Letas summon the courage and vision to choose freedom, to choose prosperity, and to determine our destiny.

Then weall not only have succeeded in solving this crisis a weall be worthy of that success.

Thank you all.

Sen. Tom Coburn (R-Okla.) served on the Simpson-Bowles commission, is a member of the Gang of Six, and just published aThe Debt Bomb: A Bold Plan to Stop Washington from Bankrupting America.a We spoke last week in his office. This interview, which focuses on Americaas debt and growth problems, is the first in a two-part series. The second interview, which focuses on health care, will be published later this week.

Ezra Klein: So ataxmageddona is coming at the end of the year. Depending on how you look at it, itas an opportunity for Congress to trigger a massive and unnecessary fiscal crisis, or to actually get some serious legislating done on our long-term fiscal issues. Are you optimistic about the outcome?

Tom Coburn: No. But it depends on what the mix is. If President Obama is still president and weare in control of the Senate, I think youall see significant attempts to get something done. But I donat think theyall be much more successful than what we saw in August. And I wouldnat consider that very successful. If Romney wins and we win control in the Senate, we have to send a signal that weare going to fix it in order to take away all that potential risk to the economy. You have to say weall work all over the Christmas holidays to get it fixed.

EK: When you look at the Romney scenario, it seems Republicans have spent a few years now learning how to take tough votes on the budget, particularly on the Ryan plan. So if Republicans control the House and Senate, it seems to me that youad see quite dramatic action on those issues, as they can be passed with 51 votes through budget reconciliation.

TC: Well, you can. Ryan has a good plan. I donat think it goes fast enough. But the fact is heas got a plan. The president wonat put out a plan. The Senate Democrats wonat put out a plan. Itas kind of like boxing with a shadow. You canat ever hit it. But it doesnat matter if youare Democrat or Republican. The pain will get worse every year we donat fix these things. And there will come a time when it wonat matter if youare a Republican or Democrat. And I donat have much faith right now that weare up to the task of coming to agreement to fix this.

EK: I want to come back to the question of the plans in a second,. But your book opens by imagining a very dire fiscal crisis in 2014. And this goes to your contention that Ryanas plan doesnat bring down the debt fast enough. Where do you get the urgency of your schedule? I look at Treasuries and theyare selling with very low yields. So you can say thatas just the Federal Reserve manipulating prices. So then I look at credit default swaps on the United States, and there are no alarm bells there, either. I look at countries like Japan and England that have carried on with very high debt levels for a very long time. Weave seen other countries that control their own currency manage very high debt levels throughout the 20th Century.

TC: Well, you need to go study Japan. Theyare going to crash.

EK: People have been saying that for 20 years.

TC: You have two things coming together. This is the first year theyall be a net issuer of debt outside their country. Theyave totally financed all their debt internally. We havenat. Thatas one big difference. They also have a much lower birth rate. Seven births for every 1,000 people. So their population is shrinking and their demographic shift is much worse than ours. And this year, the postal system there that runs all their retirement accounts will not be buying any government debt. Zero. So the Japanese government, for the first time, is going into the international market. And the yenas value is going to decline against every major currency. Whether that happens this year or next year or in three years, itas going to happen. And theyave now had almost two decades of no real GDP growth. So Japan isnat going to make it. The reason they havenat had any problems is they havenat asked anyone else in the world to buy their debt. Now theyare going to have to.

The same thing ultimately will happen to us, but weall be the last person it happens to. The world still views this as the safest place. You see Greece, which will probably be out of the euro by the end of this year. Then you look at Spain and Italy and Portugal and Ireland. Europe is going to print money just like Ben Bernanke is printing money. And whatas the end result of that? Inflation.

EK Well, it depends how you manage it.

TC: How do you sterilize $3 trillion worth of debt?

EK: The difficulty for me when you say that is Iam a market-oriented guy. I trust the markets, more or less. And if you look at the marketas inflation expectations, theyare not high. They donat think what the Fed has done will lead to inflation.

TC: They donat now. But nobody ever does when you print money like that. If you study [Carmen] Reinhart and [Kenneth] Rogoff and what they said, they know whatas coming. Every country thatas ever been with a debt crisis and has printed money has ended up with an intentional inflation problem. Think for a minute that youare Ben Bernanke. Youare trying to control inflation, jumpstart the economy, and improve the unemployment rate. What do you think his long-term answer for this is?

EK: At the moment, I donat think he has one.

TC: His long-term answer is inflation.

EK: Not only do I think that would be an okay answer, but Reinhart and Rogoff do, too. Rogoff has been arguing for higher inflation for a long time. But Bernanke says he wonat permit that. And I donat see a reason he would allow inflation later but oppose it now, when it could really help. In fact, what heas been saying is he wonat do the monetary stimulus many want now specifically because he doesnat want to deanchor inflation expectations later.

TC: But 10 years from now, our bonds wonat be two percent. So what percentage of the total budget do interest costs become if you normalize back to the historical average? If you do that today, you add $650 billion to our annual interest costs. How long do you think he can keep two percent inflation? If he does, then weall continue to have two percent growth. In other words, if we start getting the growth, then weall see the inflation. The reason thereas no inflation now is thereas no velocity to the money. Weave got $2 trillion sitting on the sidelines with corporations in this country. Another few trillion in personal bank accounts. And the reason is no one has confidence in the future. And itas not so much the details of the plan to fix it as the psychological confidence it will get fixed. And thatas why I voted for Bowles-Simpson.

EK: When Bowles-Simpson went before the House, it was rejected by a huge bipartisan majority. Do you see there as being any possibility that one outcome of the taxmageddon period could, be a grand bargain in the Gang of Six/Simpson-Bowles vein?

TC: I donat know the answer to that, frankly. My hope would be we reach a grand compromise. But the vote in the House proves what I said in the book. You had a vote in the House on a plan that could solve our problems and the Democrats didnat vote for it because it touches Social Security and Republicans vote against it because of revenues. Both sides accentuated their differences rather than sending a signal to the international community that we could get together and cut $4.5 trillion over the next 10 years. Which raises the question: Why are they here? If youare here just to get reelected, youare worthless to the country.

EK: Youare searingly critical of Congress in the book. So let me ask you: How do you fix the Senate?

TC: Let the Senate operate the way itas supposed to. put stuff through committees. bring it up in regular order. Have an open amendment process. Iam the number one amendment offerer in the Senate in the last few years.

EK: Congratulations.

TC: Well, itas not necessarily a compliment. But the point is the Senate really could work if you let it work on the real issues. If you were to put Simpson-Bowles on the floor and really have a strong debate on that bill, it could get through the Senate.

EK: When I talk to the party tactician types, the senators trying to figure this out, their argument is that when you try to do this out in public, with 24-hour news media broadcasting every move and every possible compromise, the issue polarizes, the interest groups descend, the party bases descend, and solutions get taken off the table. In the end, they think there will have to be some big backroom deal. They think a more open process would make this harder, not easier.

TC: I just adamantly disagree. Thatas the sickness of Washington. What that really says is the politician doesnat want to stand up and debate and tell their interest groups no. We had the pharmacists in here earlier. They want a bill to protect community pharmacies. And I said, you know what, the market is changing, Iam not about to support a bill, even though you support me, that doesnat allow the market to work this thing out. I think the reason you get this kind of analysis is because people wonat stand up and do what they think is right because it hurts their political chances. And on our bonds, our bonds will be fine until theyare not, till that tipping point comes when they say crap, we canat get out of it.

EK: As you just said, youare a market guy. You want the market to work things out. You believe in the marketas ability to work things out. So why do you think your view of our likely debt and inflation path is so much more dire than the marketas?

TC: Because the market is biased towards up. Why do you invest in the market? Not because you think youall lose money. Why do you invest in bonds? To make money. Where is the contrarian view?

Let me give you one example. Five weeks ago, Bernanke said there would be no QE3. What happened to the 10-year bond in four days? It rose 48 basis points. What the market said then is if thereas no more QE3, weare going to short the value of a bond. Thatas one little signal. What if you get 20 signals? How do you explain the Chinese getting rid $160 billion of our debt last year? Eventually, theyare not going to buy our debt. Who bought most of our debt last year? It was the Federal Reserve. Go out there and try and float $10 billion of our long-term debt. You canat. Thereas no market. Because the long-term market is saying, send us a signal that youall fix this. And so the reason we have the shortest debt maturity in our countryas history is first, because you canat sell long-term debt because no one wants to buy it, and second, because long-term debt makes the deficit look worse.

Look, I may not be right. But what I see and the people I read — all I do at night is read economic reports on peopleas view of us — and when you look at it, Spain, wonat make it, the European Central Bank will eventually print money. You agree?

EK: Iam hoping so.

TC: Theyall do that to buy time. And where I agree with Paul Krugman is you canat just have austerity. You need growth, The question is how do you get the growth. Do you get the government-driven growth, or do you get confidence and certainty so that the private money comes in and creates the growth? One costs you double. The other costs you half. So thereas a fourfold difference in where you get the growth from. When you borrow the money to spend $800 billion, you got that debt hanging on you, which Reinhart and Rogoff have proven without a doubt, when youare at 90 percent and above, and weare at 101 percent right now, debt-to-GDP, thatas at least a one percent cut to growth.

EK: To go back to Krugman, if he were sitting here, head say in this crisis thereas been no evidence anywhere that cutting deficits leads to growth. Weave not seen it in the euro zone or the UK. And head say the Reinhart/Rogoff story is a correlation story. It doesnat prove that high debt always and everywhere hurts growth.

TC: Go look at Sweden. Hereas what Sweden did. They cut their spending and their taxes. They have the best growth rate in Europe. They had a surplus this year. They had growth at six-plus percent. They actually did a Reagan style approach to their problem by cutting spending and cutting taxes. And theyare the fastest growing with a decline in their debt-to-GDP ratio.

EK: But correct me if Iam wrong, but if I recall, Swedenas monetary policy went towards a very sharp devaluation, theyave been driven by export growth, and alongside Israel, theyave been more aggressive than any other central bank in the world. Theyave done stuff that if we did it here, people would lose their minds.

TC: I think there are monetary parts to that. But their finance minister put in place tough stuff. They had people who left Sweden because of the tax ratio. Now theyave moved back. And itas not a perfect example, but itas an exception to the Krugman story.

EK: Is there anything we need but deficit reduction to get growth back on the right path?

TC: Itas signals. The number one thing, and I think most economists would agree, confidence matters. If you have negative confidence, then you get much lower growth. If you have positive confidence you get much better growth with the same set of numbers. I think people are so disgusted with Washington that if we send a signal weare actually going to fix this — with any combination of tax and spending, remember that I voted for Simpson-Bowles — weall get our mojo back when people have some confidence in the future and see their Congress solving their problems.

EK: It seems your view is that just as the market needs to have faith in your demographics and in the flexibility of your labor market and the competitiveness, it has to have faith in your political systemas capacity to deal with long and short-term threats. Do you see any reason for the market to have that faith right now?

TC: No. One of my biggest worries is what happens if Romney wins and Republicans control both chambers, do they have the courage to do what it takes to fix the country? Itas kind of their last chance. If theyare given the favor of control and they donat act on it, why should you ever trust them again? You shouldnat. Itall be the death knell of the Republican Party. They controlled it all for four years under Bush and grew the government. They created a new entitlement with no revenue. Went against the very tenets of what they said they believe.

One of the reasons I wrote the book was to show a whole lot of people how many stupid things we do. I donat really blame presidents too much. You gotta get appropriations. I say the problem is not that we donat get along. We get along too well. Government is twice the size it was 10 years ago. The president canat spend the money if we donat appropriate it. So itas not a president problem. Itas a congressional problem.

EK: On the other side of that hypothetical, letas say Obama wins, but Republicans hold the House and maybe even take the Senate. How do they act in that hypothetical? Are they more or less willing to compromise with Obama?

TC: I donat know. Iam not good at predicting that. If President Obama is president again, those problems are still there and we have to solve them. He knows that. Weave had conversations where heas told me heall go much further than anyone believes heall go to solve the entitlement problem if he can get the compromise. And I believe him. I believe he would.

Californiaas fiscal crisis will look sadly familiar to close watchers of the national checkbook. Thatas because California is not having a fiscal crisis so much as a political crisis. The trigger may have been the recession, but the root cause was written into the state Constitution, and it was visible long before the housing boom went bust.

In California, passing a budget or raising taxes requires a two-thirds majority in both the stateas Assembly and its Senate. That need not pose a problem, at least in theory. The state has labored under that restriction for a long time, and handled it with fair grace. But as the historian Louis Warren argues, the vicious political polarization thatas emerged in modern times has made compromise more difficult.

All of this, however, has been visible for a long time. Polarization isnat a new story, nor were Californiaas budget problems and constitutional handicap. Yet the state let its political dysfunctions go unaddressed. Most assumed that the legislatureas bickering would be cast aside in the face of an emergency. But the intransigence of Californiaas legislators has not softened despite the spiraling unemployment, massive deficits and absence of buoyant growth on the horizon. Quite the opposite, in fact. The minority party spied opportunity in fiscal collapse. If the majority failed to govern the state, then the voters would turn on them, or so the theory went.

That raises a troubling question: What happens when one of the two major parties does not see a political upside in solving problems and has the power to keep those problems from being solved?

If all this is sounding familiar, thatas because it is. Congress doesnat need a two-thirds majority to get anything done. It needs a three-fifths majority, but thatas not usually available, either. Ever since Newt Gingrich partnered with Bob Dole to retake the Congress atop a successful strategy of relentless and effective obstructionism, Congress has been virtually incapable of doing anything difficult because the minority party will either block it or run against it, or both. And make no mistake: Congress will need to do hard things, and soon. In the short term, unemployment is likely to remain high and the economy is likely to remain weak unless Congress can muster another round of serious stimulus spending. The economist Karl Case, co-founder of the famed Case-Shiller housing index, now believes that earlier optimism about our economic recovery a which he shared a was misplaced. aThe probability is very high of a serious double dip like 1982,a he told the New York Times. The housing market seems to be sagging again, and the governmentas interventions a not just the stimulus but also relaxed standards at Fannie Mae, Freddie Mac and the Federal Housing Authority a are set to end.

Further out, the long-term deficit problem, which is driven largely by health-care costs, is startling. The Center for Budget and Policy Priorities estimates that debt will reach 300 percent of gross domestic product come 2050 a and that estimate might be optimistic. But solutions seem unlikely. No one who watched the health-care bill wind its way through the legislative process believes Congress is ready for the much harder and more controversial cost-cutting that will be necessary in the future.

Similarly, Sens. Kent Conrad and Judd Gregg recently suggested a bipartisan deficit commission that would reach a consensus on the budget and report back to a grateful Congress. On Tuesday, a Wall Street Journal editorial showed the conservative interest in such compromises: Republicans should aagree to a deficit commission only if it takes tax increases off the table,a it said, reminding wavering Republicans that aPresident George H.W. Bush renounced his no-new-taxes pledge and made himself a one-termer.a

These two problems get to the essential difficulties confronting the nation: There is no doubt that minority parties generally profit in elections when the unemployment rate is high. But given that reality, what incentive do they have to help the majority party lower the unemployment rate? Further out, there is no doubt that the majority party has an incentive to prevent a fiscal crisis on its watch. But what incentive does the minority party have to sign on to the screamingly painful decisions that will avert crisis?

In another system of government, that wouldnat much matter. In our system of government, which requires a supermajority in the Senate for most projects, it matters a lot. On Jan. 20, for instance, the Senate is expected to vote on raising the debt ceiling. Generally, this is a bipartisan vote, as the debt is a bipartisan creation. This year, Senate Minority Leader Mitch McConnell reportedly told Majority Leader Harry Reid that if he wants an increase in the ceiling, he owns it and needs to find the votes for it. Thatas the sort of budgetary brinksmanship that brings us back to California.

The lesson of California is that a political system too dysfunctional to avert crisis is also too dysfunctional to respond to it. The difficulty is not economic so much as it is political; solving our fiscal problem is a mixture of easy arithmetic and hard choices, but until we solve our political problem, both are out of reach. And we canat assume that an emergency, or the prospect of one, will solve the political problem for us. If you want to see how that movie ends, just look west, as we have so many times before.

In the traditional view of marriage, write economists Betsey Stevenson and Justin Wolfers, “the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace. The different skills required for these separate roles provide an economic rationale for the advice your grandmother may have offered, that ‘opposites attract.’” Romantic, right?

But in recent decades, the marriage-as-firm view has crumbled — and not just because social mores have changed. “Washing machines, dishwashers and microwave ovens have reduced the value to the family ‘firm’ of employing a domestic specialist,” say Stevenson and Wolfers, who are, themselves, married. “Cheap clothes can be imported from China, rather than sewn at home. Healthy meals can be purchased from the freezer at Trader Joeas. Whatas more, legal and social changes have broken down many of the barriers keeping women out of the labor market…All these developments have increased the opportunity cost of having a spouse stay home, because that spouse now has greater value in the marketplace.”

One possibility was that, as the traditional economic case for marriage fell apart, marriage itself would decline as an institution. But that didn’t happen. Rather, we developed a new kind of marriage. “Modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage,” continue Stevenson and Wolfers. “Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian. We have called this new model of sharing lives ‘hedonic marriage.’ These are marriages of equality in which the rule aopposites attracta no longer applies in the same way, because couples with more similar interests and values can derive greater benefits. So likes are now more likely to marry each other.”

And it’s into this institution that gay couples are being admitted, because the nature of this institution doesn’t provide a good argument for their exclusion.

Gay couples couldn’t credibly promise to provide each other with the separate and specialized skills — separate for reasons of legal discrimination, and social beliefs about what men and women could do — that were the basis of the older conception of marriage. But gay couples can certainly share the joy of things and experiences, they can certainly improve each other’s lives, they can certainly co-parent, they can certainly bring increased economic stability to a household by combining two incomes — they can do all the things that form the basis of what Stevenson and Wolfers call “hedonic marriages.”

In other words, one story here is that our attitudes have changed towards homosexuality, and that’s certainly true. But another is that our attitudes have changed towards marriage — even heterosexual marriage — in ways that opened the institution for gays. And that’s true, too.

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1) Greece’s coalition talks remain deadlocked. “Greeceas president is set to resume coalition talks on Tuesday with the countryas political leaders in another attempt to avoid a fresh general election after a meeting on Monday evening ended without agreement. Antonis Samaras and Evangelos Venizelos, the conservative and socialist leaders, and Fotis Kouvelis, head of a leftwing splinter group, held a fruitless one-hour discussion on how to escape the crisis but agreed to meet again, along with other party heads. President Karolos Papoulias has another 48 hours to persuade politicians to join a national unity government according to the constitution or face having to call another election…Alexis Tsipras, the leader of Syriza, the radical leftwing coalition that rejects the terms of Greeceas international bailout, refused to participate in Mondayas talks. ‘Weare not going to join in selective meetings of political leaders … The circle of contacts provided for by the constitution has been completed,’ he said.” Kerin Hope and Peter Spiegel in The Financial Times.

The standoff is raising worries of a European economic crisis. “Political deadlock in Greece rattled world markets Monday, reviving fears that the fractious Mediterranean country could spurn an international bailout, abandon the common European currency and risk a fresh round of world economic turmoil. European stock indexes fell, with Greeceas market now at a 20-year low, while the euro currency continued a recent decline against the dollar. U.S. stocks also fell. Coming only days before the leaders of the worldas Group of Eight industrialized nations meet at Camp David, the standoff in Greece over its political direction has thrust Europeas troubles to the top of the agenda. A downturn in Europe could stagger a fragile recovery in the United States and undermine growth around the world. Fighting a new downturn would be a challenge for the major economies, many of which have not fully stabilized since the last big economic crisis.” Howard Schneider and Anthony Faiola in The Washington Post.

FAQ: Why is Greece in such trouble? And can it be fixed?

@ezraklein: “Syriza” is a rather evil-sounding name for a political party. Pretty sure it means Hydra in Greek.

2) Senate leaders reached a deal to move the Export-Import Bank bill forward. “Legislation to extend the Export-Import Bankas charter advanced in the Senate Monday evening after agreement was reached on addressing tea party demands to reopen a bipartisan deal approved only days ago by the House. Five GOP amendments will be permitted Tuesday — some re-litigating specific agreements reached by House leaders. But in each case, a supermajority of 60 votes would be required, leaving Senate Majority Leader Harry Reid (D-Nev.) hopeful that the House package will survive intact and go quickly to President Barack Obama for his signature this week…Mondayas agreement, as announced by Reid, came only minutes before a scheduled procedural vote in which he would have needed 60 votes himself to move on to the bill. By coming to terms on the amendments, Reid avoided that challenge, but as part of the same deal, he will need 60 votes for passage of the bill.” David Rogers in Politico.

3) JPMorgan Chase’s loss has the banking industry scared. “A Congressional committee announced plans on Monday to hold a hearing on the financial regulatory overhaul that will look at the JPMorgan loss. Wall Streetas representatives, fearing that the entire banking industry might pay for JPMorganas sins, are trying to contain the fallout in Washington, people close to the matter said…JPMorgan, however, is stepping away from another public panel on the Volcker Rule. The Commodity Futures Trading Commission, one of the regulators writing the Volcker Rule, will host a public roundtable this month about the new regulation and has invited JPMorgan to speak. Last week, JPMorgan suggested that one of its top Volcker Rule experts would attend. But then the bank said that this person had a scheduling conflict. Rather than dispatch another executive to Washington, the banks recommended an employee at another bank..” Ben Protess and Ed Wyatt in The New York Times.

The fiasco claimed its first casualty. “JPMorgan Chase on Monday announced the abrupt retirement of the executive who oversaw the unit that lost $2 billion trading exotic securities, the latest twist in a story that has exposed the gulf between how Wall Street views itself and how the public sees the financial sector. To the bank, its actions — which included appointing an executive to investigate what went wrong — were an example of how it could take the initiative in cleaning up its own shop. But to many lawmakers and analysts, the question remains how a bank with a sterling reputation could get into such trouble two years after Congress passed laws to prevent dangerous financial gambling…On Monday, the bank announced that Chief Investment Officer Ina Drew, who oversaw the London unit, would leave the firm, which she has served for 30 years…The bank also announced that Mike Cavanagh, a top executive, would lead a team of officials to investigate the losses.” Zachary Goldfarb and Steven Mufson in The Washington Post.

FAQ: What happened at JP Morgan? And should you care?

@lizzieohreally: Carl Levin just waved highlighted parts of Dodd-Frank at me. Which was awesome.

@SuzyKhimm: Part of Obama’s problem in selling Dodd-Frank: many new regs aren’t written yet, much less implemented. Similar to Obamacare conundrum.

4) Businesses are bracing for taxmageddon. “Defense contractors have slowed hiring. Tax advisers are warning firms not to count on favorite breaks. And hospitals are scouring their books for ways to cut costs. Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending. The halls of the U.S. Capitol are already teeming with people warning of disaster if lawmakers fail to defuse a New Yearas budget bomb scheduled to raise taxes for every American taxpayer and slash spending at the Pentagon and most other federal agencies…The uncertainty is already prompting some firms to take action. Many more say they will be forced to contemplate layoffs and other cost-cutting measures long before the end of the year unless the Republican House and the Democratic Senate come up with an alternative path to tame deficits.” Lori Montgomery and Rosalind Helderman in The Washington Post.

5) The House GOP may link tax cut extensions with a tax reform vote this summer. “House GOP leadership is considering linking a short-term extension of the expiring Bush-era tax cuts to an overhaul of the tax system this summer, aiming to give its party a campaign talking point and to pressure Senate Democrats to act. While the details of the plan are very much up in the air, one option being considered is passing a bill extending the 2001 and 2003 tax rates for one year along with a resolution affirming GOP principles for tax reform. The measures could also include some form of fast-track authority, much like the power granted to the Joint Committee on Deficit Reduction, to expedite floor consideration of a tax reform plan in 2013, when the Bush-era tax cuts would again expire…Boehner is expected to address this and other financial issues at a speech before the Peter G. Peterson Foundation Fiscal Summit today.” Daniel Newhauser and John Stanton in Roll Call.

Top op-eds

1) KLEIN: The filibuster may be unconstitutional. “According to Best Lawyers — ‘the oldest and most respected peer-review publication in the legal profession’ — Emmet Bondurant ‘is the go-to lawyer when a business person just canat afford to lose a lawsuit.’ He was its 2010 Lawyer of the Year for Antitrust and Bet-the-Company Litigation. But now, heas bitten off something even bigger: bet-the-country litigation. Bondurant thinks the filibuster is unconstitutional. And, alongside Common Cause, where he serves on the board of directors, heas suing to have the Supreme Court abolish it…At the core of Bondurantas argument is a very simple claim: This isnat what the Founders intended. The historical record is clear on that fact. The framers debated requiring a supermajority in Congress to pass anything. But they rejected that idea.” Ezra Klein in The Washington Post.

