What’s
Wrong Today:

Two facts in sublime
conjunction:

First, we continue
the stalemate over the Sequester. One side says “no new revenues” while the
other side says, “new revenues”.

Let’s start by discussing
the second fact: The FDIC reported that the banking industry had a great 2012.
The industry’s full-year earnings were the second-highest on record at $141.3
billion, an increase over 2011 of $22.9 billion, or 19.3%. This was the best result in 6 years, or since bank earnings
peaked in 2006 at $145.2 billion.

Much of the earnings
growth in 2012 came from banks reducing the amount they set aside in case of
losses on loans, the FDIC said. So, they didn’t have to write off as much in
bad loans as they did previously.

It was even better in the 4th
quarter of 2012: The industry’s earnings for the fourth quarter of 2012 totaled
$34.7 billion, up $9.3 billion, or 36.9% from the same period in 2011.

So,
What’s Wrong?

Big profits?? The
government has propped up the big banks for years through bailouts
and subsidies.
After the earnings announcement, Bloomberg reported:

And Bloomberg isn’t your usual source of radical
information.

Lately, economists
have tried to pin down exactly how much the subsidy lowers big banks’ borrowing
costs. In one effort, two researchers — Kenichi Ueda of the
International Monetary Fund and Beatrice Weder di Mauro of the
University of Mainz — put the number at about 0.8 of a percentage point. The
discount applies to all their liabilities, including bonds and customer
deposits.

Small as it might
sound, 0.8 percentage point makes a big difference: Multiplied by the total
liabilities of the 10 largest US banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s
tantamount to the government giving the banks about 3 cents of every tax dollar
collected.

The top five banks,
JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and
Goldman Sachs Group Inc. account for
$64 billion of the total subsidy, an amount roughly equal to their
typical annual profits. Check out Bloomberg’s chart below:

In other words, the biggest
and best banks in the US financial industry, with almost $9 trillion in assets,
equaling more than half the size of the US
economy, would just
about break even in the absence of corporate welfare. In large part, the profits they report are
essentially transfers from taxpayers to their shareholders.

When
it comes to big banks, we’re still doting parents: Four years after the financial
crisis, we just can’t stop babying them.

So, how
does all this fit with the Sequester?

Maybe
we can get back some of that subsidy by taxing the Banks.  Jesse Eisinger wrote at ProPublica  about establishing a transactions tax on the
banks.  He states:

A transaction tax
could raise a huge amount of money and cause less pain than many alternatives.
It could offset the need for cuts to the social safety net or tax increases
that damage consumer demand.

How
much could it raise?

Harkin and DeFazio
got an estimate of $ 352 billion over 10 years from the bipartisan Joint
Committee on Taxation, which scores tax plans.

The bill would exempt
initial public offerings (IPOs) so that the markets’ capital-raising function
isn’t harmed. Initial investments and withdrawals from tax-protected accounts,
like retirement or education funds, might also have some protection.

Critics say that it
will harm the capital markets and won’t raise that much money. They argue that
such a tax cannot be enforced; that it will depress trading, leading to lower
asset prices; and that it will ultimately be passed on to retail investors.

These arguments are dismissed
in an excellent report by Britain-based group, Stamp Out
Poverty:

Some taxes might be hard
to collect, but this shouldn’t be one of them. Trading is conducted by large
businesses on computers. This tax would be collected by the exchanges. And if no
stock exchange was involved, the buyer would owe it. It would be paid on any
trade carried out in the United States or by any American entity or individual
(a corporation’s offshore subsidiaries can’t get around it).

Trading has
skyrocketed in the last decade and a half. What has society gotten for it?
Bubbles, crashes, volatile asset prices and an outsize financial sector that
extracts rents from the rest of the economy. Rising transaction volumes haven’t
delivered broad-based wage growth or good jobs.

And it hasn’t really helped
the stock market. There has been no boom in IPO’s. The Dow and the S&P
index have just gotten back near to their peaks before the financial crisis.
The Nasdaq isn’t close to the peak achieved in the year 2000.

The average American, who has limited
exposure to the stock market, has little to fear from the tax and much to gain.
And if some of the high-frequency trading flees offshore? So be it.

The politics of a
transaction tax are daunting: Harkin can’t get this done by himself, so bank
transaction tax legislation will have to be embraced by some senators on the
relevant committees, like finance or banking. But Sen. Charles Schumer D-NY,
chair of The Senate Finance Committee, is a problem because his main
constituency is Wall Street.

