Friday's razor-thin 219-212 House passage of the Climate Change bill, H.R.2454, was a testament to the dogged persistance of President Barack Obama and House Speaker Nancy Pelosi.  As tough as that was, Senate passage will be a lot more difficult.

On April 1, 2009, 26 coal and manufacturing state Democrats joined all 41 Senate Republicans in favor of Senator Mike Johann's (R-NE) amendment to the Budget Resolution, S.Con.Res.13, disallowing the use of "reconciliation" to pass a Climate Change bill.  "Reconciliation" would allow passage by a majority vote instead of the 60 votes normally needed to pass major bills.  It would also prevent extraneous killer amendments.  Some of those 26 Democrats may feel secure enough of their reelection chances to vote in favor of a Climate Change bill this fall, but many won't.  That's why I'd be surprised if the Senate can pass a Climate Change bill this year.  I could be proven wrong if President Obama can mount enough public pressure on those 26 Senate Democrats to turn them around, but that would be a tall order.

This afternoon, the Congressional Budget Office estimated the public debt will soar from 41% of GDP at the end of FY08 to 60% at the end of FY10 without any policy changes and that the federal government is on an "unsustainable" fiscal policy path.  Once the economy is on a firm path to recovery, a lot of deficit reduction will be required to put us on a sustainable fiscal policy path.  Federal Medicare and Medicaid expenditures currently equal 5% of GDP, and CBO projects that spending will double by 2035 if left unchecked.  By comparison, Social Security will rise from just under 5% of GDP to 6% of GDP by 2035.  CBO Director Doug Elmendorf's blog provides an excellent summary.

Do we need the U.S. Postal Service?  Today's Washington Post editorial offers a well-researched and thoughtful wake-up call suggesting the answer may be no unless USPS can "reinvent itself for the 21^st Century."  The Post estimates the USPS will lose between $6 and $12 b. this fiscal year, and cutting back deliveries to five days a week seems inevitable.  Mail volume has declined for seven years in a row, and it plummeted 14.9% in the first quarter alone.

If you're like me, you wonder why you have to sift through so much junk mail to find the few pieces of mail you want.  I rarely mail anything anymore.  Most of my payments are made electronically.  On the rare occasions when I need postal service, I usually stand in line for 10 minutes or more despite all of USPS's efforts to improve customer service.  When I want to mail a package, I go to the United Parcel Service (UPS) store.

Health care reform is very hard.  That's why Presidents Truman, Nixon, and Clinton have failed to make it happen.  No matter what you do, some gain and some lose.  However, the current system is increasingly painful too.  The trick will be to spread the cost of improving the system enough to maintain political support.  Whether Congress can pass any health care reform this year will be decided in the next few weeks.  A lot will depend upon the how much the winners win and upon how much the losers lose.

This is not the title of a sci-fi thriller.  A few minutes ago, I heard former FDA Commissioner David Kessler, MD repeat it over and over again at Politics and Prose bookstore in D.C.  What was he talking about?  His new book, The End of Overeating­, is the first to pull together the hard science behind the restaurant and food industry hijacking of our eating habits and the source of our obesity epidemic.

PAYGO was the mantra in Washington this week.  "Paying for what you spend is basic common sense. Perhaps that's why, here in Washington, it's been so elusive," President Obama intoned last Tuesday.

From the 1990 Andrews Air Force Base budget summit until the end of 2002, Congress was bound by statutory PAYGO, which used draconian automatic budget cuts to "pay for" any tax cuts or direct spending increases that threatened to add to the deficit.  Together with annual spending caps, it provided the bulwark that led to four years of budget surpluses beginning in 1998.

However, PAYGO by itself just offsets new spending with spending cuts or tax increases, it doesn't lower existing spending or deficits.

According to the Congressional Budget Office, the fiscal 2009 deficit will be $1.677 trillion with no change in law and $1.845 if President Obama's proposals are adopted.  In August, CBO is expected to revise those estimates to nearly $2 trillion.

Yesterday, the Congressional Budget Office concluded that its original estimate that 40% of the 2008 tax rebates would be spent during the first six months in which they were first received were supported by three studies that estimated the impact from as low as 33% to as high as 66%.