2) SALAM: The U.S. economy shouldn’t follow China’s model. “Americans have always looked abroad for inspiration. Alexander Hamilton drew on the experience of Britain and France to shape the economic institutions of the early republic. In the early 19th century, Henry Clay championed tariffs, a national bank, and internal improvements in an effort to match Britainas economic might. As the 19th century gave way to the 20th, Germany emerged as an industrial colossus, and American intellectuals had a new model. During the 1950s, at least some Americans, mainly but not exclusively on the political left, saw the breakneck modernization of the Soviet Union as a clear indication that the old-fashioned market economy was on its last legs…But the belief that we had much to learn from the Soviets was both dangerous and stupid. And much the same can be said for the current enthusiasm over Chinaas economic model.” Reihan Salam in National Review.

3) BERWICK: Cheaper healthcare can mean better healthcare. “Reducing costs wonat just rescue health care; it will also help rescue our schools, our roads, our museums, our wages, and the competitiveness of our corporations…The route is simple: improve care. In a study in the Journal of the American Medical Association, my colleague Andy Hackbarth and I estimated the amount of pure waste in American health care — overtreatment that helps no patient at all (like treating viral infections with antibiotics), errors and injuries from unsafe care, failures in coordination (such as sending people home from hospitals without supports), needless administrative complexity, failures of price competition, and fraud. The lowest estimate of total waste in these six categories was 21 percent of health care costs; the highest was 47 percent; and the midpoint was 34 percent. When we are wasting $1 in of every $3, it makes no sense to say we cannot afford to make health care a human right without rationing. Donat cut care. Cut waste.” Donald Berwick in The Boston Globe.

4) SCHMITT: Link worker pay to corporate taxes to fight inequality. “The tax code can be part of the solution. The first step is to end the preferential treatment of income from capital gains, which economists like Princetonas Alan Blinder have shown to have no lasting effect on total investment or the economy. But we can and should go further, actively using the corporate tax code to create a real incentive to pay CEOs less, and workers more, by linking the head honchoas compensation to both employee salaries and tax rates. Hereas how the idea could work. The current corporate tax rate is a flat 35 percent. In an equity-based corporate tax system, companies with a pay ratio at the historic norm of 40:1, or even up to 60:1, would pay the existing rate and be able to deduct executive pay. But companies that pay their top executives more than 60 times the average worker (including employees in overseas subsidiaries) would pay a higher rate, 40 percent, and those with extreme pay differentials, 80:1 or higher, would pay 45 percent.” Mark Schmitt in GOOD.

5) STEVENSON AND WOLFERS: An economic mode of marriage equality. For our grandparentsa generation, marriage was about separate roles, separate spheres and specialization. Gary Becker, an economist at the University of Chicago, won the Nobel Prize partly for describing the family as an economic institution — a bit like a small firm that employs people with different skills to produce both income and a well-run household. In Beckeras view, the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace…Modern marriage offers different benefits. Today, we search for a soul mate rather than a good homemaker or provider. We are more likely to regard marriage as a forum for shared experiences and passions. Viewed through an economic frame, modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage. Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian.” Betsey Stevenson and Justin Wolfers at Bloomberg View.

Anti-folk interlude: Kimya Dawson plays “I like Giants” live.

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Still to come: A fall in commodities prices sparks worries of deflation; a turf war over primary care; colleges begin to confront costs; regulators worry about solar flares; and a harbor seal pup explores the water for the first time.

Economy

New data suggests the eurozone has returned to recession. “Industrial production in the 17 countries that use the euro fell unexpectedly in March, leaving little doubt the region contracted for a second straight quarter in the first three months of the year and returned to recession, data by Eurostat showed Monday. The European Union’s statistical agency will publish the first estimate of first-quarter gross domestic product Tuesday. Economists are forecasting a 0.2% quarterly decline, according to a Dow Jones Newswires poll. Industrial production fell 0.3% on the month in March and by 2.2% on the year. The latter was the steepest drop since a 3.7% decline in December 2009, while the monthly decline was because of a sharp 8.5% decrease in energy production as the weather in March was warmer than usual for the time of year, a Eurostat statistician said…The data were weaker than expected. Economists had forecast a 0.5% monthly increase and a 1.2% year-on-year fall.” Ilona Billington in The Wall Street Journal.

Commodities prices fell to a new yearly low. “The prices of key commodities fell to their lowest level of the year on Monday, dragged down by worries about Europeas debt crisis and the possibility of a slowdown in China, the worldas second-largest economy. An emerging concern among some economists and investors is that the declining prices of materials such as gold and crude oil could be an early signal of deflation — a decline of prices that is economically corrosive because it makes it more difficult for businesses to make a profit. The downturn in prices is reflected in broad measures of commodity prices. The Standard & Pooras GSCI, an index tracking prices for crude oil, gold, copper and several other commodities, has dropped more than 6 percent this month so far. Even the price of gold, which usually rises when investors have concerns about the economy, has fallen.” Jia Lynn Yang in The Washington Post.

Smile for the camera interlude: Videos of people who think they are posing for a picture.

Health Care

Romney and Obama differ sharply on Medicare. “President Obama and Mitt Romney agree on one thing about Medicare: the differences between them are huge…Mr. Romney, who would limit the governmentas current open-ended financial commitment to Medicare, contends that Mr. Obama has no workable plan to prevent Medicare from going bankrupt. Under the Romney proposal, the government would contribute a fixed amount of money on behalf of each beneficiary, and future beneficiaries could use the money to buy private insurance or to help pay for traditional Medicare…Mr. Obama assails the Romney proposal for the same reason he denounced a similar plan devised by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee: the government contribution, he says, would not keep up with the rising cost of health care, so Medicare beneficiaries — older Americans and people with disabilities — would have to pay more of the cost.” Robert Pear in The New York Times.

A primary care turf war is heating up. “Nurse practitioners are rolling out a campaign this week to explain what, exactly, nurse practitioners do — and why patients should trust them with their medical needs…The AANP will follow up on the public relations blitz with state-level lobbying efforts, looking to pass bills that will expand the range of medical procedures that their membership can perform…All states have ‘scope of practice’ laws, which regulate what medical procedures each profession can, and cannot, perform, given their level of education…In 16 states, nurse practitioners can practice without the supervision of another professional such as a doctor. Other states, however, require a physician to sign off on a nurse practitioneras prescriptions, for example, or diagnostic tests. As the health insurance expansion looms, expanding those rules to other sta=0 Connection: close ay for nurse practitioners.” Sarah Kliff in The Washington Post.

A senator is floating a plan to make HIV drugs cheaper. “Why do American patients pay tens of thousands of dollars each year for HIV drugs that cost just hundreds in Africa? Drugmakers wave their patent rights in developing countries as part of the Presidentas Emergency Fund for AIDS Relief. But the higher cost of brand-name drugs in the United States makes it difficult for many HIV patients to stay on drug regimens that can cost as much as $30,000 a year. Thatas the challenge a Senate subcommittee will explore on Tuesday at a hearing on how to narrow the gap. Itas mainly a vehicle one proposed solution — a proposal by Sen. Bernie Sanders (I-Vt.) that would award prize money rather than grant patent rights to manufacturers that develop new HIV drugs, allowing the medication to go straight to the generic market. But the hearing will also look at the root causes of a dilemma that has had some HIV patients and drugmakers at odds for years.” J. Lester Feder in Politico.

@petersuderman: This new issue of Health Affairs looks so, so awesome. All coverage expansion all the time!

Domestic Policy

Broadcasters are pushing back on recent FCC moves. “TV broadcasters look at the Federal Communications Commissionas recent drive to move them off frequencies and put their political advertising rates on the Internet and draw one conclusion: The FCC has it in for television. And broadcasters are fighting back by publicly airing that charge in the midst of the ongoing policy debate on freeing up airwaves for wireless broadband…For decades, televisionas use of the airwaves was virtually unchallenged. Under Chairman Julius Genachowski, the FCC has focused on fostering mobile broadband as the essential communications platform of the future. As broadcasters see it, television has become a much less important medium to the agency…In the wrangling over spectrum, broadcasters see the wireless industry — which is clamoring for access to more airwaves to satisfy the exploding amount of broadband data traffic — as their main foe. As the wireless industry sees it, the best use of finite spectrum resources is mobile broadband.” Brooks Boliek in Politico.

A federal judge struck down a NLRB rule on union elections. “A federal judge ruled Monday that a contentious union election rule proposed by the National Labor Relations Board (NLRB) is ‘invalid.’ In an 18-page memorandum opinion, U.S. District Judge James Boasberg struck the regulation down, saying the labor board only had two members when it voted on the final rule in December 2011. Boasberg said the agency needed at least three members to have a quorum for action on the rule…Two NLRB members — Chairman Mark Pearce and then-Member Craig Becker, both Democrats — participated in adopting the rule. The labor boardas third member at the time, Republican Brian Hayes, did not participate…The judge said the decision by the U.S. District Court for the District of Columbia ‘may seem unduly technical,’ but cited a 2010 Supreme Court ruling that the NLRB needs a quorum of three members to issue regulations and make rulings. Boasberg said his ruling was not made on the merits of the union election rule and noted the NLRB could vote again to pass it.” Kevin Bogardus in The Hill.

@AlecMacGillis: Dems’ failure to pass labor law reform in ’09-’10 haunts once again–a judge just threw out NLRB’s incremental new rule to ease organizing.

Colleges are beginning to confront costs. “College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families. Increasingly, they are looking for other ways to pay for education, stepping up private fund-raising, privatizing services, cutting staff, eliminating departments — even saving millions of dollars by standardizing things like expense forms…The problems arenat confined to public colleges. Administrators at some nonprofit private institutions said they too had come to realize they could not keep raising tuition and fees.” Andrew Martin in The New York Times.

Adorable animals exploring the world interlude: The firsts of a harbor seal pup.

Energy

A transmission line for offshore wind is moving forward. “A pioneering proposal to build a wind power transmission line on the ocean floor from southern Virginia to northern New Jersey cleared a hurdle on Monday when the Interior Department opened the way for the projectas sponsors to start work on an environmental impact statement. The Bureau of Ocean Energy Management, part of the Interior Department, said that no competitor had emerged for the right-of-way for the proposed transmission line, known as the Atlantic Wind Connection, allowing the bureau to issue a ‘determination of no competitive interest.’ By linking wind farms 15 to 20 miles off the coast, the backbone would greatly reduce the number of individual radial lines needed to bring the energy to shore…Construction of the full project would take about 10 years, according to the company. The right-of-way corridor, including branches to reach the shore at intermediate points, would run about 790 miles, the Interior Department said.” Matthew Wald in The New York Times.

Regulators are considering options to protect the grid from solar flares. “With a peak in the cycle of solar flares approaching, U.S. electricity regulators are weighing their options for protecting the nation’s grid from the sun’s eruptions–including new equipment standards and retrofits–while keeping a lid on the cost. They are studying the impact of historic sunstorms as far back as 1859 to see if the system needs an upgrade, and encountering a clash of views on how serious the threat is and what should be done about it…The sun is expected to hit a peak eruption period in 2013, and while superstorms don’t always occur in peak periods, some warn of a disaster. John Kappenman, a consultant and former power engineer who has spent decades researching the storms, says the modern power grid isn’t hardened for the worst nature has to offer. He says an extreme storm could cause blackouts lasting weeks or months, leaving major cities temporarily uninhabitable and taking a massive economic toll.” Ryan Tracy in The Wall Street Journal.

Highway crashes are the leading cause of fatalities for oil and gas workers. “Over the past decade, more than 300 oil and gas workers like Mr. Roth were killed in highway crashes, the largest cause of fatalities in the industry. Many of these deaths were due in part to oil field exemptions from highway safety rules that allow truckers to work longer hours than drivers in most other industries, according to safety and health experts. Many oil field truckers say that while these exemptions help them earn more money, they are routinely used to pressure workers into driving after shifts that are 20 hours or longer…Last year, the National Transportation Safety Board said it ‘strongly opposed’ the oil field exemptions because they raise the risk of crashes. This threat will grow substantially in coming years, safety advocates warn. According to federal officials, more than 200,000 new oil and gas wells will be drilled nationwide over the next decade.” Ian Urbina in The New York Times.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

And then, last night, JPMorgan Chase announced it had lost $2 billion on some very big, very dumb hedges. For proponents of stricter financial regulation, Dimon’s giant loss is a huge gift. The final version of the Volcker rule is scheduled to be released in the coming months. Dimon swears that these trades would have been compliant with the previous drafts of the Volcker rule. That will give regulators a strong incentive to make sure future trades like these aren’t.

Dimon, for his part, doesn’t see the relevance. aJust because weare stupid doesnat mean everybody else was,a he said on a Thursday conference call. aThere were huge moves in the marketplace but we made these positions more complex and they were badly monitored.a

But the point of the Volcker rule — and of financial regulation more generally — isn’t to punish banks for being evil. It’s to protect the rest of us from banks being stupid. And if the most prudent of the big banks can’t keep itself from being this stupid this soon after the financial crisis, then it’s pretty clear we’re going to need very strong rules to keep them from being stupid in the years to come, when the lessons of the financial crisis have faded more completely.

As Reuters’ Felix Salmon writes, “JP Morgan more or less invented risk management. If they canat do it, no bank can. And no sensible regulator can ever trust the banks to self-regulate.”

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Top stories

1) A massive bet gone wrong cost JP Morgan Chase at least $2 billion. “A massive trading bet boomeranged on J.P. Morgan Chase & Co., leaving the bank with at least $2 billion in trading losses and its chief executive, James Dimon, with a rare black eye following a long run as what some called the ‘King of Wall Street.’ The losses stemmed from wagers gone wrong in the bank’s Chief Investment Office, which manages risk for the New York company. The Wall Street Journal reported early last month that large positions taken in that office by a trader nicknamed ‘the London whale’ had roiled a sector of the debt markets. The bank, betting on a continued economic recovery with a complex web of trades tied to the values of corporate bonds, was hit hard when prices moved against it starting last month, causing losses in many of its derivatives positions. The losses occurred while J.P. Morgan tried to scale back that trade.” Dan Fitzpatrick, Gregory Zuckerman, and Liz Rappaport in The Wall Street Journal.

The loss is putting the spotlight on the Volcker Rule. “JPMorgan Chaseas $2 billion trading loss, which was disclosed on Thursday, could give supporters of tighter industry regulation a huge new piece of ammunition as they fight a last-ditch battle with the banks over new federal rules that may redefine how banks do business…The centerpiece of the new regulations, the so-called Volcker Rule, forbids banks from making bets with their own money, and a final version is expected to be issued by federal officials in the coming months. With the financial crisis fading from view, banks have successfully pushed for some exceptions that critics say will allow them to simply make proprietary trades under a different name, in this case for the purposes of hedging and market-making. The missteps by JPMorgan could highlight that murky line between proprietary trading and hedging. The bank unit responsible for losses takes positions to hedge activities in other parts of the bank.” Nelson Schwartz in The New York Times.

@lizzieohreally: Dimonfreude.

@BCAppelbaum: If losing $2 billion in your trading operations doesn’t violate the Volcker Rule, is it possible that we might need a broader rule?

@ezraklein: At this point in time, I feel comfortable predicting Jamie Dimon will not replace Tim Geithner as Secretary of the Treasury

2) The U.S. ran a monthly surplus for the first time since 2008. “The federal government posted a budget surplus in April as tax receipts rose, the first month that revenue has outpaced spending in more than three and a half years. The Treasury Department, in its latest monthly budget figures out Thursday, said the government ran a surplus of $59.12 billion during April, compared with a deficit of $40.39 billion a year earlier. Economists surveyed by Dow Jones Newswires had projected a $30.00 billion surplus. The federal government has historically run a budget surplus in April, when many Americans file their tax returns. Over the past 58 years, there have been 44 April surpluses, a Treasury official said. But from late 2008 up until two months ago, the government ran steady deficits amid weaker tax receipts and heavy spending following the financial crisis. The government last ran a monthly surplus in September 2008, the same month that Lehman Brothers Holdings Inc. filed for bankruptcy.” Jeffrey Sparshott in The Wall Street Journal.

@DaveedGR: Obviously, the April surplus is due to taxes coming in. Remarkable that there hasn’t been a surplus in any April since 2008…

3) Republicans may not offer a comprehensive replacement for Obamacare. “Republicans might not offer a comprehensive plan to replace President Obamaas healthcare law if the Supreme Court strikes it down this summer. House Republicans had said they would have a healthcare bill ready to go by the time of the ruling to present a clear alternative to the Democratsa Affordable Care Act. But now, with the high courtas ruling just weeks away, some conservatives are urging the party to abandon that strategy, fearing voters will recoil from another sweeping revamp of the healthcare system…Ditching a comprehensive proposal could also make it easier for Republicans to steer the publicas focus away from popular elements of the Affordable Care Act that are unlikely to make the cut in a GOP plan…But a piecemeal strategy on healthcare could present its own risks. Republicans campaigned in 2010 on ‘repealing and replacing’ Obamaas law, but have struggled to clearly articulate a healthcare platform of their own.” Sam Baker in The Hill.

4) Europe delayed a loan payment to Greece. “Euro-zone governments held back part of a big scheduled loan payment in a warning shot to Greece Wednesday, as outside pressure mounted on the country’s politicians to pull together a pro-euro coalition to take charge of the government. Greece’s euro-zone partners agreed to release only a!4.2 billion ($5.5 billion) in previously agreed financing, to be paid out Thursday, holding back a!1 billion at least until June. That would be paid only if Greece keeps to pledges it made to secure a bailout. With Athens in political turmoil after a fractured result in weekend elections, and a new vote likely by June, German politicians cautioned that further aid could be withdrawn if Greece abandons austerity targets–even if that pushes the country from the bloc…Thursday’s payment is needed for Greece to pay a!3.3 billion it owes the European Central Bank next week. The aid was agreed in March by euro-zone governments as part of Greece’s a!130 billion second bailout program.” Alkman Granitsas, Laurence Norman, and Matthew Dalton in The Wall Street Journal.

5) Almost 250,000 Americans will lose their unemployment insurance this weekend. “More than 230,000 jobless Americans will lose their unemployment insurance by this weekend as reductions in the federal program that provides extended benefits to the long-term unemployed take broader effect. The new round of reductions is hitting eight states this month, meaning that about 400,000 long-term unemployed Americans in 27 states will have been cut off of the federal governmentas extended unemployment benefits program this year, according to an analysis by the National Employment Law Project, which advocates for the unemployed. The cuts stem from a congressional agreement this year that will reduce the maximum duration of unemployment benefits from 99 weeks to 79 weeks as the nationas jobless rate declines. Most states provide 26 weeks of benefits, and the federal government provides the rest, partially through a complicated formula that requires jobless rates to be both high and increasing to reach the benefit limit.” Michael Fletcher in The Washington Post.

6) The House passed the GOP’s sequester replacement bill. “The House approved sweeping legislation on Thursday to cut $310 billion from the deficit over the next decade — much of it from programs for the poor — and shift some of that savings to the Pentagon to stave off automatic military spending cuts scheduled for next year. The legislation has no chance of passing the Senate or of becoming law. The White House issued a stern veto threat, saying the bill would ‘fail the test of fairness and shared responsibility.’ But the legislationas prescriptions and priorities could define the 2012 Congressional elections — and are likely to affect the race for the White House…The billas political sensitivity came through in the 218-to-199 vote. Democrats were united in their opposition. Sixteen Republicans sided with the Democrats, and one Republican voted present. ‘I voted my conscience, and I voted my district,’ said Representative Mike G. Fitzpatrick, a Republican from suburban Philadelphia, who voted no.” Jonathan Weisman in The New York Times.

Top op-eds

1) REICH: J.P. Morgan Chase makes the case for Glass-Steagall. “Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets)…What just happened at J.P. Morgan – along with its leaderas cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fedas recent recommendation that Wall Streetas giant banks be broken up should be heeded.” Robert Reich.

2) KRUGMAN: Talk of structural unemployment is an excuse for inaction. “So now weare in another depression, not as bad as the last one, but bad enough. And, once again, authoritative-sounding figures insist that our problems are ‘structural,’ that they canat be fixed quickly. We must focus on the long run, such people say, believing that they are being responsible. But the reality is that theyare being deeply irresponsible…So whatas with the obsessive push to declare our problems ‘structural’? And, yes, I mean obsessive. Economists have been debating this issue for several years, and the structuralistas wonat take no for an answer, no matter how much contrary evidence is presented. The answer, Iad suggest, lies in the way claims that our problems are deep and structural offer an excuse for not acting, for doing nothing to alleviate the plight of the unemployed…All this talk about structural unemployment isnat about facing up to our real problems; itas about avoiding them, and taking the easy, useless way out. And itas time for it to stop.” Paul Krugman in The New York Times.

3) ALTER: Obama and Romney offer differing views of capitalism. “A more useful distinction may be between venture capitalists and human capitalists. Romney came up as a private-equity investor. Like his party, he believes in his heart that the way forward for the U.S. is to slash taxes for the wealthy even further so that they have more venture capital to invest in businesses. Obama came up as a community organizer. Like his party, he believes in his heart that a great nation must invest in human capital through education, health care and infrastructure…Last week brought a classic example of the differing approaches. The tussle over doubling interest rates for student loans (scheduled for July 1) was a controversy ginned up for the Obama campaign, but it was also an acid test. Democrats wanted to pay for the lower rate with a modest business tax; Republicans responded with plans to scuttle the preventive health-care part of Obamacare, despite much evidence of its efficacy for both people and budgets. ” Jonathan Alter in Bloomberg.

4) CARPENTER AND KNEPPER: Occupational license reform would spur economic opportunity. “Since the 1950s, the number of U.S. workers needing an occupational license–effectively a government permission slip to work–has grown from one in 20 to nearly one in three, according to a 2010 study by Morris Kleiner (University of Minnesota) and Alan Krueger (Princeton). The burdens these licenses impose on would-be workers and entrepreneurs are substantial…The risk of a few bad haircuts seems worth a roll of the dice if the upside is more economic opportunities. But the truth is that consumers are capable of judging the quality of many services for themselves. If lawmakers in Michigan and elsewhere want to help more Americans find jobs, they should start by reducing or removing burdens that do little more than protect some people from competition by keeping others out of work.” Dick Carpenter and Lisa Knepper in The Wall Street Journal.

5) BAKOPOULOS: Greek voters didn’t have a chance to reject austerity without rejecting Europe. “Itas clear that Greeks — derided throughout the Continent as lazy and corrupt, hobbled by the bailout dealas austerity measures and humiliated by the troika (the European Central Bank, European Commission and International Monetary Fund) — have put their trust outside the mainstream…But an election usually asks: who, or what, are you for? Not this one. If voters were given any choice, it was this: either accept the austerity measures or be forced to leave the euro zone. A double bind, this either-or option is unable to give expression to the complexity of both yes to Europe and no to austerity. Just before the vote, the German finance minister issued a warning: If Greek voters did not elect a government that would abide by the terms of the deal, ‘then Greece will have to bear the consequences.’ But the consequences are unclear. Vote correctly, or else. Or else what?” Natalie Bakopoulos in The New York Times.

Top long reads

Binyamin Appelbaum profiles financial blogger Joe Weisenthal: “Weisenthal is often — perhaps more often than anyone else — the first person to describe new data on Twitter. And almost as quickly, he repeats the thought, with a new headline, on Business Insider. When the government reported that only 120,000 jobs were created in March, well below expectations, he quickly rewrote the draft of his tweet: ‘DISASTER: MARCH JOBS REPORT MISSES EXPECTATIONS AT 120K. (Analysts expected +205K)’ A search on Twitter suggests that this, at 8:30 on the dot, was the first line published on the subject. Weisenthal managed to post a complete sentence before one of his main rivals, a blogger whose handle is ZeroHedge, tweeted just this: ’120k.’…And then Weisenthal and his audience moved on to the next thing. Around 10 a.m., he posted a new article. The headline read, ‘FORGET THE JOBS REPORT: The Most Important Number of the Day Hasnat Even Come Out Yet.’”

James Bandler and Doris Burke investigate the struggles of HP: “Dr. Phil could fill a month’s worth of shows just examining HP’s board, whose dynamics have resembled those of rival junior high school cliques more than what is supposed to be a sage guiding force. At times, as we’ll see, HP directors have refused to be in the same room with one another and have accused each other of lying, leaking, and betrayal. Time and again they’ve failed in their choice of CEO — their most important task — selecting a new leader whose most salient trait is that he or she is the opposite of the last one. All of this has impeded the company from tackling the fundamental problem it faces: Simply put, Hewlett-Packard has lost its way. The company is in the midst of an existential crisis. It remains a behemoth, No. 10 on the Fortune 500, with $127 billion in sales last year and $7 billion in earnings. But the trajectory is ominous. Those profits, for example, were 19% lower in 2011 than in the previous year.”

’60s nostalgia interlude: Jimi Hendrix plays “Rock Me Baby” live at Monterey 67.

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

Still to come: CEOs push for deficit reduction; an abortion rights leader is stepping down; low scores on a science exam; oil independence may not be a realistic goal; and bear cubs hop aboard the love train.