There is a possible
anti-Wall Street/Big Bank coalition between Midwestern and Western Democrats
and Republicans. Sherrod Brown D-OH and David Bitter R-LA don’t agree on much,
but they co-sponsored a bill calling for more bank capital. Charles Grassley, R-IA
serves on the Senate Finance Committee and has been willing to challenge vested interests in the past.

But Republicans have taken blood oaths
never to support higher revenue.

If some kind of
increase in taxes is inevitable, one that takes aim at high-frequency traders surely
hits few Iowans (Mr. Grassley) or Americans in general, while it might do a lot
of good.

Something
has to break the logjam between Republicans and Democrats.

What’s
Wrong Today:

“Don’t tax you. Don’t tax me. Tax that
fellow behind the tree.” –Louisiana Senator Russell Long.

 From
Barry Ritholtz’s Big Picture Blog:

Is this the
way to run our country?

Ritholtz
suggests an alternative approach is to apply game theory to resolve spending
and tax issues. Game theory studies strategic decision making, how conflict
and cooperation between decision-makers leads to certain outcomes.

Game
theory might help us with these issues. How?
By stopping the taxing and spending cuts of that fellow behind the tree and instead, forcing
people to raise their own taxes and cut their own spending.

How would
this work? We would have to change the budget process: The president would
establish  spending and taxation goals
and the House, which is responsible for passing the budget would set up 50 state working groups to decide
how the federal revenues, benefits and expenses that flow to their own state would be spent/cut.

The state
working groups would determine their state’s priorities. If they want to do
polls or surveys, to get input, fine. They would get no budget for doing this;
it comes out of their own congressional staff budgets.

Now, it
becomes difficult to aim at the guy behind the tree. Each state delegation would
determine their residents’ fate. And they would get the reward, or pay the
price at the ballot box every other November.

Let the
CBO determine how much money should flow to each state from the Federal
Government. This would include Social Security and Medicare, spending on
Education, and other financing, like FEMA.

We would
quickly discover which priorities the people in each state have for government
spending, and also the priorities of their elected representatives: Don’t like
military spending? Cut it in your own state. Against Social Security? Cut aid
to the elders in your own state. Have a problem with FEMA? Opt out of it.

This would
force legislators to make real sacrifices, not like today where they cut things
that impact other groups or people. It eliminates the hypocrisy of the deficit
peacocks that vote for budget busters and then disingenuously present
themselves as concerned about our debt.

For example, five
states comprise the Tea Party Homeland. They are: Alabama,
Georgia, Louisiana, Mississippi and Texas. Each receives more from the federal
government than it pays to it in taxes and other revenues. All of these states
voted for Mitt Romney by big margins and contribute a healthy share of the Tea
Party members now in Congress.

The Tea Party is working hard to cut
federal spending.
 And they are following the Sen. Long
mantra: Government workers, social safety net programs, defense workers,
schools, environmental programs, Big Bird, all will feel the lash of the Tea
Party’s intransigence. 

The ongoing
polarization surrounding the Sequester, the debt limit and the deficit is not your
normal political drama that gets resolved at the last minute. 

It represents the
apogee of Tea Party anger and cynicism. 

The
biggest problem we have in our political process is that Congress critters have no individual accountability: There
are no effective checks on their votes or on Congress’ decision making. We
learn in school that the democratic process works, that we can vote out a
politician that doesn’t represent us in the manner we need. That’s only true in
theory. Incumbents rule in Congress. And while the national average is about one
congressperson per 800,000 voters, many in largely rural states have outsized power.

Congress is a protected class under the
Constitution.
They decide their own compensation and behavior. When they saw that presidents
could pose a threat to their rule, they modified the Constitution to include
term limits — but only on the president. And the Constitution specifies rather
clearly that the power to tax and spend lies solely with the Congress.

All the
noise about what Mr. Obama or any president can do is simply that: Noise. Congress
holds all the cards.

The risk with using game theory to drive individual state deficit cutting is that, given the federal structure of the Constitution, an
appropriations law that results in lower per capita federal appropriations for
health care for the elderly in State A might be vulnerable to attack on constitutional
grounds, regardless of an endorsement by their local congressmen.

Another concern
is the problem of funding the commons: Watersheds cross state lines, air
pollution respects no boundaries. Much of federal spending is not state
specific: Consider defense, infrastructure, foreign affairs, or regulation of
financial markets.

