WONKBLOG

Reconciliation

— War-gaming a Greek exit from the euro.

— This defense of Business Insider SMASHES expectations.

— Twenty-five words that simply don’t exist in English.

— The auto industry invented the term “jaywalking” as an insult to shame pedestrians off the streets.

— Ten science concepts that could spawn excellent movie villains.

— It’s possible that New Orleans will soon no longer have a daily newspaper.

Auto sales are propping up the U.S. economy

The U.S. economy, in one chassis. (Tomohiro Ohsumi - BLOOMBERG) Over at FT Alphaville, Cardiff Garcia passes along this striking stat from Credit Suisse:

Vehicle purchases by consumers alone accounted for 30% of all the GDP growth in the last two quarters.

Cars are, ahem, driving the recovery. But will it continue? Auto analysts are expecting another record month of car sales in May: TrueCar.com announced today that it was predicting the highest monthly level of vehicle sales since 2007, up 32 percent since this time last year.

What’s striking, though, is that auto sales this year are still expected to be way below the long-term average for the 2000s. (About 14.5 million units vs. 16.6 million.) Unless Americans are planning to give up driving en masse, that suggests there are still a whole lot of vehicles out there that are rapidly aging and eventually need to be replaced.

Sen. Tom Coburn, part 2: Reforming health care

Sen. Tom Coburn (R-Okla.) is a physician and the author of “The Debt Bomb: A Bold Plan to Stop Washington from Bankrupting America.” This interview, which focuses on America’s health care system, is the second in a two-part series. The first interview, which focuses on debt, was published last week. The transcript is lightly edited for length and clarity.

Sen. Tom Coburn, R-Okla., reveals his "Back in Black" plan to reduce the federal deficit. (J. Scott Applewhite - Associated Press) EK: To go back to the question of whether Democrats have put forward a plan on entitlements, I agree that Senate Democrats haven’t put forward a budget. But in your book, you say that what President Obama has done and wants to do on Medicare, namely the Independent Payment Advisory Board, is a rationing board. You’re not for it, obviously. But you treat it as a very aggressive proposal. And to them, that’s a plan. They think it’ll work to control costs. And it often seems Republicans say Democrats don’t have a plan on entitlements when what they mean is they don’t like the Democrats’ plan on entitlements.

TC: How well has it worked in England? Barbara Mikulski wrote that section of the bill. She spent time with the head of NICE [National Institute for Health and Clinical Excellence] in England. What has been the response of England as you ration away care? Is that how we want to do Medicare? When we know that $100 billion a year isn’t working right? When we know one in three dollars in our health care system doesn’t help anybody get well? Is that the way to do it? From central planning? You’re right. But that’s outside the bond of how the average American expects Medicare to operate. The better way to do it is to create a more efficient system to allocate the resources better without somebody here making a decision about your care. The reason I object to IPAB is you’ve got someone between the patient and the physician, and that can never be in the best interest of the patient.

EK: I think it goes a bit far to compare IPAB to NICE, given the powers it has, but even so, in terms of the cost portion, in terms of them having a plan, Britain’s health care system is among the cheapest in the developed world.

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Another reason Europe’s in crisis? A high oil bill

Why did Europe go from bad to total horrific panic in the last year? There are all sorts of theories: weak growth, the impact of austerity, missteps by central bank bureaucrats. But here’s another scapegoat offered up by the International Energy Agency: Europe’s soaring oil bill.

The IEA laid out some eye-catching numbers on Thursday: Between 2000 and 2010, Europe spent an average of $182 billion per year on oil. Then, in 2011, due in part to a civil war in Libya, Europe spent a record $488 billion on crude. In 2012, thanks to tight global supplies in the first half of the year and tensions with Iran, the continent is expected to spend well over $500 billion. To put that in context, the total debt of Greece, which has everyone sweating, is about $370 billion.

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Lunch break: Slinky on a treadmill

Go, Slinky, go!

Mitt Romney’s education plan: READ

Mitt Romney released his education plan yesterday. You can download the PDF, or read it here:

Want more? Grace Wyler notes that the Romney campaign’s rollout for the plan was weirdly subdued. Daniel Luzer takes a look at Romney’s education policy advisers. Matt Yglesias thinks there’s a “bomb” hidden in the plan. The American Enterprise Institute’s Fred Hess says it’s “a promising start.” Reihan Salam agrees. We’ll have more later.

If Romney’s policies come from business, where do Ryan’s come from?

“Having been in the private sector for 25 years gives me a perspective on how jobs are created that someone who’s never spent a day in the private sector, like President Obama, simply doesn’t understand,” Mitt Romney told Time.

