Audit D.C. Notes: The End of the Affair, Stimulus Situation, Cantor on the Trail

The August lull is giving The New York Times a chance to point out just how much our economic lives have changed.

Today the paper looks at the housing market, and the now-outdated notion that real estate always appreciates:

Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.

On Sunday, the topic was the apparent end of Americans’ “generation-long love affair with the stock market.”

Like Monday’s story, this one falls in the category of things we kind of knew already—but the NYT does a great job of putting some meat on the bones:

Over all, investors pulled $151.4 billion out of stock market mutual funds in 2008. But at that time the market was tanking in shocking fashion. The surprise this time around is that Americans are withdrawing money even when share prices are rallying.

The stock market rose 7 percent last month as corporate profits began rebounding, but even that increase was not enough to tempt ordinary investors. Instead, they withdrew $14.67 billion from domestic stock market mutual funds in July, according to the investment institute’s estimates, the third straight month of withdrawals.

Justin Fox flags another interesting passage in the Times story, in which the chief economist for the Investment Company Institute, the mutual fund industry trade group, seems mystified by the move away from stocks:

“At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.”

As Fox points out, that all depends:

For a run-of-the-mill recession and recovery, yeah, this is unusual. For a big-time, era-shifting financial market bust, like in the 1930s and 1970s, this is just what happens. Small investors, lured into the market by a decade or more of good times (the 1920s, the 1950s and early 1960s, the 1980s and 1990s), sour on stocks during the ugly time that follows. Their departure eventually brings prices down to more-than-reasonable levels, paving the way for a long rise in stock prices, the early stages of which will entirely bypass all those small investors who bailed out.

Fascinating, big-picture stuff, and good end-of-summer reading.

—National Journal’s Hotline does well to point to some potentially awkward moments ahead for a few governors who may have their eyes on a bigger job:

The 3 sitting governors rumored to be mulling WH’12 runs have all been put into a difficult position over accepting more federal stimulus dollars. On one hand, MN Gov. Tim Pawlenty, IN Gov. Mitch Daniels and MS Gov. Haley Barbour all have reptuations [sic] to defend as deficit hawks and fiscal conservatives as they weigh a national campaign. On the other hand, they have to consider the very real concerns of state employees and concerned constituents who would benefit from millions of extra federal dollars for teachers, schools and social programs like Medicaid.

Each of the men is taking a different approach to the dilemma. Here’s how the ever-smooth Barbour played it in a letter to state legislators:

“Although I would have voted against this legislation were I in Congress, I intend to apply for the approximately $98 million in funding for K-12 education. Our taxpayers and their children and their grandchildren are on the hook for the debt resulting from this federal spending and it does not require us to raise taxes or make other negative policy changes, so I believe Mississippians should receive the extra funds for education purposes.”

It’s a good catch by Hotline, and a good storyline to follow.

—Politico was smart to send a reporter out on the campaign trail with Rep. Eric Cantor, looking for clues about how Republicans would govern if they win in November.

Cantor is poised to become majority leader if the GOP takes back the House, and, Politico reports, he’s “notably avoiding a few hot button political issues as he promotes the GOP agenda during the August recess.

He’s not talking about changing the 14th amendment, he doesn’t think votes will turn on the ground zero mosque controversy and he doesn’t seem eager to embrace the culture war issues that defined the prior Republican congressional majority.

And in a stark contrast to the mood in Washington, Cantor avoided taking shots at Speaker Nancy Pelosi and President Barack Obama as he visited with business leaders, toured a charter school and spoke to a conservative Republican group in Hanover County on Friday.

Cantor said his party might “roll back their ban on earmarks, as long as the spending items have ‘merit.’” And he stressed what he called Republicans’ seriousness on spending. But this bit is frustrating:

Cantor also says Republicans would focus on spending, ending the automatic federal pay raise and the building of bike paths, which he considers “nice, but certainly shouldn’t be the priority.”

Bike paths?

Politico isn’t the first to report on the Republican agenda. For more in this department, check out Ezra Klein’s recent, and revealing, interview with Paul Ryan, the top Republican on the House Budget Committee.

The GOP agenda is going to be a hot topic in the coming weeks, and it’s good to go after an early glimpse of the party’s plan, before it’s formally rolled out next month and the party’s young guns, including Cantor, release a book on the young conservative movement.

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Holly Yeager is CJR's Peterson Fellow, covering fiscal and economic policy. She is based in Washington and reachable at