"Figure 1 shows a counterfactual path for monthly consumer spending, constructed by subtracting from actual spending CBO's estimate of the effect of the rebates. That estimate (that 40 percent of the rebates was spent) implies that the rebates raised the growth of consumption in the second and third quarters by 2.3 percent and 0.2 percent, respectively, but reduced it by 1.0 percent in the fourth quarter, when the distribution of the rebates ended. As the figure shows, by itself simple observation of aggregate consumption over time may not detect the effect of rebates; no spike in spending corresponds to the spike in income."

So the rebate helped the economy for a quarter or so, but not enough to write home about.

In yesterday's New York Times, Jonathan D. Glater wrote about Juridica Capital Management's investments in company lawsuits in return for a share of any damage award.    CEO Richard W. Fields crowed, "It's always a good time to invest in litigation."  Juridica Investments fund has risen 24% on the London Stock Exchange since December 2007 and has about $200 million under management now.

I believe deficits matter.  There are lots of studies showing no correlation between deficits and interest rates and deficits and inflation.  That's because deficits are usually small compared to the size of the economy and because deficits usually have short-run stimulative effects if there is slack in the economy.  If the economy is near full employment, interest rates and inflation rise, but full employment is rarely achieved, so deficits don't seem to matter.

If deficits rise too rapidly, and publicly held debt reaches levels, say 100% of GDP, then no one will buy government debt because inflation will rob debt holders of their interest income and their principal.  That effect can be mitigated if you're a large country with a reserve currency, like we are.  When Asians buy our debt, we can consume way beyond our means, and, again, deficits don't seem to matter.

Today, Senate Majority Leader Harry Reid (D-NV) withdrew the cloture petition for S.146 at the request of its sponsor Senate Judiciary Antitrust Subcommittee Chair Herb Kohn(D-MN) and Senate Commerce Chair John D. Rockefeller IV (D-WV).  The bill would have eliminated present law railroad antitrust exemptions, restored railroad antitrust authority to the Justice Department and the FTC, and empowered states attorneys general and private parties to sue to stop anti-competitive mergers and acquisitions.  The Consumers Federation of America estimates that overcharges of "captive shippers" amount to $3 b., or 37% of the $8 b.

Yesterday, President Obama's auto team anonymously briefed key reporters on the impending takeover of GM.  Uncle Sam will become a 70% shareholder, the UAW will become a 20% shareholder, and bondholders and other creditors will share the rest.  This is not going to come to a happy end for taxpayers for several reasons.  First, the taxpayers will not get back all of $19.4 b. they've already "invested" in GM, nor all of $30 b. in loans they're about to be saddled with.  Second, auto parts firms will soon need additional funds as well.  Third, the collateral damage to Ford and other companies making cars in the U.S. will not be small.  Finally, despite Administration assurances that they will be "reluctant owners," eager to sell, it will take a long time to extricate ourselves from this mess.

Bailing out states is not new.  In 1790, Alexander Hamilton bailed out the New England states following the Revolutionary War by having the federal government assume the debt of the states.  New England states had born a disproportionate share of the costs of the war, and Hamilton cleverly bought off the southern states by giving them the capital.  The plan worked so well in restoring our young country's credit that fiscal policy experts still study its lessons.  Wikipedia has an excellent article on it.

No state has gone bankrupt, but New York City famously became insolvent when it couldn't roll over its debt in 1975, although technically it wasn't a bankruptcy.  Up until then, City leaders kept increasing spending until creditors wouldn't lend to them anymore.  In 1976 and 1978, Congress revamped Chapter IX of the U.S. Bankruptcy Act of 1898 to provide for an orderly renegotiation of New York City's debt.  The GAO report on this makes sobering and familiar reading.

The most popular tax hike proposal on Capitol Hill these days is the soda tax.  The Congressional Budget Office identified it last December as a twofer:  it raises revenue and combats obesity at the same time.  See Option 106 on page 192.  New York Times columnist David Leonhart wrote an excellent analysis of it yesterday.  The plan is to use this to pay for health care reform.  If it were up to me, I'd add a chip tax too.

Twice a week I tutor inner city children over the lunch hour.  It's a Title 1 school, which means their lunches are provided by the Department of Agriculture without charge from agricultural surplus.  I sit upwind so I don't get sick.  At least they serve subsidized milk instead of soda.  But many kids are obese anyway because they crave chips.  If your diet consisted of soda and chips you be 50 pounds overweight and a candidate for diabetes too.  Every day I tell young kids, "Don't eat chips," but they do anyway.