Finally, game theory works when the participants are rational.
Unfortunately our political system (the Tea Party in particular) has descended
into a black hole of weirdness.

But, let’s
see if 50 state level deficit cutting workshops can help solve the great
political problem of our time.

Nothing
else is working.

What’s
Wrong Today:

Everything and every
attitude is the subject of polling in America. The reason for that is as a
people, we really agree on very little. So, the Wrongologist passes along the
results of a telephone survey conducted by Public Policy Polling (PPP),
regarding the foods and food organizations Americans prefer. (Hat tip
to Linda, a Wrongologist subscriber)

PPP was ranked by the
Wall Street Journal as one of the top
swing state pollsters and did better than the New York Times’ 538.com and its super geek, Nate Silver. 

You will see in the
press release below that Americans picked Ronald McDonald over the Burger King for
President, 36% to 22%, but happily, 42% were not sure. Would Ronald be worse
for the country than John Boehner? After all, both are clowns with red noses.

Apparently, Marco
Rubio’s and Hillary Clinton’s presidential ambitions are safe for the moment.

Here is PPP’s press
release: (emphasis by the Wrongologist)

PPP surveyed 500
registered American voters from February 21st to 24th. The margin of error for
the overall sample is +/-4.4%.

PPP surveys are
conducted through automated telephone interviews.

What’s’
Wrong Today:

It appears
that there is reason to be pessimistic about the future production potential of oil
and gas from US shale formations. These are the sources of energy that come
from hydraulic
fracturing,
(“fracking”) a technique used to release petroleum and natural gas. This
technique creates fractures from a wellbore drilled into
reservoir rock formations.

So,
What’s Wrong?

That isn’t
what we have been told.

Analysts
have provided optimistic assessments of the future production potential of US
shale or tight oil. For example, the International
Energy Agency
recently predicted that the US would be producing over 10 million barrels per
day of oil and natural gas liquids by 2020 before resuming a gradual decline.

This has gotten lots of
publicity:

In the 2012
State of the Union, Mr.
Obama said:

Ed Morse,
Global Head of Commodities Research at Citigroup:

Fatih
Birol, Chief Economist at the International Energy Agency:

Two reports
published at ShaleBubble.org challenge
this outlook. The reports are by the Post Carbon Institute (PCI) and by the Energy
Policy Forum
(EPF). The reports conclude that the fracking boom could be lead to another Wall Street bubble.

Media
attention about fracking has been focused on the threats to drinking water and
health in communities throughout North America and the world, but the data in
these two reports indicate that there could also be a different threat.  

The
fracking industry bubble could be similar to the housing bubble.

In other
words, fracking could tank the economy.

Sez
who?

PCI’s
report is titled “Drill
Baby, Drill,”
authored by J.
David Hughes,
while EPF’s report is titled “Shale Gas and Wall Street,” authored by
EPF Director and former Wall Street financial analyst Deborah Rogers.

Hughes
concludes that the “100 years” claim is wrong, and at current production rates,
there are at best, 25 years under the surface.

Really?

Industry
proponents rely on a figure known as “technically
recoverable reserves”
when they promote the potential of shale basins. The figure that actually
matters is production rates,
or what the wells actually pull from reserves after fracking.

In the
case of US shale gas, the booked reserves are operating on what Hughes coins a
“drilling treadmill,” and exhibit diminishing returns. Hughes analyzed the
industry’s production data for 65,000 wells in 31 shale basins nationwide,
utilizing the DI
Desktop/HPDI database,
widely used both by the industry and the US government.

Hughes sums
up what he discovered: (emphasis by the Wrongologist)

The reality
is that five shale gas basins
currently produce 80% of the US shale gas and on a steady state “same wells” basis, those five are already in production
rate decline.

What
about shale oil as opposed to shale gas?

Shale oil
is also known as “tight oil”. Over 80% of the oil produced and marketed from
shale comes from two basins: Texas’
Eagle Ford Shale
and North
Dakota’s Bakken Shale.
Hughes writes: (emphasis by the Wrongologist)

At current
production rates, Hughes concludes, there are 5 billion barrels of shale oil
located underneath Bakken and Eagle Ford, which equates to just ten months worth of current
US consumption of oil at current consumption
rates.

The most
successful shale US oil-producing field is the Bakken in North Dakota and
Montana, which currently accounts for 42% of the US tight oil total. Hughes
finds that once output from a typical Bakken well begins to decline, within 24
months its production flow is down to 1/5 the level achieved at its peak.

Check out
this graph from Hughes of flow from a typical Bakken well:

Source: David Hughes

Given this
rate of decline on existing wells, it is a straightforward exercise to answer
the question: Suppose that no new wells were drilled after 2010. What would the
path of Bakken oil production then look like? Hughes did this analysis:

Source: David Hughes

Increasing
annual production requires not just new wells but an increasing number of new
wells each year; Hughes estimates that
820 new wells are needed each year just to offset Bakken field decline.
But since only a few wells in the Bakken have proven to be very productive, average
well productivity is much lower. A limited number of lucrative sweet spots account
for much of the success so far, so even more drilling is required just to stay even.

This makes
achieving the IEA projection difficult and means a much more rapid decline in
the production rate after the peak is reached, than forecasted by the industry.

Wall Street’s Plans for Shale

Deborah Rogers
may also open your eyes with her report.
She is a member of the US Extractive Industries Transparency Initiative
(USEITI), an advisory committee within the Department of Interior. She also
served on the Advisory Council for the Federal Reserve Bank of Dallas from
2008-2011.

Her
reporting indicates that there are two types of questionable economics
unfolding: The day-to-day shale oil and gas production economics and Wall
Street’s high finance economics.

On Wall
Street, investors’ needs are driving the economic decisions of those working in
the field, in what Rogers describes as a “financial
co-dependency.”

She
writes: (emphasis by the Wrongologist)

Yes, she did say: just
like in the real estate bubble. Rogers shows that Wall Street firms
are now married to the shale gas and oil corporations, with Wall Street
analysts acting as promoters of shale gas and oil deals to investors. Here
are the conclusions of her report:

• Wall Street promotion drove high levels of shale
  gas drilling

• Overproduction by operators was driven by the
  need to meet financial analysts’ targets of production growth

• It artificially lowered the price of natural gas

• The industry is now dragging its feet on further
  shale investment, abandoning pipeline projects, IPOs and joint venture projects
  

In
Conclusion:

Could we
be witnessing another Inside Job of the sort
Charles Ferguson portrayed in his Academy Award-winning documentary film?

Check out Matt
Taibbi’s work  on Wall Street’s prior bubbles: The
Great American Bubble Machine.

Things are
getting zesty again on Wall Street. If shale oil hits the fan,
we can’t say we weren’t warned.

Sunday Cartoon Blogging at the Church of Wrongology:

What’s
Wrong Today?

Most of
the current Sequester discussion concerns who owns it, not what Congress should
do to solve yet another manufactured fiscal crisis.

Republicans
say Mr. Obama owns the Sequester. Democrats say Republicans voted for it too. The
Sequester was part of the 2011 Budget Control Act. In the House, votes were:
174 Republicans for it to 66 against. Democrats were split, 95-95. In the
Senate, 28 Republicans voted for it to 19 against, while D’s supported it 45-6.

You don’t care if it is Obama’s Sequester or Boehner’s Sequester. You want them
to come to an agreement.

OMG! Is
the sky falling?

If the
Sequester is activated on March 1, 2013, will our government disintegrate?

The Obama
administration, many pundits and some Republicans are warning of mass
government layoffs and services collapsing when “Sequestration”
begins in a few days, unless our gridlocked government finds a way to
circumvent the start of the $85 billion in federal budget cuts (of a $3.6
trillion budget).

Get a grip, that’s only 2.6% of the budget, folks.

Also, the
full force of the $85 billion of cuts will
take several months to be felt, said White House budget office
controller Danny Werfel:

Under the
law, retirees are shielded, so Social Security checks will arrive on schedule
at the beginning of March and every month thereafter. Similarly, the elderly
and the disabled will not see Medicare healthcare curtailed at all over the
seven months.

Every US soldier
will get paid and the Defense Department will be allowed to shift funds to
ensure that combat operations and “critical military readiness
capabilities” are not degraded, according to the Obama administration.

The
Wrongologist wrote
last fall that the Sequester would not throw us into recession:

What
are the politics?

Republicans have decided that the Sequester,
rather than the government-funding bill due at the end of March is where
they’ll make their stand on spending cuts, The
Hill’s Alexander Bolton reports:

So, a year which
began with multiple “trigger points” for a Republican-generated meltdown—the
debt limit, the Sequester and the continuing resolution—we are down to just the
Sequester.

GOP leaders see the Sequester
as the political inverse of the fiscal cliff. Republicans felt they had little
choice at the end of 2012 but to agree to tax increases because if they did not
compromise, all of the Bush-era tax rates would have expired.

While Republicans
want to avoid cuts to military spending, the thinking is that Democrats are
more eager to spare social programs from across-the-board reductions. 

Where’s
Obama?

So far, he is holding
fast to a “no negotiating without tax increases” position.

According to Bloomberg
and their national poll conducted on Feb. 15-18, Mr. Obama enters the Sequester
showdown with his highest job approval rating in three years and public support
for his economic message, while his Republican opponents’ popularity stand at a
record low.

55% of Americans
approve of Obama’s performance in office, his strongest level of support since
September 2009 while only 35% of the country has a favorable view of the Republican
Party, its lowest rating in this survey that began in September 2009. The Republican
party has slipped six percentage points in the last six months, the poll shows.

Some Democrats
are worried that Republicans will move a bill to simply restore the Defense
spending, putting the Democrats in a tough spot. That way, the argument goes,
the Republicans could either restore the Defense cuts, or blame Democrats and
the president for it, and in either case, still blame the economic stress
resulting from the domestic cuts on the president and the Democrats.

But, if Republicans had the votes to pass a bill that averts cuts in
defense, they would already have voted on that. The reason they didn’t is either they do not have the
votes or know that the politics of dropping just the defense part of the Sequester
is bad for them.

Where’s
Boehner?

Mr.
Boehner painted Mr. Obama with the blame brush for the Sequester on Wednesday in
the Wall
Street Journal:

Is Mr.
Boehner against the Sequester? Sounds like it. He also comments on the Fiscal
Cliff deal:

Wow! This
sounds like a guy who has no intention of compromise.

But, in the
right-leaning Washington Examiner, Byron
York wonders if Mr. Boehner’s WSJ article delivers the wrong message:

Last week, Boehner
told the Associated
Press that the Sequester was a disaster that would present him and his
members with nothing but bleak options if it went into effect. He must know that
the Sequester is a political loser that won’t get the Republicans any leverage.
So why is he playing along?

Politico had a piece
on January 13th that indicated that GOP officials said more than
half of their members are prepared to allow default unless Obama agrees to the dramatic
cuts he has repeatedly said he opposes.

They quote an unnamed
GOP leadership adviser:

It seems like Speaker
Boehner will let the Sequester kick in for “member-management” purposes. So, Boehner
points a gun to his own head and says:

“Be
careful! When I blow my brains out, you Democrats are gonna get blood all over
your shirt!”

Cartoons of the Week

What’s
Wrong Today:

The news
media are obsessed with the Deficit. According to Bloomberg,
The Washington Post has run 2,310
separate stories including the word “deficit” over the past year.

That’s one deficit story for every 10 that the
newspaper publishes in its front and opinion sections. Is it the job of the
media to confuse or inform? Does this mean anybody actually cares?

Democrats
and Republicans say the deficit is a big problem:

• Mitch
  McConnell calls it “The
  transcendent issue of our time”

• Senator
  Marco Rubio, who delivered the Republican response to Obama’s State of the
  Union address, called it “our
  nation’s greatest challenge.”

• “Simply
  immoral,” said Mitt Romney

• “We
  have a budget deficit problem that we have to address,“ said Nancy Pelosi

How do
they plan to solve “the problem”?

Not with
tax revenue, John Boehner has said.
Not by cutting defense spending, Sen. John McCain insists.

Republicans
are so concerned about the deficit that they’re prepared to offer…not a single major policy concession to
address it.

Democrats
aren’t much better. Consider House Minority Leader Nancy Pelosi’s recent
interview on Fox News, where she said that is was “almost a false argument” that
the federal government has a spending problem.

Very few in
Washington care about the federal government’s budget deficit. Deficit talk is a
decoy for the unpopular components of both parties’ larger
political agendas. What’s really going on is a debate about the proper size and role of government.
 

Washington
is using the budget shortfall as a proxy for policies to expand or contract the
federal government. So, instead of talking mainly about tax increases or cuts
to government services, both parties
disguise the real issue by feigning concern about deficits.

The Economist reports
that Mr. Obama is closer to solving America’s growing debt than many think:

That projection
assumes that Mr. Obama and Congress do not override planned spending cuts and
tax rises, most importantly the “Sequester”. The Sequester mandates $1.1
trillion of additional spending cuts over the next ten years, including $85
billion-worth this year that are due to begin on March 1st after being put off
for two months. Even if those measures are overridden, the CBO still predicts
that the deficit will fall to 5.5% this year and 3.7% of GDP by 2015.
Thereafter, though, it will start to rise again.

As the Wrongologist reported
earlier this week, Mr. Obama and Congress struck two deals in 2011 that cut
spending and one at the start of this year that raised taxes.

Cumulatively, these
three deals have already cut a projected $2.4 trillion from deficits over the
coming decade, or a little over 1% of GDP, according to the Committee for a
Responsible Federal Budget, a watchdog group (see the Economist’s table
below)

That won’t be enough
to stabilize the publicly held debt as a share of GDP. The CBO says this will
climb to 87% of GDP in 2023, compared with 73% now, if the Sequester spending cuts do not occur or
if popular tax breaks are extended.

Yet this papers over
a more worrying reality.

America’s budget
classifies spending as either mandatory, which means it does not have to be authorized
each year by Congress, or discretionary, which means it does. Most of the
long-term pressure on the deficit comes from mandatory spending, in particular
the big Social Safety Net programs—Social Security, Medicaid and Medicare (see
chart from Economist below).

The spending cuts to date have fallen almost
entirely on discretionary spending, putting both defense and domestic
discretionary spending on track to fall steadily as a share of GDP. The Sequester
accelerates that, driving both below 3% of GDP by 2020 from more than 4% last
year.

Cutting discretionary
spending is politically appealing because it arouses less anger than cutting the
Social Safety Net or raising taxes, and because the specifics are negotiated by
Congress each year. Cutting just discretionary spending is hardly ideal for the
economy. Relentless downward pressure on discretionary spending could also
hamper the government’s ability to do its job, in both defense (see this
Economist article) and the
civilian economy.

We know that the two parties
disagree on how entitlements ought to be reformed. Republicans believe benefits have to be limited by converting
Medicare to a voucher system and limiting Medicare funding. Democrats prefer to
curb fees to drug companies and hospitals and experiment with different ways of
delivering care.

To replace the Sequester,
House Democrats have proposed higher tax rates for the rich and for oil
companies, while trimming farm subsidies.

Republicans
dismiss such plans. Republicans
want to cut public pensions and healthcare. Paul Ryan, chairman of the House Budget Committee, plans to
present a Republican budget that he says will balance the budget in a decade, presumably
with far more radical cuts to entitlements than Democrats can tolerate.

And
in conclusion:

The
Deficit is not the main issue today. Unemployment and underemployment are! (see the Wrongologist here)

They reduce demand,
stifling economic growth and lowering tax receipts. If we can get out of the hole and
prosperity returns to most, not just to the 1%, we will have plenty of time and
opportunity to address deficits and debt fundamentally.

Politicians
must look at the real problems and stop touting ideas to transfer even more of
the nation’s wealth from the middle class to the 1%. Banksters are thriving,
corporate profits are returning to record highs, the middle class is still
hurting, the poor are suffering and the
Washington Post is worried about? Deficits.

Is destroying
Social Security so necessary to right wing ideology that they can continue ignoring
these facts?

If you
repeat “Deficit” often enough and loud enough, do they think people will
believe it?

What’s Wrong Today:

Sen. Chuck Hagel just
missed clearing the 60-vote bar for confirmation today. The finally tally was
58-40, with one senator voting present. For procedural reasons, Democratic
Leader Harry Reid switched his vote to “no” at the last minute, a
routine move that allows him to bring up the vote again later on. 

The battle on the
floor of the Senate Thursday was historic. The Senate has never successfully
filibustered a Cabinet secretary. Only two previous Cabinet officials required
60 votes before confirmation, and this has never happened for a Defense
secretary nominee. Democrats hold a 55-45 edge in the Senate and have the
numbers to confirm Mr. Hagel on a majority vote, if allowed to get to that
point. 

It has
become increasingly evident the past few days that opposition to Mr. Hagel has become
a reason for Republicans to dredge up other issues such as Benghazi.

Josh
Rogin in Foreign Policy’s The
Cable says that Republicans intend to filibuster Hagel’s nomination, but
are looking for some way to weasel around the word “filibuster.”