Economy

A rise in imports widened the trade deficit. “The U.S. trade deficit widened in March but other data Thursday reflected two conditions that could spur the economic recovery: strong American exports and falling oil prices. The March trade gap expanded 14.1% from February to $51.8 billion, the government said. Growing demand from consumers and businesses for goods and services from abroad, along with high oil prices that have since retreated, sent imports surging 5.2% to a record $238.6 billion. But exports also showed strength, rising at the fastest pace since last summer to set their own record. Despite Europe’s fiscal woes and Asia’s slower growth, the U.S. sent abroad $186.8 billion in goods and services in March, up 2.9% from February. Exports have climbed for the past four months, defying forecasts of slower growth due to the recession in the euro zone. U.S. manufacturers appear to have been helped by a historically weak dollar as well as subdued wage growth at home.” Josh Mitchell in The Wall Street Journal.

The House passed the first appropriations bill of the year. “The House on Thursday approved the first appropriations bill of the year, a measure that spends $51 billion on the Departments of Commerce and Justice, NASA and other related agencies. The spending bill, H.R. 5326, was approved in a 247-163 vote in which eight Republicans voted against it, reflecting opposition to the amount spent in the bill. But it also picked up the support of 23 Democrats…The bill is among the least controversial of the 12 annual appropriations bills but has little chance of becoming law on its own. The White House has said President Obama will veto any and all of the 12 bills until the House renounces the top-line spending level in the overall budget written by Rep. Paul Ryan (R-Wis.). The legislation cuts spending by about 3 percent compared to current levels, which Republicans said shows their ongoing commitment to trim spending. The GOP said spending by agencies covered by the bill has been cut by 20 percent over the last three budget cycles.” Pete Kasperowicz in The Hill.

CEOs are making a new push for a deficit deal. “Top business executives, many of whom sat on their hands during last year’s frantic debate about raising the federal debt ceiling, have begun mobilizing and plan to be more vocal in urging Congress to reach a bipartisan deficit-reduction deal by the end of the year. Executives have been meeting privately with lawmakers, urging them to start laying the groundwork now so they can reach an agreement after the November elections to avoid the large tax increases and heavy spending cuts scheduled to take effect in January. They worry those measures could tip the economy back into recession and create turmoil in financial markets, according to people who have attended some of the meetings. J.P. Morgan Chase & Co. chief executive James Dimon hosted a lunch for several dozen chief executives and two U.S. senators late last month, one of the latest in a series of private meetings aimed at drumming up support for a political agreement.” Damian Paletta in The Wall Street Journal.

Subsides are fueling gains in manufacturing. “As chairman and principal owner of Revere Copper Products, Mr. OaShaughnessy runs one of Americaas oldest manufacturing companies, started by Paul Revere himself, a fact that exerts considerable pressure. As he put it: ‘What kind of a message are you sending to the people of the country if you abandon America?’ But spend a day with him, and a more complex picture emerges. He wonders sometimes about the less patriotic alternative of relocating production to Asia or closing the factory entirely on the ground that Revereas profit margin here is too thin — less than $1 million on $450 million in annual revenue…What staves off those alternatives are labor concessions and a substantial government subsidy, something he and others in the United States say is increasingly important to fuel a nascent recovery in manufacturing…With such support, the key measure of manufacturingas presence in America is ticking upward.” Louis Uchitelle in The New York Times.

@jbarro: Just got woken up. I swear I was in the middle of a dream where I was arguing w/ a reporter about transfer taxes.

Engineering interlude: A real life Mario Kart.

Health Care

The leader of an influential abortion rights advocacy group will step down. “At the end of this year, Nancy Keenan will step down from her post as president of NARAL Pro-Choice America, the countryas oldest abortion-rights advocacy group. The 60-year-old Keenan said she is leaving out of concern for the future of the pro-choice movement — and thinks she could be holding it back.Nancy Keenan will retire as president of NARAL Pro-Choice America at the end of the year. In recent years, Keenan has worried about an ‘intensity gap’ on abortion rights among millennials, which the group considers to be the generation of Americans born between 1980 and 1991. While most young, antiabortion voters see abortion as a crucial political issue, NARALas own internal research does not find similar passion among abortion-rights supporters. If the pro-choice movement is to successfully defend abortion rights, Keenan contends, it needs more young people in leadership roles, including hers.” Sarah Kliff in The Washington Post.

An F.D.A. panel backed the preventive use of a H.I.V. drug. “A drug already used to treat H.I.V. infection should also be approved to prevent it, an advisory panel to the Food and Drug Administration said on Thursday. The recommendation is the first time that government advisers have advocated giving antiviral medicine to healthy people who might be exposed through sexual activity to the virus that causes AIDS. One panelist called approving the drug ‘an amazing opportunity to turn the tide on this epidemic.’ Studies have shown that people who take the medicine, Truvada, every day have a greatly reduced risk of infection. The F.D.A. usually accepts the advice of its advisory panels, which are made up of outside medical experts…Experts say better methods of prevention are needed because there are 50,000 new H.I.V. infections a year in the United States. Several speakers emphasized Thursday that that number had not budged in 15 to 20 years.” Denise Grady in The New York Times.

Domestic Policy

Scores remained low on a national science test. “U.S. eighth graders made modest gains on the latest national science exam, but more than two-thirds still lacked a solid grasp of science facts, according to figures released Thursday that renewed concerns American schools are inadequately preparing children for college and the workforce. The 2011 National Assessment of Educational Progress, an exam administered by the U.S. Department of Education, showed that 32% of students were proficient in science, compared with 30% the first time the new version of the science exam was administered, in 2009…Teachers and education-advocacy groups cite various possible causes for weak scores, including a lack of qualified science teachers, budget cutbacks and a narrowing of the curriculum prompted by the No Child Left Behind law. That 2002 U.S. statute caused schools to be evaluated solely on math and reading tests, which persuaded some to reduce science education.” Stephanie Banchero in The Wall Street Journal.

Congress is considering subsidizing the deductibles on crop insurance. “It’s a deal that most businesses would relish: Buy an insurance policy to cover losses or falling prices, and the government will foot most of the bill. Such an arrangement has been enjoyed for more than a decade by the farmers who grow crops such as corn and soybeans, and the companies that insure them. And it’s about to get even better. The farm bill now before Congress includes a provision — estimated to cost about $3 billion a year — that would help cover the losses farmers suffer before their crop insurance policies kick in. Those losses, termed deductibles, can run in the tens of thousands of dollars for a typical mid-size farm. Supporters say it’s a money saver because it would replace an existing subsidy costing $5 billion a year. That subsidy, known as direct payments, pays farmland owners a set amount regardless of whether they’ve planted crops on the land.” Kim Geiger in The Los Angles Times.

Adorable animals being adorable together interlude: All aboard the (bear cub) love train!

Energy

Oil independence may not be possible. “Over the past few years, the United States has experienced a boom in oil and gas production. And thatas led a few commentators to declare that the country is on the verge of ending its dependence on foreign energy and supply disruptions. Alas, thatas never fully possible…Even if the United States goes further and somehow manages to produce every last drop of the oil and gas it needs to run its economy, the country would still be vulnerable to events in the Middle East, tensions in Iran, strikes in Venezuela and other disruptions in the oil markets…. As the CBO explains, oil prices are set by the global oil market. ‘Disruptions in oil production in one country will cause the world oil market to readjust so that all countries and firms continue to receive oil at the new prevailing price.’ Even if the United States produced 100 percent of its own oil, the price would still go up if rising demand from China outstripped the ability of supplies to keep up.” Brad Plumer in The Washington Post.

@AndrewRestuccia: A lively version of “Chain of Fools” is playing before confernce call with Grover Norquist, Rep. Pompeo, Sen DeMint on energy tax credits

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

Angry as the Tea Party became with him, Lugar had also been disowned by the moderate faction of which he was once a part. Indeed, the Senateas dwindling number of Republican moderates expressed more frustration with Lugar than with any other colleague because they felt that too often he sided against them despite his better judgment. Rhode Island Senator Lincoln Chafee, a liberal Republican, was convinced that it galled Lugar to witness George W. Bush and Richard Cheney undoing decades of bipartisan achievements in international relations. Yet atime and again,a Chafee wrote in his book Against the Tide, aSenator Lugar showed an unwillingness to fight with the White House over the direction of our foreign policy.a

In Slate, Emily Bazelon argues that President Obama’s position was actually trailing his administration’s legal strategy. They had long ago made the unusual choice to stop defending the Defense of Marriage Act in the courts. That is to say, they had stopped defending a law that pits the federal government against states that choose to to allow same-sex marriage. This largely predicted Obama’s evolution on the underlying policy issue — he personally supports gay marriage, but thinks that the actual decisions should be left up to the states.

Then, of course, there’s the political fallout. This is unpredictable, of course. And my guess is that it probably hurts Obama a bit more than it helps him. But overall, I think Jonathan Bernstein is right that it’s largely being overhyped by both sides.

“Yes,” he writes, “some marriage-equality advocates had talked about withholding support unless the president ‘evolved.’ But realistically, there was no way that political activists a people accustomed to the normal give-and-take of politics a were not going to appreciate the wide gulf between Obama and Mitt Romney on lesbian, gay, bisexual and transgender issues.” Similarly, “itas highly unlikely that anyone who, otherwise was fine voting for Obama despite disagreeing with him on ending ‘donat ask donat tell’ and each of the other measures he has supported and in many cases has enacted, would draw the line here.”

“And what of everyone else?” Asks Bernstein. “The millions of Americans, most likely a large majority, who donat really care very much? Theyare still not going to care very much.”

But there are many Americans for whom this will matter quite a lot. Many of them are young Americans who perhaps have only recently realized that they’re gay, and who live in places, or with families, they know will have trouble accepting that fact. To them, the president’s words are a signal that they can look forward to a future in which they will be accepted, and in which they can live in a way that makes them happy. His words are proof that it gets better. And that’s a big deal.

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RCP Obama vs. Romney: Obama +1.3%; 7-day change: Obama -1.8%

RCP Obama approval: 47.3%; 7-day change: Obama -.3%.

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Top stories

1) The polling on gay marriage has flipped. According to surveys included in the PollingReport.com database, an average of 50 percent of American adults support same-sex marriage rights while 45 percent oppose it, based on an average of nine surveys conducted in the past year. This is a reversal from earlier periods: support for same-sex marriage has been increasing, and opposition to it has been decreasing, at a relatively steady rate of perhaps two or three percentage points a year since 2004…In addition, there is no longer evidence of an aenthusiasm gapa with respect to same-sex marriage: an NBC News/Wall Street Journal poll in March found that 32 percent of Americans said they strongly favored same-sex marriage, while 31 percent strongly opposed it. Nate Silver in the New York Times.

2) The president’s personal position is catching up with his administration’s legal strategy. Obamaas Justice Department withdrew more than a year ago from defending the Defense of Marriage Actas definition of marriage as ‘a legal union between one man and one woman.’ Attorney General Eric Holder started backing away from DOMA in suits brought by same-sex couples in Connecticut, Vermont, and New Hampshire. The idea in these cases is that in states that recognize same-sex marriage, the federal government should follow state law and stop denying the economic benefits of marriageaestate tax deductions, Social Security benefits, pensions, and the likeato married gay couples….As Mother Jonesa Adam Serwer points out, Obama caught up to his administrationas legal position today without going beyond it. He said ‘at a certain point I’ve just concluded that for me personally it is important for me to go ahead and affirm that I think same-sex couples should be able to get married,’ and he also said he thinks the states should decide the question of legalization for themselves. Emily Bazelon in Slate.

3) The Bundesbank may accept higher inflation. “The Bundesbank, the most hawkish of central banks, has signalled it would accept higher inflation in Germany as part of an economic rebalancing in the eurozone that would boost the international competitiveness of countries worst-hit by the regionas debt crisis. A future German inflation rate above the eurozone average could be part of a natural adjustment process as crisis-hit countries pulled themselves out of recession, the Bundesbank argued in evidence to German parliamentarians submitted on Wednesday…The Bundesbank has for some time seen European Central Bank policy as too loose for Germany. The willingness to contemplate higher domestic inflation in public comments points to a new-found flexibility in German thinking…Despite the Bundesbankas conciliatory stance on inflation, German policy makers have been among the toughest in insisting that Greece sticks to its agreed reform programme underpinning its bailout in the aftermath of Sundayas Greek election.” Ralph Atkins in The Financial Times.

4) Banks are throwing their weight behind Obama’s Fed nominees. “President Barack Obama’s two nominees to the Federal Reserve Board have received support from the financial-services industry, including Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. Sen. David Vitter (R., La.) has effectively blocked Senate confirmation of the nominees, Harvard University economics professor Jeremy Stein and former private-equity executive Jerome Powell. Wall Street firms have been quietly pressing Mr. Vitter to drop his objections, an aide to the senator said. Senate leaders aren’t expected to bring the nominees to the floor for debate, a potentially lengthy process unlikely to be welcomed by either party in an election year. The Senate generally confirms nominees through the faster process of unanimous consent. Unless Mr. Vitter changes his mind, the two Fed nominations are unlikely to advance.” Kristina Peterson in The Wall Street Journal.

5) The House will vote today on a plan to cut health-care spending rather than defense. “The House is expected to vote Thursday on a Republican plan that would spare the Pentagon from the deep across-the-board spending cuts envisioned as part of last summeras debt-ceiling agreement, reviving what has been an emotional debate in Washington about the best ways to reduce the federal budget deficit. With a series of troubling end-of-year deadlines looming, Republicans are proposing to replace the first round of $110 billion in reductions, which are set to take effect in January. The cuts are a first-year down payment on $1.2 trillion in reductions spread over 10 years, which were to be split evenly between the military and domestic programs. To forestall the defense hit, the GOP proposal would cut funding for food stamps, eliminate key pieces of the federal health-care law and slash funding designed to help the government better monitor the financial sector.” Rosalind Helderman in The Washington Post.

@MichaelGrabell: The Sequester Replacement Reconciliation Act is probably the hottest name for a bill I’ve ever seen.

@ChadPergram: Ryan on bill to change sequester: The supercmte didn’t do its job. We’re doing what the supercmte was supposed to do: prioritize spending.

6) The FDIC will outline its plan to take down failing banks. “When the next crisis brings a major financial firm to its knees, U.S. regulators will seize the parent company but allow its units around the globe to keep operating while the mess is cleaned up, according to a planned announcement Thursday from the Federal Deposit Insurance Corp. The equity stakeholders of the large bank or other financial firm will be wiped out, and bondholders will face losses as their holdings are swapped for equity in a new entity, as a part of the FDIC’s plan. Nearly four years after the massive government bailouts of the financial crisis, regulators are looking to chip away at the tacit understanding that the government will step in to save top financial institutions seen as vital to the economy or banking system. As part of that effort, acting FDIC Chairman Martin Gruenberg will outline the agency’s strategy in a speech in Chicago Thursday, his first public remarks on the dismantlement plans for banks.” Victoria McGrane in The Wall Street Journal.

7) The CFPB will propose tighter mortgage lending regulations. “The Consumer Financial Protection Bureau said it planned to propose tighter mortgage lending regulations that would limit the ability of banks and mortgage brokers to charge certain transaction fees, possibly ending one of the most abusive costs levied on consumers when they buy a house. Bureau officials said that the rules, which were released Wednesday ahead of formal introduction this summer, would ban mortgage companies from charging origination fees that vary with the amount of the loan…The consumer bureau also said it would require that lenders offer a reduced interest rate when a consumer opted to pay upfront discount points and would require lenders to offer a loan option without points. During the financial crisis, some lenders charged the points without lowering the interest rate. Changing that rule, the bureau believes, will make it easier for consumers to weigh offers from multiple lenders.” Edward Wyatt in The New York Times.

Top op-eds

1) KLEIN: Polarization is largely attributable to Republicans. “Look no further than Senator Richard Lugaras concession statement Tuesday night, which showed, in its wan effort to make the two parties sound equivalently extreme, just how much further the Republican Party has gone…Whether the Republican Party is ‘the problem’ is a subjective judgment. Perhaps you loathe taxes and, in the face of all available evidence, consider global warming a hoax. In that case, the Republican Party is doing exactly what it should be doing. But there is simply no denying that the Republican Party has gone much further right than the Democratic Party has gone left, and that, from policy pledges to primary challenges, it has done much more to discourage its members from compromising than the Democratic Party has. So if you think polarization is the main problem in Washington today, then Mann and Ornstein are right: Your beef is largely with the Republicans.” Ezra Klein in Bloomberg.

2) HANSEN: If tar sands drilling continues it’s game over for the climate. “Global warming isnat a prediction. It is happening. That is why I was so troubled to read a recent interview with President Obama in Rolling Stone in which he said that Canada would exploit the oil in its vast tar sands reserves ‘regardless of what we do.’ If Canada proceeds, and we do nothing, it will be game over for the climate. Canadaas tar sands, deposits of sand saturated with bitumen, contain twice the amount of carbon dioxide emitted by global oil use in our entire history. If we were to fully exploit this new oil source, and continue to burn our conventional oil, gas and coal supplies, concentrations of carbon dioxide in the atmosphere eventually would reach levels higher than in the Pliocene era, more than 2.5 million years ago, when sea level was at least 50 feet higher than it is now. That level of heat-trapping gases would assure that the disintegration of the ice sheets would accelerate out of control…Civilization would be at risk.” James Hansen in The New York Times.

3) YGLESIAS: It shouldn’t be so hard for foreign visitors to come to the U.S. “For a depressed economy, exports function as a magic elixir. Demand–and with it jobs–appears from outside, generating new income that cycles through the economy, This is why President Obama, as part of his recovery strategy, has set a goal of doubling exports over five years. Talk of exports normally conjures up images of factories and container ships, but many of Americaas exports are services. The nationas biggest service export is in some sense not an export at all–itas travel and tourism, an industry begging for respect on National Travel and Tourism Week…As far as the national balance sheet goes, tourism functions exactly like an export. Foreigners come here and spend money, leaving extra funds in American hands, with which we can purchase oil and Chinese toys. Itas an export realm in which the United States has very strong fundamentals.” Matthew Yglesias in Slate.

4) SALMON: Principal reductions can benefit everybody. “Principal reduction in mortgage modifications has to become the rule rather than the exception. The reason the governmentas efforts to fix the mortgage market have failed so miserably is that those efforts have centered on interest payments, not the total amount owed. A sluggish housing market will act as an economic drag for as long as millions of homeowners owe vastly more than their house is worth. If done right, these policies can be implemented in a positive-sum way, making everybody — including the banks doing the write-downs — better off. For instance, the government could impose higher capital standards on banks that insist on marking underwater defaulted mortgages at par, and give the banks an incentive to write down principal that way, while making the whole banking system safer at the same time…If we donat want the United States to continue to suffocate under the weight of far too much debt, we have to start making serious efforts to bring our debt burden down.” Felix Salmon in Reuters.

5) WILL: The medical device tax will mean fewer life-extending inventions. “Congress, ravenous for revenue to fund Obamacare, included in the legislation a 2.3 percent tax on gross revenue — which generally amounts to about a 15 percent tax on most manufacturersa profits — from U.S. sales of medical devices beginning in 2013. This will be piled on top of the 35 percent federal corporate tax, and state and local taxes. The 2.3 percent tax will be a $20 billion blow to an industry that employs more than 400,000, and $20 billion is almost double the industryas annual investment in research and development. An axiom of scarcity is understood by people not warped by working for the federal government, which can print money when it wearies of borrowing it. The axiom is: A unit of something — time, energy, money — spent on this cannot be spent on that. So the 2.3 percent tax, unless repealed, will mean not only fewer jobs but also fewer pain-reducing and life-extending inventions…which have reduced health-care costs.” George Will in The Washington Post.

Top long reads

Marcus Walker examines the failings of Europe’s bailout of Greece: “Two years after Europe bailed Greece out to protect the euro, the rescue has become a debacle that threatens to unravel the common currency. After Greece’s May 6 elections left pro-bailout parties too weakened to govern the country, more elections are likely in June, with no guarantee a stable government will emerge. By next month, Athens must identify a!11.5 billion, or $15 billion, in fresh spending cuts or face suspension of the international loans it needs to pay pensions and run schools. If it doesn’t get the money, it would eventually have to print its own. Greece’s growing turmoil is the culmination of a radical austerity experiment and botched economic overhaul that have pushed the nation to the brink of social and political breakdown. The story of the ill-fated bailout suggests that forcing deep austerity on individual member states won’t save the euro and may worsen its crisis.”

Susan Headden on the search for better standardized tests: “Critics of testing habitually protest its cost, implying that the millions spent on assessment would be better put toward smaller class sizes, expanded library hours, or the restoration of art and gym. But despite testingas huge and growing role in education, the U.S. now devotes less than a quarter of a percent of per-pupil spending to assessments. Thatas less than the cost of buying each of Americaas students a new textbook. The American education system is at a major crossroads, one that few Americans are aware of. The new assessments–the product of a huge investment of time, knowledge, and talent–are only two years away from being put in place, and theyare desperately needed. Itas too early to know whether they will work as advertised, and even if they do, the danger is that states will quickly revert to their old habits of doing assessment on the cheap. But if we do this right, we could finally provide educators like Caryn Voskuil with one of the tools they need most: a test worth teaching to.”

Robert Rothman on the Common Core and its effect on innovation: “In some ways, the American elementary and secondary education system is undergoing a transition similar to what the American rail system underwent around the time of the Civil War. For decades, each state has set its own expectations for what students should know and be able to do at each grade level. These standards might reflect the tradition of local control of education, but they have made it difficult for students to move from state to state; students transferring from fourth grade in, say, Indiana, might face a different set of expectations when they arrive in fifth grade in Illinois. And, by fragmenting the educational marketplace, these varied standards have impeded the kinds of innovations that might otherwise come with economies of scale–in testing, textbooks, and teacher education.”

British post-punk interlude: Django Django plays “Default” live on Later with Jools Holland.

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

Still to come: The Fed approved Chinese banks; primary care doctors will be getting more for Medicaid patients; the F.T.C. and the White House want online privacy legislation; it’s a good time to be a solar installer; and a super-medley of songs from Super Mario Bros. 3.

Economy

Europe may be open to relaxing Greece’s payment deadlines. “As another day passed with Greece no closer to a working government, European officials suggested Wednesday that they had a new tool in their mission to keep the shared euro currency with all its partners: time. A ticking watch may be the most powerful bargaining chip Europe has against the possibility that anti-bailout voices in Greece will push it off the euro. Every day that ends without new European bailout money for Greece to pay its bills heightens the pressure on its leaders to comply with the austerity measures that come as a condition of the $171 billion rescue package. But German officials signaled Wednesday that they may be willing to relax some of the nationas payment deadlines if a pro-bailout government comes to power…They may even be willing to consider reducing the interest payments on Greeceas emergency loans, sweetening the deal without abandoning any of the fundamental overhauls they say Greece needs to get its economy on track.” Michael Birnbaum in The Washington Post.

@TonyFratto: I used to believe Greece couldn’t exit the euro. Now I think it’s only a matter of timing.

@esoltas: Likelihood of Eurozone exit soars on @Intrade — 69% by yearend 2014, 54% by 2013, 35% by 2012. http://pic.twitter.com/ES1kbQqF

Fannie Mae won’t need additional taxpayer aid for the first time since the bailout. “Fannie Mae, the government-backed mortgage financier, said on Wednesday that it made a profit in the first quarter and that it did not need additional bailout money — a first since the federal government took it over in fall 2008. A slowdown in the decline of home prices and in the number of homes entering serious delinquency allowed the company to eke out a profit after paying its dividend to the Treasury. Fannie Mae also said losses on its portfolio of home mortgages had probably peaked and that it expected better profits in the future, another sign that the worst might be over for the battered American housing market. The company reported quarterly net income of $2.7 billion, up from a $6.5 billion loss in the first quarter of 2011. Fannie has received about $116 billion from the Treasury over the last three and a half years and paid back about $23 billion in dividends.” Annie Lowrey in The New York Times.

Export-Import Bank reauthorization is headed towards the Senate. “Ending months of haggling, the House voted Wednesday to extend the Export Import Bankas charter through September 2014 and raise its loan exposure cap to $140 billion — a 40 percent increase. The bill must still pass the Senate but the lopsided 330-93 House margin makes it harder for conservatives to obstruct. Republicans split 147-93 for the measure, and Democrats, whose party controls the Senate, were unanimous in their support…Wednesdayas vote caps a remarkable odyssey is which all of modern Washingtonas politics seemed to descend with a thud on the once obscure enclave of overseas financing for U.S. manufacturers. Pushed to the brink, the bank is only weeks away now from seeing its charter expire at the end of May, by which point it will have also exhausted its $100 billion cap and be unable to take on further transactions in the pipeline.” David Rogers in Politico.

@TPCarney: 93 GOP votes against the Export-Import Bank, as compared to 50 Nays in 2002: Evolution!

@Amy_NJ: Overheard in a Capitol elevator: “Another day in the United States Senate. I couldn’t be more excited.”

