Republicans, with help from Wall Street’s biggest banks, have already successfully watered down one of the most important financial regulations included in the 2010 Dodd-Frank Wall Street Reform Act. Now, two House Republicans are attempting to delay the rule’s implementation for another two years, even though it is already behind schedule and likely won’t be finished until 2013.

The regulation in question is the Volcker Rule, which would prohibit certain kinds of risky trades — known as proprietary trades — at banks that are backed by taxpayers and the federal government. Prop trading is widely credited with playing a role in the collapse of the financial industry in 2008, and the Volcker Rule, named for former Federal Reserve chairman Paul Volcker, is aimed at preventing a similar occurrence in the future. Reps. Spencer Bachus (R-AL) and Jeb Hensarling (R-TX), though, are attempting to ensure it won’t take effect for another two years, Bloomberg reports:

“Given the time that it will take for you to agree on one version of the Volcker Rule as well as the tremendous uncertainty that market participants face in trying to anticipate what the final rule will look like, we respectfully suggest that the Federal Reserve Board delay the Volcker Rule’s effective date,” the lawmakers wrote. [...]

“While the Volcker Rule promises little if any benefit, what little benefit it does promise will not be realized if regulators further fragment financial markets and ratchet up the costs of compliance for market participants by issuing multiple versions of the Volcker Rule,” the lawmakers wrote.

Republicans and Wall Street banks lobbied to prevent the Volcker Rule’s inclusion in Dodd-Frank, and though they were ultimately unsuccessful, outgoing Sen. Scott Brown (R-MA) made sure it was watered down before the bill passed. Both the GOP and Wall Street have fought the rule incessantly since its passage, lobbying regulators and Congress to water it down even further. It’s so weak now — it includes a loophole large enough to drive a Mack truck through, according to one of its original authors — that Volcker himself isn’t satisfied with it.

And contra Bachus and Hensarling’s claims, the Volcker Rule provides a major benefit to taxpayers. It will indeed make banks less profitable, but it also makes them safer by shifting risky trading to hedge funds and other institutions that aren’t backed by taxpayers, thus ensuring that risky trading won’t again jeopardize the entire financial system and billions of taxpayer dollars. Despite opposition from the GOP and current bankers, it is backed by former traders and ex-CEOs of major Wall Street banks, including the former Citigroup chair credited with inventing the type of supermarket banks the rule is designed to prevent. The rule, according to a former Merrill Lynch executive, is “necessary to correct a mistake that poses a danger to our economy.”

Two winning tickets for this week’s $587.5 million Powerball lottery were sold, one each in Missouri and Arizona. Of course, state governments will be receiving a share of the pot via the taxes imposed on lottery winnings.

Missouri state budget director Linda Luebbering said the revenue would have a “good, positive effect” for her state. About 35 percent of the money dedicated to lotteries eventually winds up back in state coffers.

Many states use lotteries as a way to raise money, often dedicating the revenue to education. However, research has found that states using lotteries to boost their education spending actually end up putting less money into classrooms than states that simply budget appropriately for their schools:

The educational “bonus” appears to be nonexistent. Miller and Pierce (1997) studied the short- and long-term effect of education lotteries. They found that lottery states did indeed increase per-capita spending on education during the lottery’s early years. However, after some time these states actually decreased their overall spending on education. In contrast, states without lotteries increased education spending over time. In fact, nonlottery states spend, on average, 10 percent more of their budgets on education than lottery states (Gearey 1997).

The Nelson A. Rockefeller Institute of Government actually found that “new gambling operations that are intended to pay for normal increases in general state spending may add to, rather than ease, state budget imbalances.”

Lotteries are also extremely detrimental to the poor, acting as, in essence, a regressive tax, with about a 38 percent tax rate (a rate usually reserved for the very richest Americans). “Lotteries are the worst expected return of just about any gambling you can do,” said economist Victor Matheson, who estimates that “where slots pay 95 cents to the dollar in terms of prizes and a good Black Jack player can earn as much as 98 cents, lotteries pay a mere 50- to 60-cent return per dollar.” According to the Bloomberg News “Sucker Index,” residents of Georgia do the most damage to their own finances through the lottery.