They
don’t like that word (a) because they have tried to normalize the idea that a
60-vote super-majority threshold, which is the margin required to break a
filibuster, should be seen as the routine requirement for Senate action of any
sort; (b) because several prominent Republicans, including John McCain, have
already said that they don’t want to filibuster Hagel; and (c) because in the long history of Cabinet-level
nominations, outright filibusters are exceedingly rare.

What is a filibuster?

A filibuster
in the United States Senate usually refers to obstructive tactics used to
prevent a measure from being brought to a vote. The most common form of
filibuster occurs when a senator attempts to delay or entirely prevent a vote
on a bill by extending debate on the measure. The rules permit a senator,
or a series of senators, to speak for as long as they wish and on any topic
they choose, unless “three-fifths of the Senators duly chosen and sworn”(60
out of 100 senators) bring debate to a close by invoking cloture under Senate Rule XXII.

Most
people think that when someone is filibustering, they are talking endlessly in
order to prevent the Senate from conducting some piece of business, usually a
vote. This is possible unless a consent agreement limits a Senator’s right to
talk as long as he/she wants.

A
“consent agreement,” means a unanimous consent agreement. That
is, all 100 senators have agreed to limit the time for debate. In the absence
of a unanimous consent agreement, senators may talk until they drop.

But that
is not how the filibuster works.

Taking the
possible confirmation of Chuck Hagel as an example, Majority Leader Harry Reid tried
to negotiate a unanimous consent agreement with Minority Leader Mitch McConnell
to bring Hagel’s confirmation up for a debate. The lack of unanimous consent is
the filibuster. One single senator refusing to grant his/her
consent is the filibuster.

In this
case, that unanimous agreement did not happen, so Harry Reid did something
called “filing for cloture.”

Cloture is
how the Senate overcomes the lack of unanimous consent. It currently requires
60 votes. If Harry Reid can get 60 votes for cloture then he has simultaneously
overcome the filibuster.

This will
be the fun part over the next few days.

Now, if 60
votes are quickly acquired, then we don’t talk about it as a filibuster because
the delay was short. We only really speak about filibusters when they are
successful.

By example,
there were a few Democratic senators who in 2006 didn’t grant unanimous consent
to begin debate on the confirmation of Dirk Kempthorne as Interior Secretary.
This only caused a delay of a couple of days; so many people don’t report it as
a filibuster. But that is exactly what it was. It was a failed filibuster.

And the
mini-filibuster of Kempthorne is the only known example of a lack of unanimous
consent to debate a cabinet nominee.

And in Conclusion:

There is no reason to have a dog in the fight over Chuck Hagel’s nomination, other than to beat on the Republicans for acting in a despicable manner. 

Mr. Hagel is a plausible
nominee who has been endorsed by several former Republican appointees,
including Robert Gates, Colin Powell, Brent Scowcroft, and George Schultz. His Republican
opposition started with personal smears and they have moved on to try and use
his nomination to continue the litigation of Benghazi.

Hagel is a Vietnam
veteran who served with some distinction, but he was unimpressive during his
confirmation hearing. It is hard to think of something he would do at the
Pentagon that some other technocrat couldn’t do.

And
Mr. Obama gets almost as much out of Hagel being blocked as he does if he wins
confirmation:

If he is confirmed, Mr.
Obama will have poked the neo-conservatives in the eye and they’ll have to live
with a Secretary of Defense who doesn’t believe in their ideas and would be
happy to screw them.

If he is not
confirmed, it will be because the Republicans filibuster him.

And that will give Democrats a chance
to laugh at Harry Reid, since he had the chance to reform the filibuster rules in
January, but he opted instead to make only a minor change in the Senate’s filibuster
rules. Under the new
rules, the amount of time to debate following a cloture vote has been reduced
from 30 hours to four. Under the new rules, if senators wish to block a nominee
after a motion to proceed, they will need to be present in the Senate and debate.

But failing to
confirm Mr. Hagel will also be food for thought for reasonable Republicans, that the GOP cannot be entrusted with
power.

It’s kind of a
no-lose situation: You’d have to work
hard to see more upside with his confirmation than with the Senate’s failure to
confirm him.

Why? Consider this: In the
span of less than a week, the Republicans will have invited Ted Nugent, a
gun-toting pedophile who admittedly soiled himself in order to avoid the
Vietnam draft to the State of The Union address. And now they will filibuster Chuck
Hagel, a former senator and decorated Vietnam veteran, in order to block his cabinet nomination.