The Fed approved the U.S. expansion plans of Chinese state banks. “Giant banks owned by the Chinese government are coming to the U.S. The Federal Reserve on Wednesday approved plans by three state-backed Chinese banks to expand in the U.S., including the first acquisition of a U.S. retail-banking network by a state-owned Chinese lender. The approval is a landmark step for U.S. banking regulators. Chinese banks long have sought access to the U.S. banking system in order to provide financing to Chinese companies operating overseas and to do business with foreign investors looking for exposure to the Chinese currency, the yuan. But they have been stymied in previous attempts by assorted delays and rejections…The Federal Reserve effectively is giving its seal of approval to China’s bank-regulatory system, a big step for U.S. regulators given their past concerns about the adequacy of Chinese supervision of banks.” Jon Hilsenrath, Robin Sidel, and Lingling Wei in The Wall Street Journal.

Compilation interlude: People say “you just don’t get it, do you?” a lot in films.

Health Care

A new regulation will boost Medicaid payments for primary care doctors. “Primary care doctors could get a pay raise next year for treating Medicaid patients, under a rule announced by the Obama administration Wednesday. The proposed regulation implements a two-year pay increase included in the 2010 health-care law. The increase, effective in 2013 and 2014, brings primary care fees for Medicaid, which covers indigent patients, in line with those for Medicare, which insures the elderly and some disabled patients. Although Medicaid is jointly funded by states and the federal government, the pay boost would be covered entirely with federal dollars totaling more than $11 billion over the two years it would be in effect…Administration officials also noted that the law has already increased Medicare payments to primary care doctors — awarding more than 150,000 physicians almost $560 million in additional compensation in 2011.” N.C. Aizenman in The Washington Post.

Some lawmakers want a permanent ‘doc fix.’ “Reps. Allyson Schwartz (D-Pa.) and Joe Heck (R-Nev.) introduced a bill Wednesday to reform how Medicare pays healthcare providers and to avoid a cut to reimbursement rates on Jan. 1. The bipartisan measure would repeal Medicare’s current reimbursement formula and replace it with a new system of payment models. It would also give doctors small boosts in payment rates for four years. Money for the changes would coming from war savings from troop withdrawals in Iraq and Afghanistan — a move Republicans have opposed in the past as a ‘Ponzi scheme.’…The proposal instructs the Centers for Medicare and Medicaid Services to create new payment model options aimed at giving providers more flexibility based on specialty, region or type of practice. Doctors who treat Medicare patients are scheduled to see a 30 percent cut to their reimbursements on Jan. 1, 2013, if Congress does not step in.” Elise Viebeck in The Hill.

Domestic Policy

The FTC and the White House are urging Congress to pass online privacy legislation. “The Obama administration and the nationas chief privacy regulator pressed Congress on Wednesday to enact online privacy legislation…Jon Leibowitz, chairman of the Federal Trade Commission, which enforces limited Internet privacy laws, and Cameron F. Kerry, general counsel for the Commerce Department, said at a hearing of the Senate commerce committee that writing new laws and giving the F.T.C. the power to enforce them with civil penalties would promote Internet commerce by increasing the trust that Americans put in online transactions. Currently, the F.T.C. monitors whether Internet companies that have privacy policies keep their promises to consumers about when and where they will share personal information. But the commission lacks the authority to assess penalties for most transgressions, and it has little authority over how companies operate when they have no written privacy rules.” Edward Wyatt in The New York Times.

Game music interlude: Meine Meinung play a super-medley of songs from the Super Mario Bros. 3 soundtrack.

Energy

Consumer resistance to ‘smart meters’ is slowing a grid upgrade. “A growing consumer backlash against new wireless digital technology for measuring power usage is slowing U.S. utilitiesa $29 billion effort to upgrade their networks. States including California, Maine and Vermont have responded to customer concerns about higher bills and safety by offering them the option of keeping their conventional devices for an extra charge. The fee may discourage drop-outs from the ‘smart-meter’ program, in which household usage data is transmitted over radio waves to local utilities such as PG&E Corp. (PCG), Central Maine Power Co. and Central Vermont Public Service Corp. (CV), which can use the information to charge higher rates during times of peak demand…The meters are key to the ‘smart grid’ being rolled out nationwide to increase delivery flexibility. Investment by utilities in the new grid has totaled $15.4 billion through the first quarter of 2012 and is projected to increase by another $13.4 billion through 2015.” Mark Chediak in Bloomberg.

Solar installers are thriving. “Jay Nuzzi, a New Jersey state trooper, had put off installing solar panels on his home here for years, deterred by the $70,000 it could cost. Then on a trip to Home Depot, he stumbled across a booth for Roof Diagnostics, which offered him a solar system at a price he couldnat refuse: free. Mr. Nuzzi had to sign a 20-year contract to buy electricity generated by the roof panels, which he would not own. But the rates were well below what he was paying to the local utility…Similar deals are being struck with tens of thousands of homeowners and businesses across the country. Installers, often working through big-box chains like Home Depot or Loweas, are taking advantage of hefty tax breaks, creative financing techniques and a glut of cheap, Chinese-made panels to make solar power accessible to the mass market for the first time. The number of residential and commercial installations more than doubled over the last two years to 213,957, according to Greentech Media, a research firm.” Diane Cardwell in The New York Times.

@AndrewRestuccia: Dingell quotes from “Oliver Twist” at hearing on electric reliability #youdontseethateveryday

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

aThe most important and alarming facet of Lugaras defeat,a writes Jonathan Chait, is that one of Indiana State Treasurer Richard Mourdockas key arguments against Sen. Richard Lugar was that Lugar had voted to confirm Elena Kagan and Sonia Sotomayor for the Supreme Court. This is a step towards breaking one of the last, and perhaps most important, social norms of the Senate: That ain the absence of corruption, lack of qualifications, or unusual ideological extremism, Democratic presidents have always been allowed to pick liberal justices, and Republican presidents conservative ones.a

Chait sees athe frightening outlines of a future systemic crisisa here. But I might rephrase that a bit: I see the the outlines of a necessary systemic crisis leading to an overdue set of procedural reforms in the Senate.

Itas clear that the nominations process is broken, and has been for some time. Conservatives believed this during the Bush years: Sen. Bill Frist, when he was majority leader, famously tried to abolish the filibuster on judicial nominations. Liberals have come to the same view during Obamaas presidency — in part because itas gotten worse. As Marge Baker of People for the American Way has written:

Once being confirmed by the Judiciary Committeeausually without oppositionaPresident Obamaas circuit court nominees have waited a staggering average of 136 days for a vote from the full Senate, compared to just 30 days for President Bushas nominees at the same point in his presidency. For district court nominees, historically confirmed quickly and easily except under the most extraordinary of circumstances, the average wait after committee approval has been 90 days under Obama, in contrast to 22 days under Bush.

Speeding the path for nominees was part of the deal that Sens. Harry Reid and Mitch McConnell struck in 2010 to avert Democrats from pursuing more far-reaching reforms in the Senate. But it didnat solve the problem: the nomination process remains gummed up. And so, in his 2012 State of the Union, Obama took the unusual step of asking the Senate ato pass a rule that all judicial and public service nominations receive a simple up or down vote within 90 days.a

All this, I think, might prove to be prologue for a decisive showdown on the issue. Imagine Obama wins a second term and Democrats hold the Senate — perhaps because Lugaras loss lets them mount a pick-up in Indiana. Then, a vacancy arises on the Supreme Court. If the vacancy comes from the liberal side of the Court — say, Ruth Bader Ginsburg chooses to retire — thatas likely to go relatively smoothly. But if it comes from the conservative side of the Court — imagine Anthony Kennedy stepping down — it wonat.

Obama nominates a well-qualified, broadly liked, moderately liberal replacement. And Republicans filibuster him. And keep filibustering him. And perhaps Obama even proposes a second nominee, who also gets filibustered. And, eventually, Democrats, who will not take kindly to the idea that theyare no longer allowed to confirm nominees to crucial positions, use the GOPas intransigence as an opportunity to rewrite the rules on nominations, protecting almost all of them from the filibuster.

Wouldnat it be hard for them to do that after bitterly protesting Republican efforts to do something similar in 2005? Perhaps. But on the other hand, Republicans will face the same charges of hypocrisy for having tried eliminate the judicial filibuster in 2005. And behind closed door, both Senate Democrats and members of the administration think that the nominations process is deeply broken, and that if they could somehow fix it, they would have done something important to help future administrations — both Republican and Democrat — govern more effectively.

Iam not saying this is the most likely outcome. And itas certainly not my preferred outcome a as Iave said many time, Iad like to see bipartisan rules reform that phases in. But given the level of frustration I hear on these issues, and the way the two parties are likely to react to something as high-stakes as changing the balance of power on the Supreme Court, Iam not sure itas a particularly unlikely outcome, either.

To put it another way, imagine a historian looking back from that crisis. It would all seem so obvious as a historical narrative: Republicans almost did it in 2005. Then Democrats thought about doing it in 2011. Then Obama called for the Senate to do it in 2012. And then, in 2014, it just happened. Weare getting closer and closer to dramatic reforms in the Senate. The question, at this point, is less whether theyall happen than when theyall happen, and who will be in power when they do.

I would like to comment on the Senate race just concluded and the direction of American politics and the Republican Party. I would reiterate from my earlier statement that I have no regrets about choosing to run for office. My health is excellent, I believe that I have been a very effective Senator for Hoosiers and for the country, and I know that the next six years would have been a time of great achievement. Further, I believed that vital national priorities, including job creation, deficit reduction, energy security, agriculture reform, and the Nunn-Lugar program, would benefit from my continued service as a Senator. These goals were worth the risk of an electoral defeat and the costs of a hard campaign.

Analysts will speculate about whether our campaign strategies were wise. Much of this will be based on conjecture by pundits who donat fully appreciate the choices we had to make based on resource limits, polling data, and other factors. They also will speculate whether we were guilty of overconfidence.

The truth is that the headwinds in this race were abundantly apparent long before Richard Mourdock announced his candidacy. One does not highlight such headwinds publically when one is waging a campaign. But I knew that I would face an extremely strong anti-incumbent mood following a recession. I knew that my work with then-Senator Barack Obama would be used against me, even if our relationship were overhyped. I also knew from the races in 2010 that I was a likely target of Club for Growth, FreedomWorks and other Super Pacs dedicated to defeating at least one Republican as a purification exercise to enhance their influence over other Republican legislators.

We undertook this campaign soberly and we worked very hard in 2010, 2011, and 2012 to overcome these challenges. There never was a moment when my campaign took anything for granted. This is why we put so much effort into our get out the vote operations.

Ultimately, the re-election of an incumbent to Congress usually comes down to whether voters agree with the positions the incumbent has taken. I knew that I had cast recent votes that would be unpopular with some Republicans and that would be targeted by outside groups.

These included my votes for the TARP program, for government support of the auto industry, for the START Treaty, and for the confirmations of Justices Sotomayor and Kagan. I also advanced several propositions that were considered heretical by some, including the thought that Congressional earmarks saved no money and turned spending power over to unelected bureaucrats and that the country should explore options for immigration reform.

It was apparent that these positions would be attacked in a Republican primary. But I believe that they were the right votes for the country, and I stand by them without regrets, as I have throughout the campaign.

From time to time during the last two years I heard from well-meaning individuals who suggested that I ought to consider running as an independent. My response was always the same: I am a Republican now and always have been. I have no desire to run as anything else. All my life, I have believed in the Republican principles of small government, low taxes, a strong national defense, free enterprise, and trade expansion. According to Congressional Quarterly vote studies, I supported President Reagan more often than any other Senator. I want to see a Republican elected President, and I want to see a Republican majority in the Congress. I hope my opponent wins in November to help give my friend Mitch McConnell a majority.

If Mr. Mourdock is elected, I want him to be a good Senator. But that will require him to revise his stated goal of bringing more partisanship to Washington. He and I share many positions, but his embrace of an unrelenting partisan mindset is irreconcilable with my philosophy of governance and my experience of what brings results for Hoosiers in the Senate. In effect, what he has promised in this campaign is reflexive votes for a rejectionist orthodoxy and rigid opposition to the actions and proposals of the other party. His answer to the inevitable roadblocks he will encounter in Congress is merely to campaign for more Republicans who embrace the same partisan outlook. He has pledged his support to groups whose prime mission is to cleanse the Republican party of those who stray from orthodoxy as they see it.

This is not conducive to problem solving and governance. And he will find that unless he modifies his approach, he will achieve little as a legislator. Worse, he will help delay solutions that are totally beyond the capacity of partisan majorities to achieve. The most consequential of these is stabilizing and reversing the Federal debt in an era when millions of baby boomers are retiring. There is little likelihood that either party will be able to impose their favored budget solutions on the other without some degree of compromise.

Unfortunately, we have an increasing number of legislators in both parties who have adopted an unrelenting partisan viewpoint. This shows up in countless vote studies that find diminishing intersections between Democrat and Republican positions. Partisans at both ends of the political spectrum are dominating the political debate in our country. And partisan groups, including outside groups that spent millions against me in this race, are determined to see that this continues. They have worked to make it as difficult as possible for a legislator of either party to hold independent views or engage in constructive compromise. If that attitude prevails in American politics, our government will remain mired in the dysfunction we have witnessed during the last several years. And I believe that if this attitude expands in the Republican Party, we will be relegated to minority status. Parties donat succeed for long if they stop appealing to voters who may disagree with them on some issues.

Legislators should have an ideological grounding and strong beliefs identifiable to their constituents. I believe I have offered that throughout my career. But ideology cannot be a substitute for a determination to think for yourself, for a willingness to study an issue objectively, and for the fortitude to sometimes disagree with your party or even your constituents. Like Edmund Burke, I believe leaders owe the people they represent their best judgment.

Too often bipartisanship is equated with centrism or deal cutting. Bipartisanship is not the opposite of principle. One can be very conservative or very liberal and still have a bipartisan mindset. Such a mindset acknowledges that the other party is also patriotic and may have some good ideas. It acknowledges that national unity is important, and that aggressive partisanship deepens cynicism, sharpens political vendettas, and depletes the national reserve of good will that is critical to our survival in hard times. Certainly this was understood by President Reagan, who worked with Democrats frequently and showed flexibility that would be ridiculed today a from assenting to tax increases in the 1983 Social Security fix, to compromising on landmark tax reform legislation in 1986, to advancing arms control agreements in his second term.

I donat remember a time when so many topics have become politically unmentionable in one party or the other. Republicans cannot admit to any nuance in policy on climate change. Republican members are now expected to take pledges against any tax increases. For two consecutive Presidential nomination cycles, GOP candidates competed with one another to express the most strident anti-immigration view, even at the risk of alienating a huge voting bloc. Similarly, most Democrats are constrained when talking about such issues as entitlement cuts, tort reform, and trade agreements. Our political system is losing its ability to even explore alternatives. If fealty to these pledges continues to expand, legislators may pledge their way into irrelevance. Voters will be electing a slate of inflexible positions rather than a leader.

I hope that as a nation we aspire to more than that. I hope we will demand judgment from our leaders. I continue to believe that Hoosiers value constructive leadership. I would not have run for office if I did not believe that.

As someone who has seen much in the politics of our country and our state, I am able to take the long view. I have not lost my enthusiasm for the role played by the United States Senate. Nor has my belief in conservative principles been diminished. I expect great things from my party and my country. I hope all who participated in this election share in this optimism.

Wonkbook dashboard:

RCP Obama vs. Romney: Obama +0.2%.

RCP Obama approval: 47.3%.

Top stories

1) Senate Republicans filibustered a student loan bill. “Senate Republicans on Tuesday blocked consideration of a Democratic bill to prevent the doubling of some student loan interest rates, leaving the legislation in limbo less than two months before rates on subsidized federal loans are set to shoot upward. Along party lines, the Senate voted 52 to 45 on a key procedural motion, failing to reach the 60 votes needed to begin debating the measure. Senator Olympia J. Snowe, the moderate Republican from Maine who is retiring, voted present…Republicans say they want to extend Democratic legislation passed in 2007 that temporarily reduced interest rates for low- and middle-income undergraduates who receive subsidized Stafford loans to 3.4 percent from 6.8 percent. But the Republicans would not accept the Senate Democratsa proposal to pay for a one-year extension by changing a law that allows some wealthy taxpayers to avoid paying Social Security and Medicare taxes by classifying their pay as dividends, not cash income.” Jonathan Weisman in The New York Times.

@RBReich: Showdown looming on student loans. Ds want to finance w tax hike on rich, Rs w cut in Obamacare. Prez campaign in miniature.

@sethdmichaels: also, 45>52. as usual.

2) Sen. Richard Lugar of Indiana loses GOP primary to Mourdock .“Republican Sen. Richard G. Lugar of Indiana, a 35-year member of the Senate and one of Washingtonas leading experts on U.S. foreign policy, lost his bid for reelection Tuesday after a conservative backlash inside the GOP denied him his partyas nomination for a seventh term. Lugaras loss a the first for a senator this year a appears to be another victory for the tea party conservatives who roiled the Republican Party in 2010 when they defeated two GOP senators in primaries and knocked off several more establishment favorites in open Senate primaries.” Paul Kane in The Washington Post.

3) The start of the highway bill negotiations dealt a blow to House GOP hopes. “It was a conservative Oklahoma Republican who told the House GOP not to even start. At the beginning of Tuesdayas conference committee negotiations on a transportation reauthorization bill, Sen. James Inhofe threw cold water on any hopes House Republicans had that their Senate colleagues would put up a fight with Democrats on the long-delayed bill, lecturing conservatives from the House on the art of compromise. House Republicans came into the meeting hoping to use Speaker John Boehneras (Ohio) sweeping reform to transportation programs as their negotiating position — despite the fact that Boehner was unable to pass that measure and the highway bill that finally did pass the House did not include most of those reforms…But Inhofe, one of the most conservative lawmakers on the Hill and the ranking member of the Senate Environment and Public Works Committee, made it clear early he would not be backing the play.” John Stanton in Roll Call.

@AndrewRestuccia: Inhofe on transp bill: “Having been ranked as the most conservative [lawmaker] many times, the conservative position is to pass this thing.”

4) Job openings rose in March. “U.S. job openings rose in March, a sign that employers gained confidence heading into the spring. The nation had 3.74 million job vacancies at the end of March, about 5% higher than February and the highest level since July 2008, the Labor Department said Tuesday. The rise was driven in part by growing demand for workers in construction and manufacturing. The rate of hiring, however, was flat–and the government’s broader report on unemployment, released last week, showed that the pace of hiring has slowed since March…Federal Reserve Bank of Richmond President Jeffrey Lacker said Tuesday that the skills mismatch could lead the economy’s long-term, or natural, unemployment rate to be higher than what economists now project, as workers take longer to acquire skills and fill vacancies.” Josh Mitchell and Jeffrey Sparshott in The Wall Street Journal.

@grossdm: oh, and I know you’ll be shocked. Private sector job openings rose 198K in March, while public-sector openings fell 26K

5) HHS’s new rate review authority isn’t having much of an impact. “The Department of Health and Human Services isnat that much of a bully, it turns out. Health insurers flagged by the department for ‘unreasonable’ premium hikes are refusing to back down in the first year of HHSas new rate review authority. The health reform law gave HHS the power to scrutinize ‘unreasonable’ rate hikes in states that didnat have robust review programs. But ‘scrutiny’ doesnat give the department power to actually block the rates from going into effect. HHS can use its bully pulpit to publicly shame insurers whose rates donat pass its sniff test – and HHS has done just that, holding four media calls since November to scold insurers each time itas made a new ‘unreasonable’ determination. Faced with the choice of dealing with some negative press on the national stage or upending their business plan, the four insurers that have been dinged by HHS have all chosen to stick with the business plan.” Jason Millman in Politico.

6) The House rejected several additional spending cuts. “The House on Tuesday evening rejected several proposals to slash spending in a series of votes that pitted younger Republicans against more senior GOP members who argued against further spending reductions. The House voted on seven Republican amendments that would have cut $1.4 billion in additional spending from the 2013 appropriations bill for the Departments of Commerce and Justice, H.R. 5326. Members accepted just one of them — a proposal from Rep. Andy Harris (R-Md.) to reduce funding for a climate website at the National Oceanic and Atmospheric Administration. That amendment saved $542,000, and was approved 219-189. But the rest of the amendments were defeated…The most aggressive proposal came from Rep. Paul Broun (R-Ga.), who submitted language that would have cut 3 percent of all salaries and overhead covered by the bill. That amounted to a cut of $847 million, but was rejected in a 137-270 vote.” Pete Kasperowicz in The Hill.

Top op-eds

1) WOLF: Hollande must force a change of course for the eurozone. “What, then, might Mr Hollande do?…He should give enthusiastic support to the wise recent remarks by Wolfgang SchA$?uble calling for higher German wages. He should then point out that there seem to be only five ways this can end. The first and best would be symmetrical adjustment of the imbalances that built up before the crisis, along with reform in weaker countries. The second would be a permanent transfer of resources from surplus countries to deficit ones. The third would be a painful shift of the eurozone into external surplus – a Germany writ large, so to speak. The fourth would be semi-permanent depressions in weak countries. The last would be partial or total break-up of the eurozone. The only sensible choice is the first. But that is not the path the eurozone is now on. Austerity has to be matched to the realistic pace of adjustment and structural reform.” Martin Wolf in The Financial Times.

2) PORTER: Net neutrality is essential for innovation. “Imagine a network of private highways that reserved a special lane for Fords to zip through, unencumbered by all the other brands of cars trundling along the clogged, shared lanes. Think of the prices Ford could charge. Think of what would happen to innovation when building the best car mattered less than cutting a deal with the highwayas owners. A few years ago, Tim Wu, a professor at Columbia Law School…warned members of the House judiciary committee that this could be the fate of the Internet…Fifty years ago, consumers were allowed to hook up only Bell telephones to their Bell phone lines. But in the 1960s, the F.C.C. and the courts forced the Bells to accept any device that didnat threaten the network. The decision unleashed a torrent of innovation — including the answering machine, the fax and the first device that allowed us to explore what would become the Internet: the modem. Innovation online requires an open playing field, too.” Eduardo Porter in The New York Times.

3) ORSZAG: The super rich face income volatility too. “Over the past three decades, the highest incomes in the U.S. have risen dramatically, and that has appropriately received lots of attention. At the same time, however, these high incomes have also become much more volatile, and that has gone almost unnoticed. Conventional wisdom suggests that low-income households experience the greatest changes in response to macroeconomic conditions — their income falls the most when the economy weakens, and it picks up the most when the economy recovers. That conventional wisdom is in need of some updating. Today, the impact of macroeconomic events on household incomes forms a U-shaped curve — it is greatest at the bottom and the top of the income distribution and smallest in the middle…Since the early 1980s, the income of the top 1 percent has fluctuated more than average over the business cycle, rising five percentage points more per year than the overall average during economic expansions and falling 3.7 percentage points more per year during recessions.” Peter Orszag in Bloomberg.

4) JENKINS: The government is holding back broadband. “Broadband history may be short, but it’s already starting to rhyme. In the early days, what were still known as the Baby Bells were treated as DSL monopolists, forced to resell access to their broadband lines to competitors at cost. Undermined, naturally, was their incentive to invest, especially to push network switches closer to residential neighborhoods, the secret to getting cable-like speeds from the old copper phone network. The result is the world we have today: Cable operators increasingly are the only choice for high-speed fixed broadband in many neighborhoods…But there is no shortage of spectrum; as much spectrum exists as ever has existed. Rather, there is spectrum starvation–a new and fast-growing user, the wireless industry, is being starved of spectrum its customers would willingly pay for because of an archaic government allocation system in which economic logic does not penetrate.” Holman Jenkins in The Wall Street Journal.

5) GLAESER: Americans will continue to have an array of living styles. “How has the Great Recession reshaped America? Does the decline in New Yorkas financial sector herald the ‘demise of the luxury city,’ as Joel Kotkin has recently suggested? Or instead has this watershed meant ‘the death of the fringe suburb,’ as Christopher Leinberger speculates? In fact, none of Americaas diverse living styles is about to perish. Incomes remain highest in the large, well-educated coastal cities, even though Kotkin is right that they remain challenged by the high cost of government. Population growth remains strongest in the car-oriented cities of the Sun Belt…It is a great thing that Americans can opt to live in dense cities or sprawling suburbs. As long as people pay the social costs of their actions, and are not subsidized by policies that artificially favor one living style over another, then it is splendid that we have plenty of options, some with sunshine and inexpensive mass-produced housing and others with high wages and costly apartments.” Edward Glaeser in Bloomberg.

Top long reads

Alison Fairbrother on how an angler and two government bureaucrats may have saved the Atlantic Ocean: “Price is a lifelong striped bass fisherman with no formal training as a scientist. Yet he has spent the last four decades cutting open bass stomachs in a kind of renegade ecological study, charting the precipitous decline of the lowly menhaden. Priceas interest in the species is indirect; menhaden arenat prized by anglers. But they are prized by striped bass. The little fish has historically been the striperas most significant source of protein and calories. In fact, menhaden are a staple in the diets of dozens of marine predators in the Atlantic and its estuaries, from osprey to bluefish to dolphin to blue crab. In a host of undersea food chains, menhaden–also known as pogy and bunker–are a common denominator. They have been called the most important fish in the sea.”

Bluegrass interlude: Old Crow Medicine Show play “Next Go ‘Round” live on WRLT.

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

Still to come: Borrowers face delays; the FDA bill moves forward; Common Core faces a backlash; gas isn’t headed for $4 this summer; and a game of feline tetherball.

Economy

House GOP leaders are considering bundling appropriations bills. “With an eye toward the legislative calendar, House GOP leaders are considering bundling must-pass spending bills to accelerate the lengthy process of debating them on the floor. In doing so, however, they risk angering conservatives, who note that leadership has long promised an open process so they can offer hundreds of amendments aimed at cutting spending that they can tout on the campaign trail. All of this underscores the quandary Appropriations Chairman Hal Rogers faces in trying to pass his dozen bills before the House adjourns this presidential election year: Short workweeks and pushback from Members of both parties will make it a difficult task to complete…Rep. Tom McClintock gathered 43 House Republican signatories, many from the conservative Republican Study Committee, on a letter sent Tuesday to Speaker John Boehner (R-Ohio) and Cantor asking that appropriations bills be brought to the floor individually.” Daniel Newhauser in Roll Call.

Borrowers looking to refinance mortgages face big delays. “Clogged mortgage pipelines have created headaches for hundreds of thousands of Americans trying to take advantage of low mortgage rates, which averaged 4.05% for the week ending April 27, according to the Mortgage Bankers Association. Those rates have helped thousands of Americans free up cash or retire debt…But considering how far mortgage rates have dropped, the refinancing burst has been lackluster by historical standards. A surge in demand has come at a time when fewer banks control a larger share of the mortgage market than they did before the financial crisis. Banks also are being more careful about whom they lend money to and how they process loans. It now takes the nation’s biggest mortgage lenders an average of more than 70 days to complete a refinance, according to Accenture Credit Services, up from 45 days a year ago.” Nick Timiraos and Ruth Simon in The Wall Street Journal.

The House is set to pass a bill reauthorizing the Export-Import Bank. “A bill to raise the Export-Import Bankas lending cap 40 percent by 2014 will pass the U.S. House today, lawmakers of both parties predict, although Republican leaders arenat formally urging members to support it. House Speaker John Boehner endorsed the measure. Still, many Republicans oppose it, saying the bank distorts free markets by subsidizing loans for export sales. The legislation, H.R. 2072, was negotiated by Majority Leader Eric Cantor, a Virginia Republican, and second-ranking Democrat Steny Hoyer of Maryland…The vote will be conducted through an expedited procedure requiring a two-thirds majority for passage. Republicans control the House with 292 members to 190 Democrats and three vacant seats. If all members vote, the bill will need 289 votes to pass under the streamlined procedure.” James Rowley in Bloomberg.

Donald Layton will be Freddie Mac’s new CEO. “Freddie Mac is preparing to name Donald Layton, the former chief executive of online brokerage E*Trade Financial Corp., as its next CEO, according to people familiar with the matter. The company is expected to announce the hiring as soon as Thursday, these people said. That would end a six-month search for the mortgage giant’s third chief executive in the four years since the government took control of it. Mr. Layton had been considered the frontrunner for the job for more than a month. His appointment is subject to approval by the Federal Housing Finance Agency–which regulates Freddie and its sibling, Fannie Mae–and by the Treasury Department…In Mr. Layton, Freddie and its regulator are selecting a financial-services veteran whom the government has turned to in the past and who is willing to work for much less money than a typical chief executive.” Nick Timiraos and Joann Lublin in The Wall Street Journal.

Hollande disagrees with key partners on structural reform. “When Mario Draghi called a couple of weeks ago for a growth pact to match the European Unionas fiscal austerity drive, FranASSois Hollande, now Franceas president-elect, could barely contain his delight…What got less attention was Mr Hollandeas revealing admission that he did not share Mr Draghias vision, quickly endorsed by Angela Merkel, the German chancellor, that such a growth plan should be focused on structural reforms, such as increasing labour market flexibility. Mr Hollande was not coy about this. ‘Can we really believe that liberalism, privatisations and deregulation, which led us to the financial crisis we are in, will help us get out of the crisis?’ he said…His programme falls well short of embracing the sort of structural reforms called for by Mr Draghi and Ms Merkel, which are currently being introduced in Italy and Spain and are seen by many as essential to revitalising Franceas economy.” Hugh Carnegy in The Financial Times.

Adorable renditions of Shakespeare interlude: Brian Cox teaches a two year-old to recite Hamlet’s soliloquy.

Health Care

Schools may be key to preventing obesity. “Obesity is so entrenched in the U.S. that it would take an intense push by schools, employers, doctors and others to reverse an epidemic that accounts for billions of dollars in annual health-care costs, concluded a report released Tuesday. The report by the Institute of Medicine, an influential independent body that advises the federal government on health policy, recommended requiring at least 60 minutes of physical activity a day in schools and considering excise taxes on sugar-sweetened beverages. It urged food companies to improve nutritional standards for foods marketed to people under 18 years old, recommending that mandatory standards be considered at all levels of government if the companies don’t adopt their own…Schools, in particular, should be a ‘national focal point’ for obesity prevention, because children spend up to half their waking hours and consume as many as half their daily calories there, the report said.” Betsy McKay in The Wall Street Journal.

The FDA user fee bill advanced. “The ‘must-pass’ Food and Drug Administration user fee bill was sent to the full House Energy and Commerce Committee on Tuesday morning on a raft of blown kisses from Democrats and Republicans on the Health Subcommittee. After more than a year of work, at least 10 hearings related to user fees and ‘intense negotiations as recently as last weekend,’ Joe Pitts (R-Pa.), chairman of the subcommittee said its members praised their staffs and one another and passed the bill by unanimous voice vote. It took less than a half-hour. The Energy and Commerce Committee will mark up the bill Thursday. Backers hope to move it to the floor quickly with the goal of getting it wrapped up — or very close to final — before the Supreme Court rules on the health law in late June. Industry sources worry the fallout from the ruling, no matter how it goes, could politicize the otherwise relatively bipartisan legislation and slow down, if not derail, its passage.” Brett Norman in Politico.

Domestic Policy

The Common Core standards are facing pushback. “The Common Core national math and reading standards, adopted by 46 states and the District of Columbia two years ago, are coming under attack from some quarters as a federal intrusion into state education matters. The voluntary academic standards, which specify what students should know in each grade, were heavily promoted by the Obama administration through its $4.35 billion Race to the Top education-grant competition. States that instituted changes such as common learning goals received bonus points in their applications…Conservative lawmakers and governors in at least five states, including Utah and Alabama, recently have been pushing to back out, or slow down implementation, of Common Core. They worry that adoption of the standards has created a de facto national curriculum that could at some point be extended into more controversial areas such as science.” Stephanie Banchero in The Wall Street Journal.

A cyberattack against natural gas pipelines has been under way for months. “A sophisticated cyberattack intended to gain access to US natural gas pipelines has been under way for several months, the Department of Homeland Security has warned, raising fresh concerns about the possibility that vital infrastructure could be vulnerable to computer hackers. The departmentas Industrial Control Systems Cyber Emergency Response Team said recently that it had identified a single campaign behind multiple attempted intrusions into several different pipeline companies since December last year. There was no information about the source or motive for the attack, but industry experts suggested two possibilities: an attempt to gain control of gas pipelines in order to disrupt supplies or an attempt to access information about flows to use in commodities trading…The threat of attacks on IT systems has prompted the US authorities to step up their security efforts in recent years, including the creation of ICS-CERT, designed to protect critical infrastructure.” Ed Crooks in The Financial Times.

The FAA is under fire for its response to safety risks. “The Federal Aviation Administration was slow to respond to serious safety risks highlighted by employees, including air-traffic-control violations and lax airline maintenance, according to a government watchdog. Directing unusually sharp criticism at the FAA and the Department of Transportation, the Office of Special Counsel on Tuesday released documents and findings covering several cases that it said highlighted ‘the recurring nature of the problems’ over the years. The conclusions, according to the report, reveal a pattern of ‘insufficient responses by the FAA’ to resolve urgent safety hazards and internal organizational weaknesses…In a number of instances, according to the documents, it took FAA management years to implement fixes–and sometimes required repeat warning from employees–even after the original hazards were substantiated.” Andy Pasztor in The Wall Street Journal.

Animal athletics interlude: Two cats play an epic game of tetherball.

Energy

The EIA no longer sees gas hitting $4 this summer. “Gasoline prices likely wonat reach a national average of $4 per gallon during the summer driving season, the federal Energy Information Administration (EIA) said Tuesday, walking back earlier predictions. Thatas welcome news for consumers, who have grown increasingly worried about the effect of high gasoline prices on their pocketbooks. EIA, the Energy Departmentas independent statistical arm, predicted Tuesday in its short-term energy outlook that gasoline prices will average $3.79 per gallon during the April-to-September summer driving season. The estimate is 16 cents lower than the average price EIA predicted in April. EIA said at the time that prices at the pump would average $3.95 per gallon during the summer, peaking in May at $4.01 per gallon. In its short-term energy outlook Tuesday, EIA said it lowered its prediction because of ‘falling global crude oil prices over the past month.’” Andrew Restuccia in The Hill.

@Ben_Geman: Coal losing ground. EIA sees power gen. from coal sliding 15% in a12, nat gas increases 24%. But coal forecast to regain some ground in a13

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

Ezra, the first year of a presidential term is where legislative agendas are won and lost. Would the GOP still be able to obstruct on the scale that they have or will re-election force them to concede on the major legislative items, tax reform, immigration reform, climate and energy reform. If not, what tools are even available for the President should he return to office with the same congressional make up?

Assuming the GOP still controls the House and keeps it close in the Senate, they could absolutely obstruct on the scale weave seen in recent years. The question is whether theyall want to. You can think of a few reasons they may not.

1) More must-pass items they care about. They donat want all the Bush tax cuts to expire. They donat want the Pentagon to see massive spending cuts. They may not even want to be blamed for a breach of the debt-ceiling.

2) Political rethink: Theyall have just failed to unseat Obama. Theyall likely have suffered some congressional losses. That will mean theyave lost two presidential elections in a row. Political parties often begin a rethink at about that time, and perhaps some in the GOP will start to wonder whether catering to the far right is really serving them so well in general elections.

3) Personal desire. Many legislators do want to legislate. They didnat come to Washington and give up all that time with their families and friends just to write press releases calling Harry Reid a jerk. They put a lot of their aletas get something donea instincts on hold to beat Obama, but that failed, and so maybe theyall want to spend a few years getting something done.

All that said, I think it remains quite likely that cooperation is rare to nonexistent, and that itas just more brinksmanship and missed opportunities. The forces of polarization are strong.

In a second term Obama would no doubt finish his political evolution, with no more elections to win, and move in the direction of legalizing gay marriage, donat you think?

I really donat know. I donat think Obama can legalize gay marriage by fiat, though perhaps Iam wrong about that. If it does have to go through Congress, I think theyad be unlikely to pick that fight unless they really thought they could win it. So while I could certainly see him coming out for gay marriage in clearer terms, I donat know what their legislative calculus will be on the issue.

You mention the possibility of Supreme Court vacancies. What are the odds of Associate Justice Hillary Clinton?

Iave often wondered if this is a job shead want. In certain ways, it would make a lot of sense. And we used to have much more of a tradition in this country of nominating politicians to the Supreme Court (see, for instance, Sandra Day OaConnor). But I donat know whatas in Hillaryas heart on this, or in Obamaas.

One area where there seems to be broad agreement among voters is the dysfunction of the political system, from campaign finance to the legislative process. Even for the politicians themselves, a dynamic in which they are always fundraising/campaigning and then canat bring about any change once theyare elected canat be a fun way to spend oneas time in office. Theoretically, this means that both parties would be interested in improving their own work environment. While there would a disincentive for incumbent lawmakers and the interest groups they represent to just sit back and let this happen, a cleaner political process would ultimately benefit the nation as a whole. How likely is it that Obama and the congressional leadership would give this area more attention during a second term?

This is, to me, one of the key questions of modern politics. The system is bad for both parties. Democrats canat govern smoothly when theyare in the majority, but neither can Republicans. Very few politicians like spending so much of their time raising money. No politicians like the low esteem in which the public holds them. And yet they do nothing about it.

The problem is that the two sides never quite have the same incentives at the same time to change it. Majorities may not like the filibuster, but minorities do. Politicians may not like raising money, but when theyare incumbents, they know their fundraising networks give them an advantage over challengers.

Iave always thought the right way to fix the system would be a bipartisan commission — I know, I know — that sets rules that the two parties agree will go into effect in six years, when no one knows who will control any branch of government.

Can you imagine the firestorm that would erupt if Obama got to appoint a successor to one of the Republican justices? How does Obama get the votes in the Senate?

By appointing a candidate they have trouble opposing. It does seem to be the case that qualified SCOTUS candidates who canat be painted as truly extreme tend to be confirmed. Perhaps that will change. But if Republicans just keep rejecting candidates, I think you could see, in that case, Democrats finish what Sen. Bill Frist started and end the judicial filibuster.

Since the stock market will be affected by Spain and Greece, and the rising price of oil would stifle economic growth, how much is the presidentas re-election out of his hands?

Quite a bit, I think. We vastly overstate the role of campaigns in deciding elections and presidents in driving economies.

Pundits seem to fetishize tax reform. Broaden the base by cutting marginal rates and removing aloopholesa and everything will be fine and dandy. But lobbyists for those loopholes donat disappear. And members of Congress, especially senators, have a great deal of leverage when you need a supermajority to pass anything. So just like after the 1986 tax reform, the loopholes make their way back into the tax code, and eventually youare left with a tax code with many of the same loopholes as before AND lower marginal tax rates. What is the advantage for Democrats for pursuing such an arrangement?

Well, if you can afixa the tax code for 10 or 15 years, I think thatas pretty good. Itas like cleaning out a storm gutter: Yes, itall just fill back up with crud. But you still have to do it.

That said, your broader point is well taken: aReforma always sounds great in theory. It gets very difficult in practice. From where I sit, itas made vastly, vastly harder because thereas no current agreement on how much revenue the tax code should raise. Until thereas some resolution to that question, I donat see how you do tax reform.

One topic I was surprised that you didnat mention was the economy. Assuming that Obama wins with the economy roughly as it is now — growing, but too sluggishly — do you think heas going to attempt any major additional measures? Might the administration use the afiscal cliffa as a negotiating point to obtain additional stimulus, infrastructure spending, or something of the kind? Are there any other significant economic measures that you think they might seek?

I do think you could see infrastructure and related measures included in a taxmageddon deal. But I didnat say much more on major stimulus packages because, while the Obama administration would certainly like to pass the American Jobs Act, Republicans wonat let them. Remember that the question of the piece wasnat so much what ashoulda get done as what awilla get done, or at least tried.

How can you possibly condone Obamaas decimation of American Sovereignty? Another 4 years will be the end of this country as we know it – as it would slink into George Sorosa One-World tentacles. How can you possibly not see how Obamaas gradually eroding our rights and grabbing power for an all-invasive government body, not unlike so many Soc ialistic and Communist regimes? How can you , Mr Klein, be so gullible and blind? You call yourself an educated thinking man? Advocating for another term is treasonous. Are you on George Sorosa payroll?

Posted without comment.

How does the winner of Mourdock/Lugar affect any possible strategy the Obama campaign may have in terms of Indiana? Isnat Joe Donnelly a prohibitive favorite against Mourdock? Iave heard the President plans to fight for the state like he did in a08.

If Mourdock wins, Indiana is more gettable for the Dems, and the party will spend more there. But I think the main effect in Indiana is on other Republicans: If Lugar loses, it shows that the party is still successfully primarying incumbents, and so thereas more reason for Republicans to worry about compromising in the future. That makes it harder to get to any deals.

If the President wins re-election, what are the odds Simpson/Bowles will be brought up in Congress?

Well, it got brought up in the House and soundly rejected. As for the chances that something S-Bish becomes the resolution to aTaxmageddona? Low, but not zero.

You and other congress watchers seem to tiptoe around the obvious and inescapable conclusion of your reporting and analysis: the GOP wants unemployment to remain high because they perceive Obama will be blamed for it. This is the Occamas razor explanation for obstructing stimulus (which they support during GOP administrations) and Fed appointments, but you wonat say it squarely. Why not? What would convince you that the GOP is actively trying to discourage the economy from improving?

More evidence. Everything the GOP does is perfectly consistent with a amotivated reasoninga model of human behavior, in which people sincerely convince themselves of what their personal and group incentives lead them to believe. So, to use a non-economic example, i think Republicans sincerely oppose, and even hate, the individual mandate now, even though it was a Republican policy just a few years ago. The change was triggered by partisanship, but the way it actually functioned is by people convincing themselves that the mandate is terrible, unconstitutional policy.

In general, I think political debates are both much more sincere and much less rational than most folks believe.

Is there a way for Obama to cut defense spending without making Americans feel …unsafe? I always felt like defense cuts would do major help for our budget, but I never hear it brought up.

I think so. Polling seems to suggest the public is much more open to defense cuts than Washington is. And remember, major defense cuts are currently baked into the cake of the sequester. Republicans are going to have to give up a lot to get them out of there.

It seems like the argument against austerity rests on the assumption that theyave drastically cut government spending. David Brooks calls the European austerity apartly mythical.a Does this cause the argument against austerity to lose its legs?

I donat understand this new argument in which austerity is only cuts in spending, not tax increases. But at any rate, Brooks is wrong that the European austerity is mythical. Hereas the Economist on the subject.

Would Obama tackle a comprehensive immigration policy?

Head sure like to. The question is whether the votes will be there.

Do you think thereas any historical evidence to back up Romneyas implication that a 2nd term Obama would be unworried about re-election and therefore unfettered in his agenda? Were there really any big, major, game-changing, history-making policies from Clintonas, Bushas or Reaganas second terms? I think wead have to go back to Nixonas 2nd term environmental acts to really see Second Term Hubris in action.

Yeah, it doesnat make much sense. For one thing, structurally, Obama still has to deal with Congress. For another, he still cares about winning the 2014 midterm, and his party cares about winning in 2016. His legacy will be important to him.

So, in sum, he doesnat have any new powers in his second term that allow him to act more ambitiously, and nor is he actually freed from worrying about the future. Obama in a second term will be a lot like Obama in a first term. The question is what events and political constraints heall be facing.

You mention Lew and Bowles and possible replacements for the departing Timothy Geithner. What are your thoughts on other prominent positions? Do you expect Bernanke to confirmed for another term? Do we know of any other departing secretaries and who would be in line to replace them? What about all the aactinga dept heads? Confirmations were hard in the first term. The second would be MUCH worse if the Dems lose control of the Senate.

I doubt Bernanke will get a third term. Iad be surprised if he even wanted one, on some level. As for confirmations, I wouldnat be shocked to see a major push to streamline the Senate confirmation process, though I donat know what form it will take.

Ezra, you seemed to be suggesting that we need to have a fixed percentage of something (say GDP) that we all aagreea to collect as taxes. Or did I read you wrong? Do you think thatas a good idea?

In context of tax reform, which I think is what youare referring to, you need to know what revenue target youare looking to hit. That is to say, youall have different rates, and youall close different deductions/expenditures, if youare looking to raise 18 percent of GDP than if youare looking to raise 23 percent of GDP.

Iam an independent who can no longer vote Republican mainly because their economic ideology cannot be substantiated by 30 years of data. However, the Democrats, as my only alternative, is very depressing. Anyway, despite the whining we hear from Wall Street, the Obama administration has done very little to bring the cheats and thieves to justice who are responsible for the economic debacle we are recovering from. Frankly, thatas been my biggest disappointment with Obama. Any chance we see perp walks from Wall Street bigshots and Alan Greenspan in a second term? Thanks.

Doubt it.

Ezra, if the Supreme Court puts the kibosh on Obamacare, or even just on some parts of it, how do Obama and the Democrats respond? (As someone whoas been self-employed for many years, I am acutely concerned about this…)

If they overturn the whole thing, which most Court watchers consider unlikely, thereas not much Dems can do. If they only overturn the individual mandate, or the individual mandate and some related provisions, then thereas basically a showdown: the law exists. The money for it will be spent. Dems wonat permit repeal. So either Republicans and Democrats have to agree on some fix or states have to figure out how to run their insurance markets without a national-level individual mandate.

In your column you write that Obama would like to apply Race to the Top to other areas of policy. What do you mean by this?

In previous budgets, the Obama administration has proposed expanding the aRace to the Topa model — in which states are given money in return for reforms — to higher ed, to pre-k, to juvenile justice, to transportation. More on that here.

The group is part of the brain trust that the American Enterprise Institute has assembled to help push back against the growing consensus that deregulating Wall Street had caused the meltdown, using white papers and wonkspeak instead of political bombast. And they convened on Monday morning to present their latest: a defense of the Jumpstart Our Business Startups Act, which passed Congress last month and makes it easier for new companies to raise investment capital. But even at a small lunchtime gathering at AEI headquarters, their defense of deregulation raised the hackles of some onlookers.

Robert Sherretta was quick to grab the mike after the Shadow committee opened up its panel to questions from the audience. After 20 years on as an investment adviser on Wall Street, aI can tell you that there are those who are chomping at the bit to get their boiler rooms started, to take advantage of the act,a Sherretta told the audience. aTheyall keep it hidden for five to 10 years, and it will resurface in investors lawsuits. I can assure you of that.a

The room fell silent for a moment while Chester Spatt, a white-haired professor from the Carnegie Mellon University and committee member, turned to his microphone. aThe broad view–we appreciate your perspective–the broad view is that there are potential suitability issues and questions regarding fraud and risk enforcement,a he said. aItas the reason we framed the issues the way we did, emphasizing the importance of future cost-benefit analysis.a

Translation: Yes, there may be folks out there who take advantage of the new rules for raising capital to dupe guileless investors. But if and when that happens, the appropriate folks should take the appropriate measures to add up the pluses and minuses.

Sherretta told me later he didnat leave convinced by Spattas comeback. But in Congress, at least, has finally begun to warm to these kind of arguments. The JOBS Act passed in early April with major bipartisan support and the presidentas signature. Initially a GOP proposal, the law makes it easier for startups and other young, emerging companies–most of which begin as small businesses–to fundraise from ordinary Americans, among other investors. Like Sherretta, federal regulators and state watchdogs warned that the law could make it easier for unscrupulous companies to dupe mom-and-pop investors. But the dual promise–to create jobs and help small businesses raise capital while banks remain reluctant to lend–proved irresistible to members of Congress.

Heartened by such victories, Republicans are now pushing aggressively for repealing major parts of Dodd-Frank. AEIas Shadow committee, by contrast, has struck more moderate tone, taking time to suggest ways to ensure that smaller efforts like the JOBS Act ultimately succeed. The legislation, for instance, allows some non-accredited companies to raise major sums of capital through crowdfunding. aWe do think the SEC should monitor those for abuses,a Spatt suggested. aThe committee encourages Congress to hold hearings annually, or to ask Government Accountability Office to deliver a report annuallya on the legislation.

But to critics, the Shadow committee is simply offering a fig leaf–albeit one full of technical details and white papers– that hides the real risks of deregulation. aThose of you who think that a couple of congressional committees or a GAO study is going to scare anybody off is mistaken,a Sherretta explained. Another financial industry veteran at the event, Bonnie Watchtel, raised concerns that the JOBS Act would let inexperienced investors getting fooled into thinking they were backing the next Facebook. aThese are very, very speculative investments, and they are going to lose all their money,a Watchel told the audience. aThatas where the tears are going to be.a

The Shadow committee members assured the financiers that they did, in fact, hear their concerns. aThatas why this thing was entitled aTwo Cheers for the JOBS Act!aa said Peter Wallison, AEIas chair of financial policy studies, referring Watchel to the groupas new position paper on the law. Congress, for example, could make future changes to law to address any shortcomings, he added.

But thatas assuming that the federal government is willing to undertake the long slog of crafting carefully calibrated regulations–the Great White Hope of think-tanks across Washington–and that the financial industry will respond accordingly. That, Sherretta believes, is anything but reality.

aI come from the practitioner side of things, and I see in people in academia try to view a kind of utopia. They donat understand that carnivorous mind that Wall Street has,a he said, cutting out of the panel early for a meeting on Capitol Hill. aIt has the mindset to look for every possible loophole.a

These comments have been the occasion for much wailing and gnashing of teeth, as if anyone, anywhere, believed that the Republicans’ 2011 debt-ceiling antics were some sort of one-off. But Boehner was clear on Tuesday. “I will again insist on my simple principle of cuts and reforms greater than the debt limit increase,” he said.

Of course he will. For one thing, it worked well for him in 2011. Republicans got more than $900 billion in immediate spending cuts, as well as $1.2 trillion in triggered spending cuts — though they don’t much like the $500 billion or so of those cuts scheduled to fall on the Pentagon. They also drove President Obama’s approval ratings beneath 40 percent. And while I’m not one who thinks Republicans intentionally tank the economy to undermine Obama, there’s little doubt that the effect of the debt-ceiling debacle was to set back the recovery, brightening Republican prospects and darkening Democratic ones. The fact is that it’s easier to be sanguine about economic showdowns when you’re not the ones in charge.