Wall Street compensates its CEOs so well, one former executive walked off with $260 million despite crashing his company. Even Wall Street heavyweights have criticized the practice, which has helped widen the nation’s income inequality. According to a new study in Quarterly Journal of Economics, Wall Street’s generous pay began to skyrocket following deregulation.

The Glass Steagall Act, which separated commercial and investment banks, was gradually weakened in the late 1980s, until its full repeal in 1999. This changed organization and competition within finance, leading to the creation of mega-banks.

Deregulation coincided with Wall Street’s ever-increasing pay. By 2005, Wall Street earned 250 percent more than other industry executives (that ratio reaches 300 percent in the Tri-State area). “In other words, pay in the finance industry has become significantly higher, but also riskier and more backloaded.” But that could change when Dodd-Frank reforms go into effect:

Changes in financial regulation are an important determinant of all these patterns. The ultimate test of this hypothesis may be the evolution of wages in the next 5–10 years. If new regulations (Basel 3, the Dodd–Frank Act, etc.) are effectively implemented and if we are correct, then we expect both wages and skill intensity to converge and excess wages to disappear.

The study also shows the growing gap in pay for top finance executives and top regulators. Between 1980 and 2005, the ratio grew from 10 times to more than 60. The researchers write, “Given the wage premium that we document, it was impossible for regulators to attract and retain highly skilled financial workers because they could not compete with private sector wages.” (HT: Business Insider)

One effect of the Great Recession was to massively widen the gap between the amount of wealth the economy could be producing and what it actually was producing. GDP production dropped almost $1 trillion from its pre-recession trend line, and between 2008 and 2011 the United States lost around $3.6 trillion.

CBO’s “current law” baseline, which assumes the nation goes over the so-called “fiscal cliff,” does not show a return to potential GDP until 2018. However, as the Economic Policy Institute noted yesterday, CBO’s predictions over the last three years have repeatedly pushed back the date of the recovery, suggesting there’s no guarantee it actually happens:

CBO’s most recent forecast shows recovery rapidly accelerating starting in late 2013, with real GDP growth averaging 4.5 percent over 2014—2016 (more than twice trend growth since recovery began); this spurt of growth exceeding potential GDP growth would close the output gap.

Should we bank on this recovery? Probably not, even though it seems that most of the deficit reducing industrial complex in D.C. is banking on it.

As an empirical matter, the CBO projections have consistently issued premature dates for when full recovery will occur; the 2014 recovery expected back in CBO’s Jan. 2010 forecast is now projected for 2018. And so on.

Part of the problem is that economies can get into negative as well as positive feedback loops. If unemployment is high and the bargaining power of employees is low, that can weigh down wage and price growth. If those grow slowly, it takes much longer for households to pay down their debt, further delaying the recovery.

But a deeper problem is that CBO’s projections of an approaching recovery don’t just build in assumptions about how the economy will behave. It builds in assumptions about how policymakers will behave as well. It assumes that the Federal Reserve responds to a recession by opening the spigot and loosening monetary policy. It assumes that safety net spending automatically increases to meet the needs of more Americans thrown into hardship.

But those policies are choices, influenced by the culture and ideology and worldview of policymakers. They are not inevitabilities, as the Republican Party has repeatedly demonstrated with its determination to rein in the Fed and impose austerity. Zooming out to the international scene, Carmen Reinhart and Kenneth Rogoff’s finding that systemic financial collapses lead to much slower recoveries is driven to no small degree by policymakers’ tendency to react to recessions with self-destructive choices. Conversely, if countries can buck the conventional wisdom that government must “tighten its belt” when individual families are tightening theirs, real good can be achieved.

House Speaker John Boehner (R-OH) called on President Obama and Democrats to specify entitlement cuts that could balance their desires for tax increases in a hypothetical deal to avert the so-called “fiscal cliff,” even though only Republicans have demanded spending cuts to programs like Medicare and Social Security. Despite their support for putting entitlement programs on the chopping block, GOP lawmakers have refused to specify how, or by how much, they would cut the programs.