The short answer is no, despite the pounding newspapers have taken recently, according to the Pew Trusts' Project for Excellence in Journalism in its annual State of the News Media 2009 of March 16.  The Project found that the newspapers that survive are profitable, although new business models will be required to keep them that way.  Cable TV news shows are winning advertising dollars away from newspapers and from ABC, CBS, and NBC, while online sites like Craig's List have eaten away at vital classified advertising revenues.  The three big print and online newspapers, The Wall Street Journal, The New York Times, and USA Today held their own as their smaller brethren closed shop.  One-quarter of newsroom jobs that existed in 2001 will be gone by the end of this year.

Every year at this time, the Social Security and Medicare Trust Fund Trustees report on the current and projected financial conditions of the two funds.  The news released Tuesday was not good, and it's likely to get worse over the next few years.

Medicare went cash-flow negative last year, and the Trustees estimate it will be insolvent in 2017 -- only eight years from now.  Social Security will go cash-flow negative in 2024 and will be insolvent in 2037 -- a more manageable 18 years from now, but four years earlier than last year's estimate.  I'm not too worried about Social Security.  Although it's long-run deficit equals 2% of taxable payroll ($111 b. per year in current dollars), a combination of indexing modifications, increased retirement age, and modest payroll tax increases can keep it solvent indefinitely.  Medicare is a different story.  It will require major surgery.  The trustees estimated its long-run deficit to be 3.88% of payroll ($214 b. per year in current dollars).  If Congress passes a major health care reform this year, that will help, but we will still be far away from long-run solvency.

Please read today's New York Times editorial on "Sharing Congress's Research" and urge Senator Chuck Schumer (D-NY) to back Senator Leiberman's (I-CT) resolution to require the Congressional Research Service to post all of its research reports to Congress, except those that are classified.

CRS was created in 1914 within the Library of Congress to provide Congress with "authoritative, confidential, objective, and nonpartisan" analysis of legislative issues.  CRS's 450 analysts do everything from writing excellent background reports to providing assistance in drafting legislation.  It has experts on congressional procedure and experts on defense procurement.  When I worked on Capitol Hill, I valued the help I got on a wide range of diverse legislative topics.

Real time TV dramas have met their match in Street Fighters, real time reporting on the final 72 hours of Bear Stearns by the Wall Street Journal's Kate Kelly, published today by Penguin.  If you'd like to know who was on the other end of all those phone calls Treasury Secretary Hank Paulson and New York Fed President Tim Geithner made in March, 2008 before "loaning" J P Morgan Chase $30 billion of your taxes to close its takeover of Bear Stearns, this book is for you.

Most economists like free markets, but free markets without sensible rules have caused us a lot of problems lately.  When it comes to credit cards, the rules got written in such fine print that a consumer backlash is pushing Congress to pass Rep. Carolyn Maloney's (D-NY) Credit Cardholders' Bill of Rights, H.R.627.  The Senate will take up its version this week.  President Obama devoted this Saturday radio address to supporting the bill, and he'll urge passage again at a town hall meeting Thursday in Albuquerque, NM.  Enactment by Memorial Day seems likely.

What's the problem?:

EPA Administrator Lisa Jackson, Energy Secretary Steven Chu, and Agriculture Secretary Tom Vilsack held a telephone press conference 10 a.m. Tuesday to announce their proposed rulemaking on the Renewable Fuel Standard under the Energy Independence and Security Act of 2007 (EISA).  That established a requirement that to qualify for subsidies, ethanol and other biofuels would have to reduce lifetime greenhouse gas emissions by 20% versus gasoline.

Monday, President Obama released details of how he proposes to raise $210 b. over the next 10 years from taxing U.S. multinationals on their overseas income and from going after U.S. taxpayers using offshore tax havens.

Deductions associated with deferred overseas income would not be deductible, except for R&D, starting in 2011.  Foreign Tax Credit loopholes would be closed.   "Check the Box" foreign subsidiaries would be required to file taxes as separate corporations.  Tax Havens would be subject to increased disclosure, withholding taxes, and IRS enforcement.  Overseas banks will have to file 1099s on income earned by Americans.