For another, it’s Boehner’s only option in 2012. The Democrats, for once, have nothing but fiscal leverage. They’ve got the expiration of the Bush tax cuts, which all Republicans would hate and many Democrats would welcome. They’ve got the aforementioned spending trigger, which Republicans really have begun to fear for its cuts to defense spending. They can do nothing — or, more likely, offer Republicans a deal they can’t accept — and the resulting paralysis will swing fiscal policy far, far, far to the left. Threatening to default on the national debt is Boehner’s only piece of counter-leverage.

So of course Boehner will try and use the debt ceiling as leverage again. And again. And again. It’s pretty clear that, at this point, there’s no going back to the time when debt-ceiling increases came smoothly. If I were the market, I’d take the fact that the leader of one of the two parties has publicly said that he “welcomes” debt-ceiling showdowns as evidence that the United States is almost certain to default on its debt — if only temporarily — within the next decade or so.

The question is what, aside from complain, Democrats and the business community will do to stop him. Somehow, the debt ceiling needs to be taken off the table once and for all, either because Republicans forced a default in a way that they were blamed for the consequences and scared into never doing it again or because the president successfully pulled off one of the more creative maneuvers suggested during last year’s showdown (Bill Clinton, for instance, argued that Obama should invoke the Fourteenth Amendment — which says “the validity of the public debt of the United States … shall not be questioned” — to raise the debt ceiling unilaterally).

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RCP Obama vs. Romney: Obama +1.8%; 7-day change: Obama +1.6%.

RCP Obama approval: 48.0%; 7-day change: +0.7%.

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Top stories

1) Boehner threatened another debt-mageddon “Washington braced Tuesday for a replay of last summeras tense battle over the burgeoning national debt as House Speaker John A. Boehner threatened again to block an increase in the federal debt ceiling without significant new cuts in spending. Treasury Secretary Timothy F. Geithner and other senior Democrats quickly blasted the Ohio Republican, arguing that his ultimatum could put the nationas credit rating — and the broader economy — at risk early next year, when the debt is expected to hit its $16.4 trillion limit.” Lori Montgomery in The Washington Post.

@damianpaletta: Boehner’s debt ceiling “line in the sand” is very similar to what he said last year; Definitely got the attention of White House and D’s

@ObsoleteDogma: Shorter Boehner: Regulatory uncertainty is bad. But default uncertainty is good.

INTERVIEW: Sen. Tom Coburn on defusing the debt bomb.

READ: Mitt Romneyas remarks on the debt.

@MichaelSLinden: As a fiscal policy analyst, I’d like to thank Mitt Romney for offering no specifics whatsoever so I can go home at a normal time tonight.

2) Greece failed to form a new government, triggering new elections. “The threat of a full economic collapse in Greece escalated Tuesday after warring political factions here failed to forge a new government, triggering fresh elections and heightening chances that this rudderless Mediterranean nation could be forced to abandon the euro…A nation in danger of running out of cash to operate the government, and where fearful residents in recent days have been rapidly withdrawing more of their savings from Greek banks, faces uncertain new elections next month. Opinion surveys have shown that Syriza, a party that wants to break the terms of Greeceas bailout deal and that came in a surprise second in the last vote, is polling in first place…European finance ministers — whose taxpayers have largely funded the bailout for Greece — were quick to push back Tuesday. Given the potential shock waves if Greece is forced to leave the euro zone, there have been suggestions in recent days that European officials might show more lenience with Athens.” Anthony Faiola in The Washington Post.

Surging bank withdrawals in Greece sparked fears of a bank run. “Greek depositors withdrew a!700 million ($898 million) from the country’s banks on Monday, fueling fears of a bank run amid the growing political disarray. With deposits falling, Greek banks become even more dependent on the European Central Bank to meet their funding needs, exposing the central bank to potentially huge losses if Greece leaves the euro area. Greek President Karolos Papoulias told the country’s political leaders that bank withdrawals plus buy orders received by Greek banks for German bunds totaled some a!800 million on Monday, a transcript of his comments said. A central bank official confirmed the figures…Monday’s deposit withdrawal far outpaced Greek banks’ steady decline in deposits since the start of the country’s debt crisis in 2009, as depositors withdraw cash and transfer funds overseas.” Brian Blackstone and David Enrich in The Wall Street Journal.

@grossdm: So, Greece is seeking to solves its economic problems through QE — quantitative electioneering

3) The Senate will vote on several GOP budget proposals today. “The Senate on Wednesday will hold six hours of debate and votes on four different Republican budget resolutions, in an apparent attempt to demonstrate that they will not be supported in the Democratic-led Senate. A fifth budget measure up for a vote, from Senate Budget Committee ranking member Jeff Sessions (R-Ala.), is based on President Obama’s budget and is seen as an attempt to embarrass the White House. But Senate Budget Committee Chairman Kent Conrad (D-N.D.) said Tuesday that debate and votes on the GOP proposals would show there is little appetite for these plans. He also said it would give the country a chance to understand that last year’s Budget Control Act already sets spending caps for Congress. Democrats have been under fire for failing to pass any budget resolution…One of the four GOP budget resolutions to be debated Wednesday is H.Con.Res. 112, the budget resolution approved by the House in March.” Pete Kasperowicz in The Hill.

4) The Justice Department started a criminal probe into JPMorgan Chase’s loss. “The Justice Department has initiated a criminal probe into the $2 billion trading loss at JPMorgan Chase, a law enforcement representative familiar with the situation said Tuesday. The inquiry is at a very early stage, said the person, who spoke on the condition of anonymity because the matter is private. Many details about the loss at JPMorgan are murky, so it is unclear what laws, if any, may have been violated. But the attention from federal officials indicates that regulatory pressure is rising on JPMorgan, and its chief executive Jamie Dimon, to explain what exactly led to the bankas multi-billion dollar misstep. That, in turn, has rekindled questions about whether government regulators are equipped to monitor banks making risky, complex trades…Dean Boyd, a Justice spokesman, declined to comment.” Jia Lynn Yang and Sari Horwitz in The Washington Post.

Too big to fail banks have gotten bigger. “JPMorgan Chaseas $2 billion blunder is throwing the spotlight on an awkward truth for President Barack Obamaas promise to end the era of big bank bailouts: The same institutions that were deemed ‘too big to fail’ before the financial collapse are even bigger now. Efforts to manage the size of such institutions were at the heart of the Dodd-Frank financial law passed in July 2010. But nearly two years later, many of the lawas regulations remain in limbo, as federal agencies muddle through long rule-making processes against stiff industry opposition…All the while, the countryas biggest financial institutions continue to grow. The five largest, which controlled $6.1 trillion in assets before the collapse, by the end of 2011 had assets worth $8.5 trillion — equal to more than half of U.S. economic output, according to Federal Reserve data.” Patrick Reis in Politico.

@BCAppelbaum: This whole JPM story underscores one reason we don’t have effective financial regulation: Our public officials don’t understand finance.

Top op-eds

1) PORTER: It’s time for the euro to come to an end. “Social upheaval across the euro area suggests that it may be time to call it quits and try to work out an orderly process to re-establish national currencies throughout the bloc. Europe would be in much better shape if the euro didnat exist and each member country had its own currency. Monetary union has shackled together nations with vastly different economies, depriving them of an independent monetary policy that can help them through rough times. The interest rate and exchange rate that serve Germany also have to serve Spain, though that country has more than four times Germanyas joblessness. The main problem is that while leaders eagerly embraced the monetary bond, they rejected its necessary complement: a central budget that would transfer money from successful regions to underperforming ones, as the United States government sends tax dollars collected in Massachusetts to pay for unemployment benefits in Nevada.” Eduardo Porter in The New York Times.

2) FROST: The FDIC shouldn’t protect investment banks. “I suggest that we divide the two functions into separately owned, managed and regulated entities. That’s the only way we can ensure that their riskier businesses don’t undermine the insured deposits that are the foundation of a stable and healthy economy. Taxpayer safety-net programs, such as the Federal Deposit Insurance Corporation (FDIC), should be available only to banks in business to provide insured deposits. Financial institutions that provide primarily investment, hedging and speculative services don’t deserve protection either by the FDIC’s explicit guarantees or by an implicit understanding that taxpayers will bail them out because there is no other alternative. Indeed, this kind of protection is a perversion of capitalism and can distort its good outcomes…We need a real and impregnable firewall that keeps one part of the banking system–and the economy–from being consumed when the other goes into flames.” Tom Frost in The Wall Street Journal.

3) ROSEN: Competitive bidding can hurt patients. “On the face of it, competitive bidding sounds like a very good idea. If one supplier can provide power wheelchairs or oxygen masks for 30 percent less than another, itas hard to argue for contracting with the more expensive supplier, especially at a time when everyone is looking for ways to save money. A one-year experiment with expanded competitive bidding that was recently conducted by Medicare yielded cost savings of 42 percent, without reducing the quality of care, and was hailed as a great success. But as a doctor working with patients on the ground, I have doubts about that quality-of-care measure, and I worry that those savings obscure a potentially serious problem…If competitive bidding is predicated on supplying equipment at the lowest possible price, something has to give. And more likely than not, that something will be patient care.” Dennis Rosen in The New York Times.

4) ORSZAG: Want good news on jobs? Look to big businesses. “Big business, we keep being told, has been so hampered by regulatory uncertainty over the past few years, it has been reluctant to hire workers. So it is surprising to read the results of a little-known survey from the Bureau of Labor Statistics: Very large businesses, it turns out, have been expanding their domestic workforces relatively rapidly. If, since January 2011, businesses of all sizes had hired at the same rate as those with 5,000 or more employees, we would have almost 4 million more jobs today…The JOLTS data highlight the importance of exploring how the continuing deleveraging process and resultant sluggish growth in demand is affecting smaller businesses in particular. With the percentage of working Americans stuck at a depressed level, we sure could use those extra 2 million to 4 million jobs.” Peter Orszag in Bloomberg.

5) ALEXANDER: Washington should take over Medicaid and let states handle education. “Staring down steep tuition hikes, students at the University of California have taken to carrying picket signs. As far as I can tell, though, none has demanded that President Barack Obama accept a Grand Swap that could protect their education while saving them money. Allow me to explain. When I was governor of Tennessee in the early 1980s, I traveled to meet with President Ronald Reagan in the Oval Office and offer that Grand Swap: Medicaid for K-12 education. The federal government would take over 100% of Medicaid, the federal health-care program mainly for low-income Americans, and states would assume all responsibility for the nation’s 100,000 public schools…If we had made that swap…states would have about $92 billion a year in extra funds, as they’d keep the $149 billion they’re now spending on Medicaid and give back to Washington the $57 billion that the federal government spends per year on schools.” Lamar Alexander in The Wall Street Journal.

Cover interlude: Screaming Females play Sheryl Crow’s “If It Makes You Happy” for the AV Club.

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

Still to come: Free trade with Colombia is in effect; Catholic bishops are close to suing over birth control; backlash against tests is growing; energy independence is within reach; and a puppies’-eye view of life.

Economy

The Senate will vote on two Fed nominees on Thursday. “Senate Majority Leader Harry Reid (D-Nev.) today set up a procedural vote for Thursday on two nominees to join the Federal Reserve whose nominations have stalled because of opposition from Sen. David Vitter (R-La.)…Vitter blocked attempts in March to quickly confirm Harvard University economics professor Jeremy Stein, a Democratic nominee, and former private-equity executive Jerome Powell, a Republican nominee…Asked whether he was confident that he would have the 60 votes to invoke cloture on the nominations, Reid said, ‘Well I sure hope so, weave been waiting months and months.’…Senate Minority Leader Mitch McConnell (R-Ky.) said he believes there is bipartisan support for the nominees…Without the two nominees in place, the Federal Reserve Board will remain short-handed as it attempts to support the economic recovery” Humberto Sanchez in Roll Call.

The dip in gas prices eased inflation. “The recent slide in gasoline prices in the U.S. has pushed the nation’s annual rate of inflation to its lowest level in more than a year, easing some economic strains on consumers. The consumer price index, which measures what Americans pay for everything from breakfast cereal to doctor visits, was unchanged from March to April, ending three months of increases, the Labor Department said Tuesday. A 2.6% drop in the gasoline-price index helped offset rising costs for many other items. Overall prices are now running 2.3% higher than a year ago, the smallest increase since February 2011…The inflation figures have mixed implications for the recovery. Lower gasoline and utility costs are keeping a lid on household expenses, effectively boosting Americans’ spending money. However, prices are climbing broadly, most notably for food, but also medical care, rents, autos and airfares.” Josh Mitchell in The Wall Street Journal.

States are using foreclosure prevention funds to plug budget gaps. “Hundreds of millions of dollars meant to provide a little relief to the nationas struggling homeowners is being diverted to plug state budget gaps. In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nationas biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the stateas debts. The money was part of a national settlement valued at $25 billion and negotiated with five big banks over abuses in their mortgage and foreclosure processes…As part of the settlement, the banks agreed to pay the states $2.5 billion, money intended to help homeowners and mitigate the effects of the foreclosure surge.” Shaila Dewan in The New York Times.

House Republicans are planning a vote on a ‘fast track’ proposal for tax reform. “Speaker John Boehner said in a speech Tuesday that House Republicans would try to attach a timeline to fast-track a broad tax overhaul to a vote extending the George W. Bush-era tax rates before the November elections…’Our bill to stop the New Yearas Day tax increase will also establish an expedited process by which Congress would enact real tax reform in 2013,’ Boehner (R-Ohio) said in remarks to a fiscal summit in Washington. ‘This process would look something like how we handle Trade Promotion Authority, where you put in place a timeline for both houses to act.’…GOP aides said that, even though Boehner specifically discussed Trade Promotion Authority on Tuesday, House Republicans are looking at a variety of expedited processes that have been used in the past, and have yet to settle on just one.” Russell Berman and Bernie Becker in The Hill.

@grossdm: Memo to Boehner, the markets, etc.: the House passing legislation won’t be sufficient to avert tax increases. They’ll have to make a deal

The euro zone narrowly missed recession. “The euro-zone economy narrowly escaped recession in the latest quarter thanks to a surprising rebound in Germany, which offset deepening downturns in Spain and Italy. Although the region avoided two straight quarterly drops in gross domestic product, the common benchmark for recession, the figures nonetheless reflect a deepening divide between Germany and the rest of the euro zone that complicates the bloc’s efforts to stem its debt crisis…Euro-zone GDP was unchanged from the previous quarter, said Eurostat, the European Union’s statistics agency. In annualized terms, GDP rose 0.1% from the fourth quarter, according to calculations by J.P. Morgan Chase. Economists had expected an annualized contraction of around 1%. GDP fell at a 1.2% rate in the fourth quarter…European stock markets rose initially on the figures, which eased fears that the debt crisis may trigger an economic free fall.” Brian Blackstone in The Washington Post.

Export-Import Bank reauthorization cleared the Senate by a wide margin. “On a broad bipartisan vote of 78 to 20, the Senate voted Tuesday to extend the life of the U.S. Export-Import Bank and expand its authority to make loans to U.S. exporters. In the ‘Schoolhouse Rock’ version of how Capitol Hill works, this is what Congress does all the time — passes legislation. But it made for big news on this Capitol Hill, where protracted partisan warfare has meant that lately the story has more often been about votes forced by one party or the other to indignantly demonstrate the otheras opposition…Tuesdayas bill was the rarest of breeds: a lasting compromise on an issue of substance. It renewed the charter of what is commonly referred to as the Ex-Im bank for three years and will over that time raise the cap on the total financing the bank can guarantee from $100 billion to $140 billion.” Rosalind Helderman in The Washington Post.

The U.S.-Colombia free trade agreement took effect. “A free-trade agreement between the U.S. and Colombia took effect Tuesday after years of negotiations and despite strong opposition from U.S. labor organizations, which are worried about jobs being sent abroad and union-busting violence in Colombia. The first products shipped tariff-free were crates of Colombian roses and other flowers that landed Tuesday morning at Miami’s airport…President Barack Obama signed the free-trade agreement with Colombia in October, days after Congress gave its final approval following heated debates. The deal was originally negotiated by the Bush administration, but President Obama reworked the deal to satisfy Democrats. The U.S. exported $14 billion of goods to Colombia last year, everything from cars to consumer electronics to food, and exports are expected to rise by more than $1.1 billion as a direct result of the pact, according to the International Trade Commission.” Dan Molinski in The Wall Street Journal.

Adorable children singing interlude: Two girls cover Gotye’s “Somebody That I Used To Know” from the back seat of the car.

Health Care

Catholic bishops are threatening to sue over the birth control mandate. “The Catholic Church’s U.S. hierarchy warned Tuesday that without quick action by Congress, it will sue the Obama administration for mandating that insurance plans provide birth control to women without a co-pay. ‘[F]orcing individual and institutional stakeholders to sponsor and subsidize an otherwise widely available product over their religious and moral objections serves no legitimate, let alone compelling, government interest,’ lawyers for the U.S. Conference of Catholic Bishops wrote in a letter to federal regulators. Several small Catholic universities have already filed suit over the policy…The bishops’ notice came in 20 pages of comments submitted to the Department of Health and Human Services (HHS) on a forthcoming rule to accommodate certain religious organizations, such as Catholic hospitals, that were not exempted from the original mandate.” Elise Viebeck in The Hill.

Obamacare will expand healthcare options for immigrants. “The Obama administrationas drive to cut down on Americaas uninsured is about to get multilingual. Come 2014, when core provisions of the Affordable Care Act kick in, millions of legal immigrants will have new options for gaining health coverage. And like U.S. citizens, most will be subject to the individual mandate, under which they will be required to get coverage to avoid a penalty. The national health law explicitly excludes illegal immigrants — a politically explosive topic — and bans them from the new state insurance exchanges, even if they use their own money. They will make up a big chunk of the remaining uninsured population. But advocates say states have good reasons to reach out and get uninsured legal residents covered — especially as the federal government picks up most of the tab…In 2014…legal immigrants will be able to shop for health coverage through the new state insurance exchanges.” Kyle Cheney in Politico.

Domestic Policy

The backlash against standardized testing is growing. “The increasing role of standardized testing in U.S. classrooms is triggering pockets of rebellion across the country from school officials, teachers and parents who say the system is stifling teaching and learning. In Texas, some 400 local school boards–more than one-third of the state’s total–have adopted a resolution this year asking lawmakers to scale back testing. In Everett, Wash., more than 500 children skipped state exams in protest earlier this month…The efforts are a response to the spread of mandatory testing in the past decade. Proponents say the exams are needed to ensure students are learning and teachers’ effectiveness is measured. Critics say schools are spending disproportionate time and resources on the tests at the expense of more-creative learning. They also contend the results weigh too heavily in decisions on student advancement, teacher pay and the fate of schools judged to have failed.” Stephanie Banchero in The Wall Street Journal.

The NLRB suspended implementation of its union elections rule. “The National Labor Relations Board (NLRB) suspended implementation on Tuesday of a rule that would speed up union elections. On Monday, U.S. District Judge James Boasberg struck down the regulation. In his ruling, the judge said the labor board only had two members vote on the final rule in December 2011 when it needed three members to form a quorum. In the wake of the court decision, the agency is temporarily suspending the rule’s implementation, which went into effect on April 30. Further, Lafe Solomon, the NLRB’s acting general counsel, withdrew guidance he sent to the labor board’s regional offices and told those offices to follow the old union election rule instead. The agency is still considering its response to the court ruling…’We continue to believe that the amendments represent a significant improvement in our process and serve the public interest by eliminating unnecessary litigation,’ said NLRB Chairman Mark Pearce.” Kevin Bogardus in The Hill.

Dog’s-eye view interlude: Life from on top of puppies.

Energy

Energy independence is no pipe dream. “Every president since Richard Nixon has called for the U.S. to wean itself from needing oil from unstable or unsavory countries. The nation’s new-found energy riches are likely to bring that ambition closer to reality in the next two decades, according to many forecasters. It’s no pipe dream. The U.S. is already the world’s fastest-growing oil and natural gas producer. Counting the output from Canada and Mexico, North America is ‘the new Middle East,’ Citigroup analysts declare in a recent report. The U.S. Energy Information Agency says U.S. oil imports will drop 20% by 2025. Oil giant BP projects the U.S. will get 94% of its energy domestically by 2030, up from 77% now, as oil imports fall by half…Most enticing, a team of analysts and economists at Citigroup argues that the U.S., or at least North America, can achieve energy independence by 2020.” Tim Mullaney in USA Today.

@umairh: So consider how our political institutions are paralyzed by a financial crisis. Now think about energy, water, etc crises. Sweet!

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending.

The halls of the U.S. Capitol are already teeming with people warning of disaster if lawmakers fail to defuse a New Yearas budget bomb scheduled to raise taxes for every American taxpayer and slash spending at the Pentagon and most other federal agencies.

Last week, hospital executives came to complain about big scheduled cuts in Medicare payments. Next month, university presidents plan to raise the alarm about big scheduled cuts in federal research grants. And the chief executives of Lockheed Martin and other aerospace giants last Wednesday passed out digital countdown clocks ticking off the seconds until aover 1 million American jobsa will be lost to big scheduled cuts in defense.

aHow do you plan for chaos?a Marion Blakey, president of the Aerospace Industries Association, sighed during a break between meetings with lawmakers, who could provide little assurance that the spending cuts would be averted. aItas almost a unique moment in government because thereas so much at stake. And thereas nothing that inspires confidence that this will get done.a

The uncertainty is already prompting some firms to take action. Many more say they will be forced to contemplate layoffs and other cost-cutting measures long before the end of the year unless the Republican House and the Democratic Senate come up with an alternative path to tame deficits. But with control of the White House and both chambers of Congress in play on Nov. 6, aides say it is impossible to begin mapping a strategy for compromise until they know who wins the election, by how much and on which issues.

In the meantime, political leaders are focused less on finding solutions than on drawing lines in the sand. In a speech Tuesday, House Speaker John A. Boehner (R-Ohio) plans to address the issue of national debt, which will once again be nearing its legal limit in January, just as the tax hikes and spending cuts are due to hit.

According to advance remarks provided to The Post, Boehner will insist that any increase in the debt limit be accompanied by spending acuts and reforms greater than the debt limit increasea a the same demand that pushed the Treasury to the brink of default during last summeras debt-limit standoff.

aThis is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance,a Boehner plans to say at the Peter G. Peterson Foundation fiscal summit. aIf that means we have to do a series of stop-gap measures, so be it.a

Last week, the House approved a plan to protect the Pentagon in January by reconfiguring $110A billion in across-the-board spending cuts a known as asequestrationa a so they would fall exclusively on domestic programs, such as food stamps and health care for the poor.

But one aerospace lobbyist glumly noted that the House bill will be adead on arrivala in the Senate, where Majority Leader Harry Reid (D-Nev.) has vowed to block any effort to undo the defense cuts unless Republicans drop their opposition to higher taxes for the wealthy.

aThe answer is very simple to our Republican colleagues who want to help with defense: Revenues,a said Sen. Charles E. Schumer (D-N.Y.). aThe way to deal with sequestration is put revenues on the table.a

As lawmakers bicker, the approaching deadline has taken on the nightmarish aaspect of a slow-motion train wreck,a said Ajay Rajadhyaksha of Barclays Capital, with onlookers helpless either to prevent the carnage or to get out of the way.

aI feel like weare really in uncharted waters,a said Robert Greenstein, president of the left-leaning Center on Budget and Policy Priorities. aOn the one hand, you say: aWeare a functioning country. Somehow, weare going to work this out.a But then you ask: aWhatas the scenario for a potential solution?a And you canat come up with anything that you can see actually passing Congress.a

The impending upheaval is the result of multiple policy changes all set to hit at the same time. The George W. Bush-era tax cuts are scheduled to expire in December, along with a temporary payroll-tax holiday sought by President Obama. Meanwhile, Congress last summer paired a debt-limit increase with $1.2 trillion in across-the-board spending cuts over the next decade that almost no one wants to see happen.

For the moment, most economic forecasters are taking a sanguine view. Mark Zandi of Moodyas Analytics predicts that the lame-duck Congress will make a deal to rescind half the spending cuts and raise taxes for the wealthiest 2 or 3 percent of households a but leave everyone else alone.

aThereas a lot of room for compromise,a Zandi said, noting that Boehner and Obama came close to agreement last summer.

But others are skeptical that lawmakers, fresh from the combat of the campaign trail, will be able to agree on anything. Federal Reserve Chairman Ben S. Bernanke recently warned that the Fed would have aabsolutely no .a.a. ability whatsoevera to cushion the shock to the economy if the nation sails over what he calls the afiscal cliffa in January. And many analysts worry that the uncertainty will itself begin to dampen economic growth long before New Yearas Day.