Boehner, instead, used a press conference today to urge Democrats to take the lead on entitlements, even though Obama and Democratic leaders made it clear that they would not support a deal that cut Social Security, and Democrats have repeatedly opposed the Medicare changes Republicans have attempted to make in the past:

BOEHNER: There has been no serious discussion of spending cuts so far. And unless there is, there is a real danger of going off the fiscal cliff. [...] So right now all eyes are on the White House…It’s time for the President, Congressional Democrats to tell the American people what spending cuts they’re willing to make.

Q: Why will you not tell Democrats, what specific spending cuts you would like to see, especially within entitlements?

BOEHNER: It’s been very clear over the last year and a half. I’ve talked to the President about many of them. You can look at our budget, where we outlined very specific proposals, where we passed in last year’s budget and the budget from the year before. We know what the menu is, what we don’t know is what the White house is willing to do to get serious about solving our debt crisis.

Q: So your 2011 position still stands, then? I mean, are you still offering, those talks from 2011, is that still the basis here?

BOEHNER: Listen, I’m not going to get into the details, but it’s very clear what kind of spending cuts need to occur, but we have no idea what the White House is willing to do.

The entitlement cuts Boehner and the Republicans have already approved, like turning Medicare into a voucher program, are vastly unpopular with Americans, who have long opposed cuts to Medicare and Social Security (past polls, in fact, have shown that they prefer increases in the programs). Recent polling shows that even Republican voters oppose Medicare cuts. Americans rejected the Republican Medicare plan during the 2012 election, when losing vice presidential candidate Paul Ryan insisted that the GOP could win the debate about specific changes to the program.

Democrats, meanwhile, have already passed reforms to strengthen Medicare — Obama’s health care law cut $716 billion and lengthened the program’s life by eight years, according to the Congressional Budget Office — and Democratic senators have proposed legislation that would extend the life of Social Security, while also increasing benefits for all recipients. Republicans opposed the Medicare cuts in Obamacare and have not shown a willingness to support Democratic proposals on Social Security.

CNBC seems to be engaging in the market equivalent of a Rorschach test. On Tuesday, the NBC-owned network tried to extrapolate meaning from a random market fluctuation, concluding that the appearance of one of their guests — a progressive Democrat — prompted a drop in stock values.

Host Michelle Caruso-Cabrera leapt to the conclusion that Rep. Raul Grijalva’s (D-AZ) appearance caused the Dow Jones Industrial to drop by 89.24 points, well within average fluctuations. “As we’re talking the market is selling off once again,” she told him:

GRIJALVA: The middle ground is a fair share. And if by putting the earned benefit programs on the table — Social Security, Medicare, Medicaid — as being the source for the deficit and the only way to reduce that and the only way to balance this, I think it’s wrong when there is no significant revenue. Not just gestures or token appeals about tax deductions and other areas, but a significant restructuring of that code to bring us back in line the way that we were under Clinton.

CARUS-CABRERA: Representative? You know what, as we’re talking, the market is selling off once again. Every time members of Congress come on — and I’ve got to tell you sir, I think you’re contributing to the fears that we’re going off the fiscal cliff, because it doesn’t sound like there’s any compromise in what you’re saying — do you care that markets are selling off dramatically when it looks like you guys can’t come to a deal?

Watch it:

The network’s confused attempts to tie the stock market to fiscal talks have worked in both directions; today, it constructed a narrative around a rise in stocks as a “struggle” that came about despite a generally negative outlook on the talks from both Senate Majority Leader Harry Reid (D-NV) and House Speaker John Boehner (R-OH).

Fast food workers in New York City are launching a strike today, ahead of the largest unionization drive to ever hit the industry. The walkouts began at 6:30 this morning at a McDonald’s, as workers “protest what they said were low wages and retaliation against several workers who have backed the unionization campaign.”