What’s
Wrong Today:

This is
not a column about the State of The Union speech. It is about unemployment. However,
let’s reflect on Mr. Obama’s closing argument:

His speech
was followed by Republican Marco Rubio’s response, which can be characterized
as: If we have our way, the government isn’t going to help you.

Our
government is made up of citizens. Our citizens form governments to get things
done for each other. If our governments can’t help us, then we cannot help
ourselves.

Washington
is completely disconnected from the quiet desperation of many American
lives. Politicians recite the talking points supplied by the lobbyists that
have captured them with political donations. They ignore that 23% of us have been fired in the last
four years.  

That factoid comes from a newly
published study from Rutgers University called Diminished
Lives and Futures: A Portrait of America in the Great-Recession Era.
The study included 1090
Americans, and it contains a series of devastating statistics from a survey
they conducted in January 2013. Here are some highlights:

• Nearly one-quarter
  (23%) of all survey respondents were laid off from either a full-time or part-time
  job over the past four years
• Fewer women report layoffs than men by a margin of 19% to 27%
• 22% of white, non-Hispanic respondents
  were laid off during and
  after the recession compared to 31% of blacks
  and Hispanics
• 19% of workers age 55 and older were laid off from a job compared to 23% of workers ages 34 to 54 and 28% of workers ages 18 to 34
• 35% of those who were laid off found a new job within six months of active pursuit and 16% found a new
  job in two months or less
• 33% of the respondents say they spent more
  than seven months seeking a new job and 1 in 10 were looking for more than two
  years. Some Americans have yet to find new work after being laid off — 22% say
  they were unable to obtain a new job
• Nearly 66% of workers age 55 and older say
  they were actively seeking a job for more than one year or have not yet found a
  new job, while 33% of those younger than 55 say the same

The figure below is from the Study. It illustrates
how closely the recession’s layoffs have touched average Americans. At the center of the circle are 23% who
lost a job.

In the next ring are 11% who know someone
else in their immediate family who lost a job to layoffs. Together, the data
indicate one-third of American households, approximately
39 million people, lost work as a result of the recession during the
past four years.

Another 26% were not
affected in their household, but did know a member of their extended family who
lost a job (parent, cousin, aunt, or uncle). Another 13% did not have a family
member affected, but knew a close personal friend who lost work, and another 5%
say they know a friend of someone in their immediate household who lost a job.

Overall, just 21% of Americans do not fall into one of these
circles.

More
depressing news: Of the people fired who managed to get another job, 48%
took a step down in position, with 46% taking a job below their skill or education
level. A whopping 54% reported their
new job pays less.  A third took over a 30% pay cut to get a new
job.  Another third got hit with an 11%-30% cut in pay.

That’s
economic devastation for millions of Americans, even though they are working. 

And 56% of
Americans now have less in savings than before 2008. 38% reported they are
tapped out financially. Over half of people said they were running through
their savings just to get by and 30% said they were borrowing money.

Of the
almost one quarter of working America fired in the last four years, a full 22% cannot
find another job. That’s roughly eight million people. But it’s worse than
that. The BLS December JOLTS
report, or Job Openings and Labor Turnover Survey
shows there were 3,617 million job openings in December 2012, below the pre-recession levels of 4.7
million, although they have increased 65% from July 2009. Below is
the graph of the official BLS job openings.  

Since there
were 12.2 million unemployed in December 2012, that means we have 3.4 unemployed
per job opening. 

And in
conclusion:

If the
Study can be scaled up to the country, one-third of American households lost paychecks
over the past four years. A full 79% of America knows someone personally who
lost their job.   

Washington,
including Mr. Obama last night, have glossed over how truly decimated the
American middle class is, economically. This Study brings it home. 

Faced with
a Republican Party that is by turns, nihilistic and filled with zeal for small
government and fewer taxes, pragmatism about adding jobs will be met with
rhetoric about unleashing America’s businesses from regulation and how even
lower taxes will spur new jobs and new investment.

The
Wrongologist often asks: What kind of
society do we want to be? It should be intolerable
in our society that politicians won’t work together to return our
unemployed to work after 5 years.

Had the great
jobs slaughter affected just K Street and Wall Street, it would have been
solved in a great bi-partisan rush by our politicians.  

But, it’s
clear that Washington’s position is let the American worker be damned.

And damned
we are.