Kaman Corporation chief executive Neal Keating said his firm is already scaling back hiring in Jacksonville, Fla., where the company builds cockpits for Blackhawk helicopters. He was hoping for new contracts to refit the nationas aging fleet of A-10 Warthog attack planes.

aSo many of those things are now uncertain,a Keating said, adding that plans to hire 200 workers have been put on hold. Without further clarity, Keating said, he could be forced to start ramping down purchases and cancelling shifts sometime this summer.

aOne of the most frustrating things is [that] people in Washington say, aWell, we donat think sequestration is going to happen,aaa he said. aBut weare responsible for planning and running a business.a

Nicholas Wolter, chief executive of the Billings Clinic, a chain of nonprofit medical facilities in Montana, said a scheduled 2A percent cut in Medicare payments would hammer his finances. But options being circulated to replace those cuts could also hurt, he said. In addition, a formula that maintains Medicare rates for doctors is also set to expire.

aYouare not sure which of them might end up in legislation,a Wolter said. aTheyare all potentially real.a

Tax policy is also causing heartburn. Kate Barton of Ernst & Young said she is advising clients not to count on the renewal of a slew of popular business tax breaks that expired in December. Even incentives for research and development, which are revered in both parties, could get caught in the year-end logjam.

aWeare not trying to be alarmist. But itas a time when the telescope and the crystal ball are really foggy,a Barton said. aYou talk to one person and you hear one thing; you talk to another and you hear something else.a

This month, about 120 university lobbyists gathered near Metro Center in hopes that top aides to Reid and Boehner would shed light on the fiscal end game. They didnat. Instead, Reidas deputy chief of staff for policy, Bill Dauster, cited a agood, if dour,a independent analysis that amany election outcomes would produce dynamics not conducive to getting a deala at all before the new Congress takes office in January.

aYou just donat get the sense that thereas even a secret plan yet. Itas scary,a said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, who has been meeting with corporate leaders in an effort to build support for a comprehensive deficit-reduction plan.

During a recent dinner in Washington, Lawrence H. Summers and Robert Rubin mulled the situation. Both men led the Treasury Department during the Clinton administration, and Summers was Obamaas top economic adviser in 2009 and 2010. They concluded that, whatever happens on Election Day, exhausted lawmakers are likely to resort to a short-term deal that extends all the tax cuts, postpones the spending cuts and pushes the deadline for fiscal calamity into the spring of 2013.

But even that move would be risky, Rubin argued, potentially inviting another downgrade of the U.S. credit rating, roiling financial markets and shattering confidence that the United States will ever get its debt problem under control.

Solutions are easy to come by awhen youare sitting at the Council on Foreign Relations in New York,a said Rubin, the councilas co-chairman. aItas a lot harder to do it when youare sitting in Washington and itas one minute of midnight.a

Itas truly an honor to be with you in the historic Mellon Auditorium. It was here in the spring of 1949 that the United States and our closest allies gathered to sign the North Atlantic Treaty, giving birth to NATO.

On that occasion, President Truman declared that people awith courage and vision can still determine their own destiny. They can choose freedom or slavery.a

In our time, all of these great nations face a grave threat to freedom, one from within, and that is debt. It is shackling our economies and smothering the opportunities that have blessed us with so much.

Once again the world looks to the United States for what it always has: an example. It is the example of a free people whose hard work and sacrifice make up the sum total of thriving towns and a vibrant economy. Itas a humble government that lives within its means and unleashes the potential of first-rate ideas and world-class products. Itas a nation never content with the status quo and always on the make.

I got a glimpse of this example growing up working at my dadas tavern just outside Cincinnati, and then lived a piece of it running my own small business.

Instead of this shining example, what does the world now see?

A president on whose watch the United States lost its gold-plated triple-A rating for the first time in our history;

A Senate, controlled by the presidentas party, that has not passed a budget in more than three years;

And, earlier this month, another unemployment report showing that the worldas greatest economy remains unable to generate enough jobs to spur strong and lasting growth.

If you should know one thing about me, itas that Iam an optimist.

Yes, times are tough, but our future doesnat need to be dark. We donat have to accept a new normal where the workplace looks more like a battlefield and families have to endure flat incomes, weak job prospects, and higher prices in their daily lives.

We have every reason to believe we can come out of this freer and more prosperous than ever. And we will, if we confront our challenges now while we still have the ability to do so.

For the solution to what ails our economy is not government a itas the American people.

The failure of astimulusa a a word people in Washington wonat even use anymore a has sparked a rebellion against overspending, overtaxation, and overregulation.

Americans, who take pride in living on a budget, recognize we canat go on spending money we donat have, and that our economy is stuck in large part because itas stuck with debt.

Nationwide, weare seeing a groundswell of support for bold ideas that reject small politics, cast off big government, and return us to common sense and first principles a the kind of ideas that will restore prosperity and substantially improve the trajectory of our economy.

In March, as part of our Plan for Americaas Job Creators, the House passed an honest budget with real spending cuts, pro-growth tax reform, and serious entitlement reform. Itas a far-reaching effort to control governmentas worst habits and capitalize on the American peopleas best. This budget gets our fiscal house in order AND promotes long-term growth. Far from settling for stability, it offers a true path to prosperity.

Various bipartisan commissions and coalitions have devised ambitious plans as well. The math and the mix are different, but the goals are mainly the same.

And of course, there are summits like these that bring together people who just get it. Of course, while Iam happy to be here and Iam sure we all enjoy each otheras company, we can also agree that weave talked this problem to death.

Itas about time we roll up our sleeves and get to work.

For all the focus on Election Day, another date looms large for every household and every business, and thatas January 1, 2013.

On that day, without action by Congress, a sudden and massive tax increase will be imposed on every American a by an average of $3,000 per household. Rates go up, the child tax credit is cut in half, the AMT patches end, the estate tax returns to 2001 levels, and so on.

Now, it gets a little more complicated than that. What will expire on January 1 is cause for concern a as is what will take effect. That includes:

Indiscriminate spending cuts of $1.2 trillion a half of which would devastate our men and women in uniform and send a signal of weakness;

Several tax increases from the health care law that is making it harder to hire new workers;

As well as a slate of energy and banking rules and regulations that will also increase the strain on the private sector.

But a| it gets even more complicated than that.

Sometime after the election, the federal government will near the statutory debt limit.

This end-of-the-year pileup, commonly called the afiscal cliff,a is a chance for us to bid farewell a permanently a to the era of so-called atimely, temporary, and targeteda short-term government intervention.

For years, Washington has force-fed our economy with a constant diet of meddling, micromanagement, and manipulation. None of it has been a substitute for long-term economic investment, private initiative, and freedom

Previous Congresses have encountered lesser precipices with lower stakes, and made a beeline for the closest lame-duck escape hatch.

Let me put your mind at ease. This Congress will not follow that path, not if I have anything to do with it.

Having run a business, I know that failing to plan is planning to fail. The real pain comes from doing nothing a| aausteritya is what will become necessary if we do nothing now. Weall wake up one day without a choice in the matter.

Thereas also no salvation to be found in doing anything just to get by, just to get through this year.

aNothinga is not an option, and aanythinga is not a plan. To get on the path to prosperity, we have to avoid the fiscal cliff, but we need to start today.

To show my intentions are sincere, Iall start with the stickiest issue, and that of course is the debt limit.

On several occasions in the past, the debt limit has been the catalyst for budget agreements. Last year, however, the president requested a quote-unquote acleana debt limit increase a business as usual.

Well Iave run a business, and thatas no way to do it. Itas certainly no way to run a government either, especially one that has run up a debt bigger than the entire economy. Business as usual will no longer do.

So last year around this time, I accepted an invitation to address the Economic Club of New York. I went up there and said that in my view, the debt limit exists in statute precisely so that government is forced to address its fiscal issues.

Yes, allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without taking dramatic steps to reduce spending and reform the budget process.

We shouldnat dread the debt limit. We should welcome it. Itas an action-forcing event in a town that has become infamous for inaction.

That night in New York City, I put forth the principle that we should not raise the debt ceiling without real spending cuts and reforms that exceed the amount of the debt limit increase.

From all the way up in Midtown Manhattan, I could hear a great wailing and gnashing of teeth. Over the next couple of months, I was asked again and again if I would yield on my aposition,a what it would take, if I would budgea|

Each and every time, I said anoa a| because it isnat a apositiona a itas a principle. Not just that a itas the right thing to do.

When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase. This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance.

If that means we have to do a series of stop-gap measures, so be it a but thatas not the ideal. Letas start solving the problem. We can make the bold cuts and reforms necessary to meet this principle, and we must.

Just so weare clear, Iam talking about REAL cuts and reforms a not these tricks and gimmicks that have given Washington a pass on grappling with its spending problem.

Last year, in our negotiations with the White House, the president and his team put a number of gimmicks on the table. Plenty of thought and creativity went into them a things like counting money that was never going to be spent as savings.

Maybe in another time, with another Speaker, gimmicks like these would be acceptable.

But, as a matter of simple arithmetic, they wonat work.

They wonat work, and as I told the president, weare not doing things that way anymore.

What also doesnat count as acuts and reformsa are tax increases. Tax hikes destroy jobs a especially an increase on the magnitude set for January 1st. Small businesses need to plan. We shouldnat wait until New Yearas Eve to give American job creators the confidence that they arenat going to get hit with a tax hike on New Yearas Day.

Any sudden tax hike would hurt our economy, so this fall a before the election a the House of Representatives will vote to stop the largest tax increase in American history.

This will give Congress time to work on broad-based tax reform that lowers rates for individuals and businesses while closing deductions, credits, and special carveouts.

Eyebrows go up all over town whenever I talk about this, but when I say abroad-baseda tax reform, I mean it. We need to do it all a| deal with the whole code, personal and corporate itas fairer and more productive for everyone.

Thatas why our bill to stop the New Yearas Day tax increase will also establish an expedited process by which Congress would enact real tax reform in 2013. This process would look something like how we handle Trade Promotion Authority, where you put in place a timeline for both houses to act.

The Ways Means Committee will work out the details, but the bottom line is: if we do this right, we will never again have to deal with the uncertainty of expiring tax rates.

Weall have replaced the broken status quo with a tax code that maintains progressivity, taxes income once, and creates a fairer, simpler code.

And if we do THAT right, we will see increased revenue from more economic growth.

Again, change doesnat need to be sudden or painful.

Last fall, when I addressed the Economic Club of Washington, I said that making relatively small changes now can lead to huge dividends down the road in terms of debt reduction. As we approach the issue of the debt limit again, we need to continue to bear this in mind.

As you know, we could eliminate all of the unfunded liabilities in Social Security, Medicare and Medicaid tomorrow, and the effect within the Congressional Budget Office 10-year window could be minimal.

Thatas because changes to these programs take time and are phased-in slowly.

For example, when Congress last increased the retirement age for Social Security, the increase a a mere two years a was scheduled to fully take effect 40 years after the law was enacted.

Another example: take the House Budget Resolution and its assumptions for Medicare reform. Those would not even begin until after 2022.

Smart and modest changes today mean huge dividends down the line.

Now, I can already hear the grumbles a| partisans getting all worked up or people saying, eh, letas wait until after the election.

We canat wait. Employers large and small are already bracing for the coming tax hikes and regulations, which freeze their plans. The markets arenat going to wait forever; eventually theyare going to start reacting.

We now know that we ignore these warnings at our own peril.

Thatas why the House will do its part to ease the uncertainty surrounding the fiscal cliff. And I hope the president will step up, bring his partyas Senate leaders along, and work with us.

Because if thereas one action-forcing event that trumps all the rest a even the debt limit a itas presidential leadership.

Ladies and gentlemen, I believe President Obama cares about this country and knows what the right thing to do is. But knowing whatas right and doing whatas right are different things.

The difference between knowing whatas right and doing whatas right is courage, and the president, Iam sorry to say, lost his.

He was willing to talk about the tough choices needed to preserve and strengthen our entitlement programs, but he wasnat ready to take action.

As it turned out, he wouldnat agree to even the most basic entitlement reform unless it was accompanied by tax increases on small business job creators.

We were on the verge of an agreement that would have reduced the deficit by trillions, by strengthening entitlement programs and reforming the tax code with permanently lower rates for all, laying the foundation for lasting growth.

But when the president saw his former colleagues in the Senate getting ready to press for tax hikes, he lost his nerve. The political temptation was too great. He moved the goalposts, changed his stance, and demanded tax hikes.

We ended up enacting a package with cuts and reforms larger than the hike. But it could have been so much more.

The letdown was considerable. And, in turn, our nationas credit rating was downgraded for the first time.

Well it should also be the last time that happens, which is why I came here today.

If the president continues to put politics before principle a or party before country, as he often accuses others of doing a our economy will suffer and we may well miss our last chance to solve this crisis on our own terms.

But if we have leaders who will lead a| if we have leaders with the courage to make tough choices and the vision to pursue a future paved with growth, then we can heal our economy and again be the example for all to follow.

Iam ready, and Iave been ready. Iam not angling for higher office. This is the last position in government I will hold. I havenat come this far to walk away.

All my life, Iave operated by a simple code: if you do the right thing for the reasons, good things will happen.

Well, NOW is the time to do the right thing.

Letas do it for the right reasons a we donat need to be dragged kicking and screaming. Thatas not the American way. Letas summon the courage and vision to choose freedom, to choose prosperity, and to determine our destiny.

Then weall not only have succeeded in solving this crisis a weall be worthy of that success.

Thank you all.

Sen. Tom Coburn (R-Okla.) served on the Simpson-Bowles commission, is a member of the Gang of Six, and just published aThe Debt Bomb: A Bold Plan to Stop Washington from Bankrupting America.a We spoke last week in his office. This interview, which focuses on Americaas debt and growth problems, is the first in a two-part series. The second interview, which focuses on health care, will be published later this week.

Ezra Klein: So ataxmageddona is coming at the end of the year. Depending on how you look at it, itas an opportunity for Congress to trigger a massive and unnecessary fiscal crisis, or to actually get some serious legislating done on our long-term fiscal issues. Are you optimistic about the outcome?

Tom Coburn: No. But it depends on what the mix is. If President Obama is still president and weare in control of the Senate, I think youall see significant attempts to get something done. But I donat think theyall be much more successful than what we saw in August. And I wouldnat consider that very successful. If Romney wins and we win control in the Senate, we have to send a signal that weare going to fix it in order to take away all that potential risk to the economy. You have to say weall work all over the Christmas holidays to get it fixed.

EK: When you look at the Romney scenario, it seems Republicans have spent a few years now learning how to take tough votes on the budget, particularly on the Ryan plan. So if Republicans control the House and Senate, it seems to me that youad see quite dramatic action on those issues, as they can be passed with 51 votes through budget reconciliation.

TC: Well, you can. Ryan has a good plan. I donat think it goes fast enough. But the fact is heas got a plan. The president wonat put out a plan. The Senate Democrats wonat put out a plan. Itas kind of like boxing with a shadow. You canat ever hit it. But it doesnat matter if youare Democrat or Republican. The pain will get worse every year we donat fix these things. And there will come a time when it wonat matter if youare a Republican or Democrat. And I donat have much faith right now that weare up to the task of coming to agreement to fix this.

EK: I want to come back to the question of the plans in a second,. But your book opens by imagining a very dire fiscal crisis in 2014. And this goes to your contention that Ryanas plan doesnat bring down the debt fast enough. Where do you get the urgency of your schedule? I look at Treasuries and theyare selling with very low yields. So you can say thatas just the Federal Reserve manipulating prices. So then I look at credit default swaps on the United States, and there are no alarm bells there, either. I look at countries like Japan and England that have carried on with very high debt levels for a very long time. Weave seen other countries that control their own currency manage very high debt levels throughout the 20th Century.

TC: Well, you need to go study Japan. Theyare going to crash.

EK: People have been saying that for 20 years.

TC: You have two things coming together. This is the first year theyall be a net issuer of debt outside their country. Theyave totally financed all their debt internally. We havenat. Thatas one big difference. They also have a much lower birth rate. Seven births for every 1,000 people. So their population is shrinking and their demographic shift is much worse than ours. And this year, the postal system there that runs all their retirement accounts will not be buying any government debt. Zero. So the Japanese government, for the first time, is going into the international market. And the yenas value is going to decline against every major currency. Whether that happens this year or next year or in three years, itas going to happen. And theyave now had almost two decades of no real GDP growth. So Japan isnat going to make it. The reason they havenat had any problems is they havenat asked anyone else in the world to buy their debt. Now theyare going to have to.

The same thing ultimately will happen to us, but weall be the last person it happens to. The world still views this as the safest place. You see Greece, which will probably be out of the euro by the end of this year. Then you look at Spain and Italy and Portugal and Ireland. Europe is going to print money just like Ben Bernanke is printing money. And whatas the end result of that? Inflation.

EK Well, it depends how you manage it.

TC: How do you sterilize $3 trillion worth of debt?

EK: The difficulty for me when you say that is Iam a market-oriented guy. I trust the markets, more or less. And if you look at the marketas inflation expectations, theyare not high. They donat think what the Fed has done will lead to inflation.

TC: They donat now. But nobody ever does when you print money like that. If you study [Carmen] Reinhart and [Kenneth] Rogoff and what they said, they know whatas coming. Every country thatas ever been with a debt crisis and has printed money has ended up with an intentional inflation problem. Think for a minute that youare Ben Bernanke. Youare trying to control inflation, jumpstart the economy, and improve the unemployment rate. What do you think his long-term answer for this is?

EK: At the moment, I donat think he has one.

TC: His long-term answer is inflation.

EK: Not only do I think that would be an okay answer, but Reinhart and Rogoff do, too. Rogoff has been arguing for higher inflation for a long time. But Bernanke says he wonat permit that. And I donat see a reason he would allow inflation later but oppose it now, when it could really help. In fact, what heas been saying is he wonat do the monetary stimulus many want now specifically because he doesnat want to deanchor inflation expectations later.

TC: But 10 years from now, our bonds wonat be two percent. So what percentage of the total budget do interest costs become if you normalize back to the historical average? If you do that today, you add $650 billion to our annual interest costs. How long do you think he can keep two percent inflation? If he does, then weall continue to have two percent growth. In other words, if we start getting the growth, then weall see the inflation. The reason thereas no inflation now is thereas no velocity to the money. Weave got $2 trillion sitting on the sidelines with corporations in this country. Another few trillion in personal bank accounts. And the reason is no one has confidence in the future. And itas not so much the details of the plan to fix it as the psychological confidence it will get fixed. And thatas why I voted for Bowles-Simpson.

EK: When Bowles-Simpson went before the House, it was rejected by a huge bipartisan majority. Do you see there as being any possibility that one outcome of the taxmageddon period could, be a grand bargain in the Gang of Six/Simpson-Bowles vein?

TC: I donat know the answer to that, frankly. My hope would be we reach a grand compromise. But the vote in the House proves what I said in the book. You had a vote in the House on a plan that could solve our problems and the Democrats didnat vote for it because it touches Social Security and Republicans vote against it because of revenues. Both sides accentuated their differences rather than sending a signal to the international community that we could get together and cut $4.5 trillion over the next 10 years. Which raises the question: Why are they here? If youare here just to get reelected, youare worthless to the country.

EK: Youare searingly critical of Congress in the book. So let me ask you: How do you fix the Senate?

TC: Let the Senate operate the way itas supposed to. put stuff through committees. bring it up in regular order. Have an open amendment process. Iam the number one amendment offerer in the Senate in the last few years.

EK: Congratulations.

TC: Well, itas not necessarily a compliment. But the point is the Senate really could work if you let it work on the real issues. If you were to put Simpson-Bowles on the floor and really have a strong debate on that bill, it could get through the Senate.

EK: When I talk to the party tactician types, the senators trying to figure this out, their argument is that when you try to do this out in public, with 24-hour news media broadcasting every move and every possible compromise, the issue polarizes, the interest groups descend, the party bases descend, and solutions get taken off the table. In the end, they think there will have to be some big backroom deal. They think a more open process would make this harder, not easier.

TC: I just adamantly disagree. Thatas the sickness of Washington. What that really says is the politician doesnat want to stand up and debate and tell their interest groups no. We had the pharmacists in here earlier. They want a bill to protect community pharmacies. And I said, you know what, the market is changing, Iam not about to support a bill, even though you support me, that doesnat allow the market to work this thing out. I think the reason you get this kind of analysis is because people wonat stand up and do what they think is right because it hurts their political chances. And on our bonds, our bonds will be fine until theyare not, till that tipping point comes when they say crap, we canat get out of it.

EK: As you just said, youare a market guy. You want the market to work things out. You believe in the marketas ability to work things out. So why do you think your view of our likely debt and inflation path is so much more dire than the marketas?

TC: Because the market is biased towards up. Why do you invest in the market? Not because you think youall lose money. Why do you invest in bonds? To make money. Where is the contrarian view?

Let me give you one example. Five weeks ago, Bernanke said there would be no QE3. What happened to the 10-year bond in four days? It rose 48 basis points. What the market said then is if thereas no more QE3, weare going to short the value of a bond. Thatas one little signal. What if you get 20 signals? How do you explain the Chinese getting rid $160 billion of our debt last year? Eventually, theyare not going to buy our debt. Who bought most of our debt last year? It was the Federal Reserve. Go out there and try and float $10 billion of our long-term debt. You canat. Thereas no market. Because the long-term market is saying, send us a signal that youall fix this. And so the reason we have the shortest debt maturity in our countryas history is first, because you canat sell long-term debt because no one wants to buy it, and second, because long-term debt makes the deficit look worse.

Look, I may not be right. But what I see and the people I read — all I do at night is read economic reports on peopleas view of us — and when you look at it, Spain, wonat make it, the European Central Bank will eventually print money. You agree?

EK: Iam hoping so.

TC: Theyall do that to buy time. And where I agree with Paul Krugman is you canat just have austerity. You need growth, The question is how do you get the growth. Do you get the government-driven growth, or do you get confidence and certainty so that the private money comes in and creates the growth? One costs you double. The other costs you half. So thereas a fourfold difference in where you get the growth from. When you borrow the money to spend $800 billion, you got that debt hanging on you, which Reinhart and Rogoff have proven without a doubt, when youare at 90 percent and above, and weare at 101 percent right now, debt-to-GDP, thatas at least a one percent cut to growth.

EK: To go back to Krugman, if he were sitting here, head say in this crisis thereas been no evidence anywhere that cutting deficits leads to growth. Weave not seen it in the euro zone or the UK. And head say the Reinhart/Rogoff story is a correlation story. It doesnat prove that high debt always and everywhere hurts growth.

TC: Go look at Sweden. Hereas what Sweden did. They cut their spending and their taxes. They have the best growth rate in Europe. They had a surplus this year. They had growth at six-plus percent. They actually did a Reagan style approach to their problem by cutting spending and cutting taxes. And theyare the fastest growing with a decline in their debt-to-GDP ratio.

EK: But correct me if Iam wrong, but if I recall, Swedenas monetary policy went towards a very sharp devaluation, theyave been driven by export growth, and alongside Israel, theyave been more aggressive than any other central bank in the world. Theyave done stuff that if we did it here, people would lose their minds.

TC: I think there are monetary parts to that. But their finance minister put in place tough stuff. They had people who left Sweden because of the tax ratio. Now theyave moved back. And itas not a perfect example, but itas an exception to the Krugman story.

EK: Is there anything we need but deficit reduction to get growth back on the right path?

TC: Itas signals. The number one thing, and I think most economists would agree, confidence matters. If you have negative confidence, then you get much lower growth. If you have positive confidence you get much better growth with the same set of numbers. I think people are so disgusted with Washington that if we send a signal weare actually going to fix this — with any combination of tax and spending, remember that I voted for Simpson-Bowles — weall get our mojo back when people have some confidence in the future and see their Congress solving their problems.

EK: It seems your view is that just as the market needs to have faith in your demographics and in the flexibility of your labor market and the competitiveness, it has to have faith in your political systemas capacity to deal with long and short-term threats. Do you see any reason for the market to have that faith right now?

TC: No. One of my biggest worries is what happens if Romney wins and Republicans control both chambers, do they have the courage to do what it takes to fix the country? Itas kind of their last chance. If theyare given the favor of control and they donat act on it, why should you ever trust them again? You shouldnat. Itall be the death knell of the Republican Party. They controlled it all for four years under Bush and grew the government. They created a new entitlement with no revenue. Went against the very tenets of what they said they believe.

One of the reasons I wrote the book was to show a whole lot of people how many stupid things we do. I donat really blame presidents too much. You gotta get appropriations. I say the problem is not that we donat get along. We get along too well. Government is twice the size it was 10 years ago. The president canat spend the money if we donat appropriate it. So itas not a president problem. Itas a congressional problem.

EK: On the other side of that hypothetical, letas say Obama wins, but Republicans hold the House and maybe even take the Senate. How do they act in that hypothetical? Are they more or less willing to compromise with Obama?

TC: I donat know. Iam not good at predicting that. If President Obama is president again, those problems are still there and we have to solve them. He knows that. Weave had conversations where heas told me heall go much further than anyone believes heall go to solve the entitlement problem if he can get the compromise. And I believe him. I believe he would.

Californiaas fiscal crisis will look sadly familiar to close watchers of the national checkbook. Thatas because California is not having a fiscal crisis so much as a political crisis. The trigger may have been the recession, but the root cause was written into the state Constitution, and it was visible long before the housing boom went bust.

In California, passing a budget or raising taxes requires a two-thirds majority in both the stateas Assembly and its Senate. That need not pose a problem, at least in theory. The state has labored under that restriction for a long time, and handled it with fair grace. But as the historian Louis Warren argues, the vicious political polarization thatas emerged in modern times has made compromise more difficult.

All of this, however, has been visible for a long time. Polarization isnat a new story, nor were Californiaas budget problems and constitutional handicap. Yet the state let its political dysfunctions go unaddressed. Most assumed that the legislatureas bickering would be cast aside in the face of an emergency. But the intransigence of Californiaas legislators has not softened despite the spiraling unemployment, massive deficits and absence of buoyant growth on the horizon. Quite the opposite, in fact. The minority party spied opportunity in fiscal collapse. If the majority failed to govern the state, then the voters would turn on them, or so the theory went.

That raises a troubling question: What happens when one of the two major parties does not see a political upside in solving problems and has the power to keep those problems from being solved?

If all this is sounding familiar, thatas because it is. Congress doesnat need a two-thirds majority to get anything done. It needs a three-fifths majority, but thatas not usually available, either. Ever since Newt Gingrich partnered with Bob Dole to retake the Congress atop a successful strategy of relentless and effective obstructionism, Congress has been virtually incapable of doing anything difficult because the minority party will either block it or run against it, or both. And make no mistake: Congress will need to do hard things, and soon. In the short term, unemployment is likely to remain high and the economy is likely to remain weak unless Congress can muster another round of serious stimulus spending. The economist Karl Case, co-founder of the famed Case-Shiller housing index, now believes that earlier optimism about our economic recovery a which he shared a was misplaced. aThe probability is very high of a serious double dip like 1982,a he told the New York Times. The housing market seems to be sagging again, and the governmentas interventions a not just the stimulus but also relaxed standards at Fannie Mae, Freddie Mac and the Federal Housing Authority a are set to end.

Further out, the long-term deficit problem, which is driven largely by health-care costs, is startling. The Center for Budget and Policy Priorities estimates that debt will reach 300 percent of gross domestic product come 2050 a and that estimate might be optimistic. But solutions seem unlikely. No one who watched the health-care bill wind its way through the legislative process believes Congress is ready for the much harder and more controversial cost-cutting that will be necessary in the future.

Similarly, Sens. Kent Conrad and Judd Gregg recently suggested a bipartisan deficit commission that would reach a consensus on the budget and report back to a grateful Congress. On Tuesday, a Wall Street Journal editorial showed the conservative interest in such compromises: Republicans should aagree to a deficit commission only if it takes tax increases off the table,a it said, reminding wavering Republicans that aPresident George H.W. Bush renounced his no-new-taxes pledge and made himself a one-termer.a

These two problems get to the essential difficulties confronting the nation: There is no doubt that minority parties generally profit in elections when the unemployment rate is high. But given that reality, what incentive do they have to help the majority party lower the unemployment rate? Further out, there is no doubt that the majority party has an incentive to prevent a fiscal crisis on its watch. But what incentive does the minority party have to sign on to the screamingly painful decisions that will avert crisis?

In another system of government, that wouldnat much matter. In our system of government, which requires a supermajority in the Senate for most projects, it matters a lot. On Jan. 20, for instance, the Senate is expected to vote on raising the debt ceiling. Generally, this is a bipartisan vote, as the debt is a bipartisan creation. This year, Senate Minority Leader Mitch McConnell reportedly told Majority Leader Harry Reid that if he wants an increase in the ceiling, he owns it and needs to find the votes for it. Thatas the sort of budgetary brinksmanship that brings us back to California.

The lesson of California is that a political system too dysfunctional to avert crisis is also too dysfunctional to respond to it. The difficulty is not economic so much as it is political; solving our fiscal problem is a mixture of easy arithmetic and hard choices, but until we solve our political problem, both are out of reach. And we canat assume that an emergency, or the prospect of one, will solve the political problem for us. If you want to see how that movie ends, just look west, as we have so many times before.

In the traditional view of marriage, write economists Betsey Stevenson and Justin Wolfers, “the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace. The different skills required for these separate roles provide an economic rationale for the advice your grandmother may have offered, that ‘opposites attract.’” Romantic, right?

But in recent decades, the marriage-as-firm view has crumbled — and not just because social mores have changed. “Washing machines, dishwashers and microwave ovens have reduced the value to the family ‘firm’ of employing a domestic specialist,” say Stevenson and Wolfers, who are, themselves, married. “Cheap clothes can be imported from China, rather than sewn at home. Healthy meals can be purchased from the freezer at Trader Joeas. Whatas more, legal and social changes have broken down many of the barriers keeping women out of the labor market…All these developments have increased the opportunity cost of having a spouse stay home, because that spouse now has greater value in the marketplace.”

One possibility was that, as the traditional economic case for marriage fell apart, marriage itself would decline as an institution. But that didn’t happen. Rather, we developed a new kind of marriage. “Modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage,” continue Stevenson and Wolfers. “Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian. We have called this new model of sharing lives ‘hedonic marriage.’ These are marriages of equality in which the rule aopposites attracta no longer applies in the same way, because couples with more similar interests and values can derive greater benefits. So likes are now more likely to marry each other.”

And it’s into this institution that gay couples are being admitted, because the nature of this institution doesn’t provide a good argument for their exclusion.

Gay couples couldn’t credibly promise to provide each other with the separate and specialized skills — separate for reasons of legal discrimination, and social beliefs about what men and women could do — that were the basis of the older conception of marriage. But gay couples can certainly share the joy of things and experiences, they can certainly improve each other’s lives, they can certainly co-parent, they can certainly bring increased economic stability to a household by combining two incomes — they can do all the things that form the basis of what Stevenson and Wolfers call “hedonic marriages.”

In other words, one story here is that our attitudes have changed towards homosexuality, and that’s certainly true. But another is that our attitudes have changed towards marriage — even heterosexual marriage — in ways that opened the institution for gays. And that’s true, too.

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Top stories

1) Greece’s coalition talks remain deadlocked. “Greeceas president is set to resume coalition talks on Tuesday with the countryas political leaders in another attempt to avoid a fresh general election after a meeting on Monday evening ended without agreement. Antonis Samaras and Evangelos Venizelos, the conservative and socialist leaders, and Fotis Kouvelis, head of a leftwing splinter group, held a fruitless one-hour discussion on how to escape the crisis but agreed to meet again, along with other party heads. President Karolos Papoulias has another 48 hours to persuade politicians to join a national unity government according to the constitution or face having to call another election…Alexis Tsipras, the leader of Syriza, the radical leftwing coalition that rejects the terms of Greeceas international bailout, refused to participate in Mondayas talks. ‘Weare not going to join in selective meetings of political leaders … The circle of contacts provided for by the constitution has been completed,’ he said.” Kerin Hope and Peter Spiegel in The Financial Times.

The standoff is raising worries of a European economic crisis. “Political deadlock in Greece rattled world markets Monday, reviving fears that the fractious Mediterranean country could spurn an international bailout, abandon the common European currency and risk a fresh round of world economic turmoil. European stock indexes fell, with Greeceas market now at a 20-year low, while the euro currency continued a recent decline against the dollar. U.S. stocks also fell. Coming only days before the leaders of the worldas Group of Eight industrialized nations meet at Camp David, the standoff in Greece over its political direction has thrust Europeas troubles to the top of the agenda. A downturn in Europe could stagger a fragile recovery in the United States and undermine growth around the world. Fighting a new downturn would be a challenge for the major economies, many of which have not fully stabilized since the last big economic crisis.” Howard Schneider and Anthony Faiola in The Washington Post.

FAQ: Why is Greece in such trouble? And can it be fixed?

@ezraklein: “Syriza” is a rather evil-sounding name for a political party. Pretty sure it means Hydra in Greek.

2) Senate leaders reached a deal to move the Export-Import Bank bill forward. “Legislation to extend the Export-Import Bankas charter advanced in the Senate Monday evening after agreement was reached on addressing tea party demands to reopen a bipartisan deal approved only days ago by the House. Five GOP amendments will be permitted Tuesday — some re-litigating specific agreements reached by House leaders. But in each case, a supermajority of 60 votes would be required, leaving Senate Majority Leader Harry Reid (D-Nev.) hopeful that the House package will survive intact and go quickly to President Barack Obama for his signature this week…Mondayas agreement, as announced by Reid, came only minutes before a scheduled procedural vote in which he would have needed 60 votes himself to move on to the bill. By coming to terms on the amendments, Reid avoided that challenge, but as part of the same deal, he will need 60 votes for passage of the bill.” David Rogers in Politico.

3) JPMorgan Chase’s loss has the banking industry scared. “A Congressional committee announced plans on Monday to hold a hearing on the financial regulatory overhaul that will look at the JPMorgan loss. Wall Streetas representatives, fearing that the entire banking industry might pay for JPMorganas sins, are trying to contain the fallout in Washington, people close to the matter said…JPMorgan, however, is stepping away from another public panel on the Volcker Rule. The Commodity Futures Trading Commission, one of the regulators writing the Volcker Rule, will host a public roundtable this month about the new regulation and has invited JPMorgan to speak. Last week, JPMorgan suggested that one of its top Volcker Rule experts would attend. But then the bank said that this person had a scheduling conflict. Rather than dispatch another executive to Washington, the banks recommended an employee at another bank..” Ben Protess and Ed Wyatt in The New York Times.

The fiasco claimed its first casualty. “JPMorgan Chase on Monday announced the abrupt retirement of the executive who oversaw the unit that lost $2 billion trading exotic securities, the latest twist in a story that has exposed the gulf between how Wall Street views itself and how the public sees the financial sector. To the bank, its actions — which included appointing an executive to investigate what went wrong — were an example of how it could take the initiative in cleaning up its own shop. But to many lawmakers and analysts, the question remains how a bank with a sterling reputation could get into such trouble two years after Congress passed laws to prevent dangerous financial gambling…On Monday, the bank announced that Chief Investment Officer Ina Drew, who oversaw the London unit, would leave the firm, which she has served for 30 years…The bank also announced that Mike Cavanagh, a top executive, would lead a team of officials to investigate the losses.” Zachary Goldfarb and Steven Mufson in The Washington Post.

FAQ: What happened at JP Morgan? And should you care?

@lizzieohreally: Carl Levin just waved highlighted parts of Dodd-Frank at me. Which was awesome.

@SuzyKhimm: Part of Obama’s problem in selling Dodd-Frank: many new regs aren’t written yet, much less implemented. Similar to Obamacare conundrum.

4) Businesses are bracing for taxmageddon. “Defense contractors have slowed hiring. Tax advisers are warning firms not to count on favorite breaks. And hospitals are scouring their books for ways to cut costs. Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending. The halls of the U.S. Capitol are already teeming with people warning of disaster if lawmakers fail to defuse a New Yearas budget bomb scheduled to raise taxes for every American taxpayer and slash spending at the Pentagon and most other federal agencies…The uncertainty is already prompting some firms to take action. Many more say they will be forced to contemplate layoffs and other cost-cutting measures long before the end of the year unless the Republican House and the Democratic Senate come up with an alternative path to tame deficits.” Lori Montgomery and Rosalind Helderman in The Washington Post.

5) The House GOP may link tax cut extensions with a tax reform vote this summer. “House GOP leadership is considering linking a short-term extension of the expiring Bush-era tax cuts to an overhaul of the tax system this summer, aiming to give its party a campaign talking point and to pressure Senate Democrats to act. While the details of the plan are very much up in the air, one option being considered is passing a bill extending the 2001 and 2003 tax rates for one year along with a resolution affirming GOP principles for tax reform. The measures could also include some form of fast-track authority, much like the power granted to the Joint Committee on Deficit Reduction, to expedite floor consideration of a tax reform plan in 2013, when the Bush-era tax cuts would again expire…Boehner is expected to address this and other financial issues at a speech before the Peter G. Peterson Foundation Fiscal Summit today.” Daniel Newhauser and John Stanton in Roll Call.

Top op-eds

1) KLEIN: The filibuster may be unconstitutional. “According to Best Lawyers — ‘the oldest and most respected peer-review publication in the legal profession’ — Emmet Bondurant ‘is the go-to lawyer when a business person just canat afford to lose a lawsuit.’ He was its 2010 Lawyer of the Year for Antitrust and Bet-the-Company Litigation. But now, heas bitten off something even bigger: bet-the-country litigation. Bondurant thinks the filibuster is unconstitutional. And, alongside Common Cause, where he serves on the board of directors, heas suing to have the Supreme Court abolish it…At the core of Bondurantas argument is a very simple claim: This isnat what the Founders intended. The historical record is clear on that fact. The framers debated requiring a supermajority in Congress to pass anything. But they rejected that idea.” Ezra Klein in The Washington Post.

2) SALAM: The U.S. economy shouldn’t follow China’s model. “Americans have always looked abroad for inspiration. Alexander Hamilton drew on the experience of Britain and France to shape the economic institutions of the early republic. In the early 19th century, Henry Clay championed tariffs, a national bank, and internal improvements in an effort to match Britainas economic might. As the 19th century gave way to the 20th, Germany emerged as an industrial colossus, and American intellectuals had a new model. During the 1950s, at least some Americans, mainly but not exclusively on the political left, saw the breakneck modernization of the Soviet Union as a clear indication that the old-fashioned market economy was on its last legs…But the belief that we had much to learn from the Soviets was both dangerous and stupid. And much the same can be said for the current enthusiasm over Chinaas economic model.” Reihan Salam in National Review.

3) BERWICK: Cheaper healthcare can mean better healthcare. “Reducing costs wonat just rescue health care; it will also help rescue our schools, our roads, our museums, our wages, and the competitiveness of our corporations…The route is simple: improve care. In a study in the Journal of the American Medical Association, my colleague Andy Hackbarth and I estimated the amount of pure waste in American health care — overtreatment that helps no patient at all (like treating viral infections with antibiotics), errors and injuries from unsafe care, failures in coordination (such as sending people home from hospitals without supports), needless administrative complexity, failures of price competition, and fraud. The lowest estimate of total waste in these six categories was 21 percent of health care costs; the highest was 47 percent; and the midpoint was 34 percent. When we are wasting $1 in of every $3, it makes no sense to say we cannot afford to make health care a human right without rationing. Donat cut care. Cut waste.” Donald Berwick in The Boston Globe.

4) SCHMITT: Link worker pay to corporate taxes to fight inequality. “The tax code can be part of the solution. The first step is to end the preferential treatment of income from capital gains, which economists like Princetonas Alan Blinder have shown to have no lasting effect on total investment or the economy. But we can and should go further, actively using the corporate tax code to create a real incentive to pay CEOs less, and workers more, by linking the head honchoas compensation to both employee salaries and tax rates. Hereas how the idea could work. The current corporate tax rate is a flat 35 percent. In an equity-based corporate tax system, companies with a pay ratio at the historic norm of 40:1, or even up to 60:1, would pay the existing rate and be able to deduct executive pay. But companies that pay their top executives more than 60 times the average worker (including employees in overseas subsidiaries) would pay a higher rate, 40 percent, and those with extreme pay differentials, 80:1 or higher, would pay 45 percent.” Mark Schmitt in GOOD.

5) STEVENSON AND WOLFERS: An economic mode of marriage equality. For our grandparentsa generation, marriage was about separate roles, separate spheres and specialization. Gary Becker, an economist at the University of Chicago, won the Nobel Prize partly for describing the family as an economic institution — a bit like a small firm that employs people with different skills to produce both income and a well-run household. In Beckeras view, the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace…Modern marriage offers different benefits. Today, we search for a soul mate rather than a good homemaker or provider. We are more likely to regard marriage as a forum for shared experiences and passions. Viewed through an economic frame, modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage. Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian.” Betsey Stevenson and Justin Wolfers at Bloomberg View.

Anti-folk interlude: Kimya Dawson plays “I like Giants” live.

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Still to come: A fall in commodities prices sparks worries of deflation; a turf war over primary care; colleges begin to confront costs; regulators worry about solar flares; and a harbor seal pup explores the water for the first time.

Economy

New data suggests the eurozone has returned to recession. “Industrial production in the 17 countries that use the euro fell unexpectedly in March, leaving little doubt the region contracted for a second straight quarter in the first three months of the year and returned to recession, data by Eurostat showed Monday. The European Union’s statistical agency will publish the first estimate of first-quarter gross domestic product Tuesday. Economists are forecasting a 0.2% quarterly decline, according to a Dow Jones Newswires poll. Industrial production fell 0.3% on the month in March and by 2.2% on the year. The latter was the steepest drop since a 3.7% decline in December 2009, while the monthly decline was because of a sharp 8.5% decrease in energy production as the weather in March was warmer than usual for the time of year, a Eurostat statistician said…The data were weaker than expected. Economists had forecast a 0.5% monthly increase and a 1.2% year-on-year fall.” Ilona Billington in The Wall Street Journal.

Commodities prices fell to a new yearly low. “The prices of key commodities fell to their lowest level of the year on Monday, dragged down by worries about Europeas debt crisis and the possibility of a slowdown in China, the worldas second-largest economy. An emerging concern among some economists and investors is that the declining prices of materials such as gold and crude oil could be an early signal of deflation — a decline of prices that is economically corrosive because it makes it more difficult for businesses to make a profit. The downturn in prices is reflected in broad measures of commodity prices. The Standard & Pooras GSCI, an index tracking prices for crude oil, gold, copper and several other commodities, has dropped more than 6 percent this month so far. Even the price of gold, which usually rises when investors have concerns about the economy, has fallen.” Jia Lynn Yang in The Washington Post.

Smile for the camera interlude: Videos of people who think they are posing for a picture.

Health Care

Romney and Obama differ sharply on Medicare. “President Obama and Mitt Romney agree on one thing about Medicare: the differences between them are huge…Mr. Romney, who would limit the governmentas current open-ended financial commitment to Medicare, contends that Mr. Obama has no workable plan to prevent Medicare from going bankrupt. Under the Romney proposal, the government would contribute a fixed amount of money on behalf of each beneficiary, and future beneficiaries could use the money to buy private insurance or to help pay for traditional Medicare…Mr. Obama assails the Romney proposal for the same reason he denounced a similar plan devised by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee: the government contribution, he says, would not keep up with the rising cost of health care, so Medicare beneficiaries — older Americans and people with disabilities — would have to pay more of the cost.” Robert Pear in The New York Times.

A primary care turf war is heating up. “Nurse practitioners are rolling out a campaign this week to explain what, exactly, nurse practitioners do — and why patients should trust them with their medical needs…The AANP will follow up on the public relations blitz with state-level lobbying efforts, looking to pass bills that will expand the range of medical procedures that their membership can perform…All states have ‘scope of practice’ laws, which regulate what medical procedures each profession can, and cannot, perform, given their level of education…In 16 states, nurse practitioners can practice without the supervision of another professional such as a doctor. Other states, however, require a physician to sign off on a nurse practitioneras prescriptions, for example, or diagnostic tests. As the health insurance expansion looms, expanding those rules to other sta=0 Connection: close ay for nurse practitioners.” Sarah Kliff in The Washington Post.

A senator is floating a plan to make HIV drugs cheaper. “Why do American patients pay tens of thousands of dollars each year for HIV drugs that cost just hundreds in Africa? Drugmakers wave their patent rights in developing countries as part of the Presidentas Emergency Fund for AIDS Relief. But the higher cost of brand-name drugs in the United States makes it difficult for many HIV patients to stay on drug regimens that can cost as much as $30,000 a year. Thatas the challenge a Senate subcommittee will explore on Tuesday at a hearing on how to narrow the gap. Itas mainly a vehicle one proposed solution — a proposal by Sen. Bernie Sanders (I-Vt.) that would award prize money rather than grant patent rights to manufacturers that develop new HIV drugs, allowing the medication to go straight to the generic market. But the hearing will also look at the root causes of a dilemma that has had some HIV patients and drugmakers at odds for years.” J. Lester Feder in Politico.

@petersuderman: This new issue of Health Affairs looks so, so awesome. All coverage expansion all the time!

Domestic Policy

Broadcasters are pushing back on recent FCC moves. “TV broadcasters look at the Federal Communications Commissionas recent drive to move them off frequencies and put their political advertising rates on the Internet and draw one conclusion: The FCC has it in for television. And broadcasters are fighting back by publicly airing that charge in the midst of the ongoing policy debate on freeing up airwaves for wireless broadband…For decades, televisionas use of the airwaves was virtually unchallenged. Under Chairman Julius Genachowski, the FCC has focused on fostering mobile broadband as the essential communications platform of the future. As broadcasters see it, television has become a much less important medium to the agency…In the wrangling over spectrum, broadcasters see the wireless industry — which is clamoring for access to more airwaves to satisfy the exploding amount of broadband data traffic — as their main foe. As the wireless industry sees it, the best use of finite spectrum resources is mobile broadband.” Brooks Boliek in Politico.

A federal judge struck down a NLRB rule on union elections. “A federal judge ruled Monday that a contentious union election rule proposed by the National Labor Relations Board (NLRB) is ‘invalid.’ In an 18-page memorandum opinion, U.S. District Judge James Boasberg struck the regulation down, saying the labor board only had two members when it voted on the final rule in December 2011. Boasberg said the agency needed at least three members to have a quorum for action on the rule…Two NLRB members — Chairman Mark Pearce and then-Member Craig Becker, both Democrats — participated in adopting the rule. The labor boardas third member at the time, Republican Brian Hayes, did not participate…The judge said the decision by the U.S. District Court for the District of Columbia ‘may seem unduly technical,’ but cited a 2010 Supreme Court ruling that the NLRB needs a quorum of three members to issue regulations and make rulings. Boasberg said his ruling was not made on the merits of the union election rule and noted the NLRB could vote again to pass it.” Kevin Bogardus in The Hill.

@AlecMacGillis: Dems’ failure to pass labor law reform in ’09-’10 haunts once again–a judge just threw out NLRB’s incremental new rule to ease organizing.

Colleges are beginning to confront costs. “College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families. Increasingly, they are looking for other ways to pay for education, stepping up private fund-raising, privatizing services, cutting staff, eliminating departments — even saving millions of dollars by standardizing things like expense forms…The problems arenat confined to public colleges. Administrators at some nonprofit private institutions said they too had come to realize they could not keep raising tuition and fees.” Andrew Martin in The New York Times.

Adorable animals exploring the world interlude: The firsts of a harbor seal pup.

Energy

A transmission line for offshore wind is moving forward. “A pioneering proposal to build a wind power transmission line on the ocean floor from southern Virginia to northern New Jersey cleared a hurdle on Monday when the Interior Department opened the way for the projectas sponsors to start work on an environmental impact statement. The Bureau of Ocean Energy Management, part of the Interior Department, said that no competitor had emerged for the right-of-way for the proposed transmission line, known as the Atlantic Wind Connection, allowing the bureau to issue a ‘determination of no competitive interest.’ By linking wind farms 15 to 20 miles off the coast, the backbone would greatly reduce the number of individual radial lines needed to bring the energy to shore…Construction of the full project would take about 10 years, according to the company. The right-of-way corridor, including branches to reach the shore at intermediate points, would run about 790 miles, the Interior Department said.” Matthew Wald in The New York Times.

Regulators are considering options to protect the grid from solar flares. “With a peak in the cycle of solar flares approaching, U.S. electricity regulators are weighing their options for protecting the nation’s grid from the sun’s eruptions–including new equipment standards and retrofits–while keeping a lid on the cost. They are studying the impact of historic sunstorms as far back as 1859 to see if the system needs an upgrade, and encountering a clash of views on how serious the threat is and what should be done about it…The sun is expected to hit a peak eruption period in 2013, and while superstorms don’t always occur in peak periods, some warn of a disaster. John Kappenman, a consultant and former power engineer who has spent decades researching the storms, says the modern power grid isn’t hardened for the worst nature has to offer. He says an extreme storm could cause blackouts lasting weeks or months, leaving major cities temporarily uninhabitable and taking a massive economic toll.” Ryan Tracy in The Wall Street Journal.

Highway crashes are the leading cause of fatalities for oil and gas workers. “Over the past decade, more than 300 oil and gas workers like Mr. Roth were killed in highway crashes, the largest cause of fatalities in the industry. Many of these deaths were due in part to oil field exemptions from highway safety rules that allow truckers to work longer hours than drivers in most other industries, according to safety and health experts. Many oil field truckers say that while these exemptions help them earn more money, they are routinely used to pressure workers into driving after shifts that are 20 hours or longer…Last year, the National Transportation Safety Board said it ‘strongly opposed’ the oil field exemptions because they raise the risk of crashes. This threat will grow substantially in coming years, safety advocates warn. According to federal officials, more than 200,000 new oil and gas wells will be drilled nationwide over the next decade.” Ian Urbina in The New York Times.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.