Workers in the fast food industry have every reason to be upset. As the National Employment Law Project detailed in a report earlier this year, some of the largest fast food chains — including McDonald’s, Kentucky Fried Chicken, Pizza Hut, and Taco Bell — are some of the largest employers of low-wage workers, but are making huge profits as the nation emerges from the Great Recession:

The three largest low‐wage employers in the United States – Wal‐Mart, Yum! Brands (the operator of fast food chains Pizza Hut, Taco Bell, and KFC), and McDonald’s – offer a revealing look at the resiliency of low‐wage employers in the post‐recession economy.

Each of these corporations was profitable during all of the last three fiscal years, and each of them now earns profits that are substantially higher than their pre‐recession levels.

One in four workers is expected to be in low-wage industries over the next decade, and a majority of the jobs added since the recession have been low-wage jobs. Also, as Sarah Jaffe noted in the Atlantic, “these jobs are not being done by teenagers.” “Across the country, the median age of fast-food workers is over 28, and women — who make up two-thirds of the industry — are over 32,” she wrote. If these workers are going to make a living, a strike and unionizing may be the only way to make it happen.

A prominent Republican senator admitted on Thursday that President Obama and the Democrats will likely convince enough Republicans to vote for a deficit reduction plan that increases taxes in order to avoid the so-called fiscal cliff. Republicans have publicly resisted supporting raising tax rates, but have promised to support higher revenues by closing loopholes and eliminating tax deductions so long as those changes are paired with spending cuts.

During an appearance on Fox News on Thursday, Sen. John Thune (R-SD), the Republican Conference Chairman, said that while he wouldn’t personally support a measure that raises taxes, “there may be enough Republicans who would vote for something like that”:

MARTHA MAcCALLUM (HOST): What I’m asking you is are Republicans willing to hold the line, to say to the President, I am sorry, we will never agree to a deal that involves an increase in taxes? Are they?

THUNE: I think any deal that passes up here that raises taxes and raises taxes as I mentioned earlier on small businesses, Martha, is not going to enjoy Republican support. Now, there may be enough Republicans who would vote for something like that to pass it in the House of Representatives, they need to get to 218 votes.

MAcCALLUM: Then it would be done, right?

THUNE: We’ll see about that. We don’t know what that. We don’t know what the contours of a final deal might look at this point. Everybody right now is sort of in their corners and doing the posturing.

Watch it:

A growing number of Republicans have rhetorically backed away from a pledge to never raise taxes, though it remains to be seen how many would support a measure that raises marginal rates on the richest Americans, as President Obama has proposed.

Politico reported today that the framework for a final deal would like include $1.2 trillion in tax revenue — including higher taxes on the top 2 percent of income earners — and reductions in entitlement spending.

If the Bush tax cuts are allowed to expire on schedule at the end of the year, the capital gains tax will increase from 15 percent to 20 percent. President Obama has called for allowing the capital gains tax, as well as the tax for dividends, to increase only on income in excess of $250,000.

The common Republican rejoinder to Obama’s policy choice is that allowing the capital gains tax to increase will hurt the economy. As conservative write David Frum reported, “Some Republicans are much more frightened of the impending rise in the capital-gains tax than of the scheduled rise in federal personal-income taxes.”

However, as Societe Generale noted, via Business Insider’s Sam Ro, there is little evidence that higher capital gains taxes hurt the economy:

As for the long-term impact, traditional arguments against capital gains and dividend taxes claim that they are detrimental to investment and therefore to long-term growth. Yet, empirical evidence suggests a very weak link between effective tax rates on capital gains and GDP. This was a conclusion of a recent report by the Center on Budget and Policy Priorities, a well regarded independent policy think-tank.

Other research has found the same thing. The Congressional Research Service, in a report that Congressional Republicans tried to hide, found no correlation between capital gains taxes and economic growth. Former White House economist Jared Bernstein noted that the capital gains tax has had no effect on investment. The University of Michigan’s Joel Slemrod found that “there is no evidence that links aggregate economic performance to capital gains tax rates.”

As billionaire investor Warren Buffett wrote in a New York Times op-ed this week, “let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.” Buffett said that the capital gains rate affects investment behavior “only in Grover Norquist’s imagination.”