But then how does Rep. Paul Ryan (R-Wis.), who has spent his entire career in politics, understand job creation so well? Ryan and Romney, after all, have proposed essentially the exact same economic policies. And Ryan proposed most of them first. If Romney’s ideas are informed by knowledge you can only collect in the private sector, how come they don’t differ more from the ideas of career Republican politicians?

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Why can’t the Fed just prevent the ‘fiscal cliff’?

Say at the end of 2012, Congress can’t strike a budget deal and we reach the dread “fiscal cliff.” Taxes go up, spending gets slashed. Would the U.S. economy fall into recession? The Congressional Budget Office sure thinks so. But Ryan Avent wonders why the Federal Reserve couldn’t just step in.

After all, he argues, the central bank’s whole job is to maintain demand in the economy even if there’s a large external shock — like a sharp rise in taxes and drop in spending. Propping up the economy would be tricky, he notes, since the Fed can’t really lower interest rates further. But what the Fed could do is influence expectations ahead of time, by announcing that the bank will take whatever steps necessary to maintain demand and avoid deflation. “[M]arkets know that it’s fruitless to bet against a determined central bank with a printing press,” Avent notes. And those expectations could prove self-sustaining.

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The Fear & Greed Index

Whether we’re talking about economic confidence or investor optimism, emotions drive the marketplace. On Wall Street, however, the feelings that drive decisions are even more primal. CNN has devised a new index to gauge the Street’s lizard brain: the Fear and Greed Index. It factors in seven market indicators — ranging from junk bond demand and market volatility to stock price momentum — to determine how far they deviate from the normal.

Right now, the index concludes that “extreme fear” is driving the market, whereas it was just straight-up “fear” a month ago.

(CNN Money) Why does the index matter? “Too much fear can sink stocks well below where they should be. When investors get greedy, they can bid up stock prices way too far,” CNN explains.

Blue Cross Blue Shield of Mass. wants you to decide whether to pay $50 or $500 for an MRI

BOSTON — Let’s play a game. We’ll call it Health Care Choose Your Own Adventure: MRI Edition! Exciting, right? Right.

(Melissa Cannarozzi - The Washington Post) You’re in your doctor’s office, and he’s got some bad news: You need an MRI. You now have a choice to make about where to go get it. There’s a large academic medical center, one of Boston’s best-known hospitals, where you will pay a $500 co-pay for the scan.

About a mile down the street, there’s a community hospital. It’s not nearly as well known but when it comes to routine care, like MRIs, outcomes tend to be equally good. At that hospital, the MRI will cost you a $50 co-pay. So, what do you choose?

Blue Cross Blue Shield of Massachusetts is betting that you’ll choose the latter — and end up bending the health care cost curve in the process. The health plan, whose CEO Andrew Dreyfus I talked with Wednesday, is experimenting with a novel attempt to reduce the cost of health care without sacrificing quality.

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Germany’s been bailed out, too

(Michele Tantussi - Bloomberg) The euro-zone crisis is often framed as a bailout that rich, responsible countries like Germany have extended to poor, irresponsible countries like Greece. But as the editors at Bloomberg View explain, it can also be seen, at least in part, as a bailout that the German taxpayer extended to the German financial system:

Let’s begin with the observation that irresponsible borrowers can’t exist without irresponsible lenders. Germany’s banks were Greece’s enablers. Thanks partly to lax regulation, German banks built up precarious exposures to Europe’s peripheral countries in the years before the crisis. By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks’ aggregate capital. In other words, they lent more than they could afford.

When the European Union and the European Central Bank stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home. As a result, they bailed out Germany’s banks as well as the taxpayers who might otherwise have had to support those banks if the loans weren’t repaid. Unlike much of the aid provided to Greece, the support to Germany’s banks happened automatically, as a function of the currency union’s structure.

Here’s how it worked:

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A fast food soda is six times bigger than it was 60 years ago

Via Brian Fung, the Center for Disease Control charts the growth of fast food portion sizes since the 1950s. The average soda, it turns out, has grown sixfold:

The average American adult, meanwhile, is now 26 pounds heavier than they were during the days of Frank Sinatra.

Wonkbook: The 4 policymakers who could decide the 2012 election

Ah, here's the number I've been searching for: "For every one-percentage-point decline in euro-area growth, history suggests growth in the rest of the world will take a 0.7% hit, 'with the U.S. seeing a somewhat smaller decline than other parts of the world.'"

That's David Wessel summarizing some research from JPMorgan. The main channel of contagion is financial. Exports to Europe are 1.2 percent of GDP. That's not nothing, but it's not that much. The bigger problem is that "European banks have lent more than $6 trillion to the rest of the world, twice as much as U.S. banks." Indeed, "European loans to the U.S. amount to about 10% of U.S. GDP."

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Reconciliation

—Best Google Doodle yet? A playable Moog synthesizer.

—We’ve been lucky so far: The rise in extreme summer heat keeps missing the U.S. corn belt. But how long will that last?

—Romney stays silent on immigration in today’s big speech before the Latino business community.

—Ta-Nehisi Coates on why we can’t ignore racism when it comes to the Appalachian vote.

—How the New York Public Library has silenced its former librarians on its controversial renovation plan.

Dodd-Frank is hard to understand, and that’s why it has so many enemies

While Mitt Romney was speaking at the U.S. Chamber of Commerce on Wednesday, chamber members from across the country descended on Capitol Hill to tell Congress to get the government off their backs.

Mitch Stebal, for one, was prepared to give Sen. Dick Durbin’s office an earful about overregulation. An employee of Busey Bank in Champaign, Ill., Stebal came to the U.S. Chamber’s annual confab for small businesses this week with a delegation from McLean County (“not Chicago,” he points out). Stebal said he mostly worried about the impact of Dodd-Frank on the industry, pointing out how the Durbin amendment had forced retail banks to limit debit-card swipe fees. But when pressed to explain how the law would affect his own work in commercial banking, Stebal didn’t have a long list of examples – and explained that was part of the problem: The new regulations are so complex that no one on Main Street knows what’s really going on, and it’s going to cost them to figure it out.

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The health insurance plans, they are a-changing

Health insurance plans will have to beef up on benefits if they want to stay in business under Obamacare, according to a new study out Wednesday afternoon from Health Affairs.

The health overhaul law mandates a wave of new requirements all intended to make health insurance more robust. It requires health plans to cover a set of “essential health benefits,” a comprehensive package of benefits outlined in the law. Health plans are also required to foot the bill for, on average, at least 60 percent of subscribers’ health expenses. In the individual market, insurers must also cap annual out-of-pocket expenses at $6,050 for individuals and $12,100 for families.

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How to avert the end of fish? A little fish forensics might help

There are all sorts reasons why fish stocks are rapidly dwindling around the world. But one underrated problem is illegal fishing. One recent study found, for instance, that as many as one-third of the fish haul in areas like the Southwest Atlantic Ocean were caught illicitly.

And that’s a real problem for conservation. Let’s say that the cod population in the North Sea is endangered. European regulators might put a moratorium on cod fishing in that area, to allow the population to rebuild. Meanwhile, the industry would be allowed to catch cod in areas with healthy populations, like the Eastern Baltic. But how can anyone verify that the cod that appears in the supermarket is actually coming from the legal areas? What’s to stop fishermen from illegally harvesting the North Sea? Who’s going to know?

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Businesses more willing to use bribery and fraud, in one chart

When we found out that Wal-Mart bribed officials in Mexico, it was a huge scandal. But it’s a practice that’s becoming increasingly acceptable among business around the world. A new global survey from Ernst & Young finds that companies are more likely to use cash bribes in hopes of improving their performance than they were two years ago: 15 percent of respondents (who included some firms’ chief financial officers) said they are willing to make cash bribes, compared to 9 percent in E&Y’s 2010 survey.
(Ernst & Young)

Similarly, 5 percent said they “might misstate financial performance” to make themselves look better, compared to 3 percent in the last survey. Ernst & Young explains that bribery and other corrupt practices are significantly more likely to happen in “rapid-growth markets” in the developing world, pointing out that 39 percent of survey respondents said that bribery and corruption occurs frequently in their countries.

Which party will reap the boom?

We’ve talked a lot about “the fiscal cliff.” But the Congressional Budget Office’s report on the subject estimates what you might call “the fiscal plain” scenario: The world in which we extend all the tax cuts, put off all the spending cuts, etc. The economy, they say, would grow by 4.4 percent next year.

That sounds fairly optimistic to me. But let’s assume, for a minute, it isn’t, and that it actually happens. Then either Barack Obama or Mitt Romney, without introducing any major new policies of their own, would be presiding over 4+ percent growth. Politically, that would be huge for them and their party. The midterms would likely be a cakewalk -- you don’t want to change horses mid-gallup, do you? And it would likely have the effect of legitimizing whatever their platform was.

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Lunch break: The world’s smallest fire truck

Oh Canada, you never let us down: