JULY 18, 2013
THE STUDENT VICTIMS OF WASHINGTON’S DEFICIT OBSESSION
POSTED BY JAMES SUROWIECKI
When, a couple of weeks ago, the interest rate on subsidized Stafford loans (the loans that the federal government offers to college students) doubled, going from 3.4 per cent to 6.8 per cent, the expectation was that Congress would reach a quick deal to reverse—or at least reduce—the increase. After all, making college more affordable is one of the rare issues on which the differences between Democrats and Republicans seem bridgeable. Members of Congress on both sides of the aisle promised an immediate fix, and last week it appeared that a deal was about to be reached. Then Washington’s obsession with deficits got in the way. And that same obsession explains why, even if Congress does finally agree to a deal, college students are guaranteed to be paying more for loans, come the fall.
What we’re likely to end up with is what’s called a market-based system, under which the rate on student loans would be tied to the interest rate on ten-year Treasury bonds. (Currently, Congress simply decides what the interest rate will be.) The deal that the Senate appeared ready to accept last week, for instance, would set Stafford rates at the ten-year Treasury rate plus 1.8 per cent, along with a small additional charge to cover administrative costs. (This would mean that students taking out new loans would pay around 4.5 per cent.) The open question is whether, as Democrats insist, there will be a cap that would set interest rates at a maximum of 8.25 per cent. Republicans appeared willing to accept the cap, but then the Congressional Budget Office released an estimate suggesting that it could cost twenty-two billion dollars over ten years. And, since Republicans won’t go along with any plan that could increase the deficit, talks are currently in limbo.
This is an absurd state of affairs. In the first place, the C.B.O. estimate is just that—an estimate. Projecting the losses that a cap might inflict on the government depends on predicting the future course of interest rates, and there’s no reason to think that the C.B.O. has any real idea of what interest rates are going to be five or six years down the road. More important, if a market-based system is put in place, the deficit hawks have already won.
And while tying student-loan rates to Treasury rates makes sense in the long run, for the foreseeable future it’s another example of Washington being penny-wise and pound-foolish. With the economy still weak, inflation nonexistent, and interest rates low, now is not the time for the government to be cutting back on investment or making it harder for Americans to spend and invest. Yet, by raising interest rates on college students, that’s exactly what it’s doing. Members of both parties say that they want more Americans to go to college, and they agree that the U.S. economy will reap the benefits of having more educated and therefore more productive workers. Making college more expensive in a weak economy—which is what a market-based system would do—seems an unlikely way to accomplish these goals.
What the student-loan imbroglio really illustrates is the way that fiscal and monetary policy have been working at cross-purposes for years now. On the one hand, the Federal Reserve has been keeping interest rates low and pumping money into the economy, because it wants individuals and businesses to be less risk-averse and more willing to borrow, invest, and spend. At the same time, the obsession with cutting the deficit means that the federal government has been investing and spending less, and in effect pulling money out of the economy. The Fed chairman, Ben Bernanke, spoke exactly to this point when he testified before Congress yesterday, saying that tight fiscal policy has trimmed the economy’s growth rate this year by a full 1.5 per cent. And that makes the Fed’s job harder.
Unfortunately, there’s little political interest in looser fiscal policy, which explains why the student-loan debate has gone the way it has. We could, as Senate Democrats have proposed, roll rates back to where they were and keep them there for at least another year (by which time, one hopes, the economy will finally gain real steam). That would make kids more willing to go to school, and put more money in their pockets. Instead, we’re going to be asking college students to put more of their income toward interest payments, which will make them less willing to borrow for their education, and will mean that they’ll have less money available to spend on everything else. That’s precisely what you don’t want in a weak economy—yet, as with the sequester, it’s exactly what the preoccupation with the deficit has led to. What the Fed giveth, the rest of the government has been doing its best to take away.
Was Blind, But Now She Sees
July 18, 2013
British Inquiry Ties 787 Fire to Beacon
By CHRISTOPHER DREW
After British authorities urged American regulators to order airlines to disconnect the batteries in the emergency transmitters on Boeing 787s, the Federal Aviation Administration took a more measured approach, saying that it would review the matter.
Britain’s Air Accidents Investigation Branch, which also called for a broader safety review of similar devices in thousands of other passenger jets, made its recommendations on Thursday after finding signs of disruption in the battery cells of an emergency transmitter on a 787 Dreamliner that caught fire while parked at Heathrow Airport last week.
Most passenger jets do not have fire suppressant systems near the devices, which send out a plane’s location after a crash. If a fire occurred in flight, the British investigators said, “it could pose a significant safety concern and raise challenges for the cabin crew.”
Boeing’s innovative new plane, which cuts fuel costs by 20 percent, is crucial to the company’s future. But the 787 has faced a series of setbacks since its introduction in late 2011.
Another type of battery caught fire earlier this year, prompting the F.A.A. to ground the plane for several months. On Thursday, a Japan Airlines 787 was forced to return to Boston shortly after takeoff. The airline said an indicator had suggested maintenance might be needed on the fuel pump, and the pilots, who were headed for Japan, turned back as a precaution.
The British findings stirred up an immediate debate, as various players in the aviation community sought to determine if the emergency transmitters posed enough of a safety threat to temporarily dismantle or remove them.
Although Britain is still investigating the cause of the fire at Heathrow, Boeing said it supported the recommendations as “reasonable precautionary measures.” Honeywell Aerospace, which makes the 6.6-pound transmitters on the 787, said the proposals were “prudent,” though it remained “premature to jump to conclusions” about the cause of the fire.
Thomson Airways in England said it would remove the batteries from its 787s. Other carriers that use similar transmitters, from major airlines to corporate jets, were left to decide whether it was safe to keep using them. The F.A.A. decided it needed more time to evaluate the proposals, which could conceivably lead to the removal of the batteries or the transmitters from most of the planes made by Boeing, Airbus and the smaller companies that make regional and business jets.
Federal officials said the lack of definitive evidence about the cause of the fire — and the fact that none of the transmitters had been known to cause a fire in more than 50 million flight hours — suggested they should take more time in reviewing the matter.
While some industry officials were surprised that the agency did not embrace the British recommendations more readily, Hans J. Weber, the president of Tecop International, an aviation consultancy in San Diego, said: “That’s just the way bureaucrats work. There’s always so much harrumphing, like, ‘You can’t tell us what to do. We will make up our own mind.’ ”
Still, he said, American regulators could end up issuing an advisory to plane owners to at least inspect the transmitters.
Robert Mann, an aviation consultant in Port Washington, N.Y., said the agency has to consider what it would mean for safety if planes fly without the transmitters, which have been particularly helpful in locating the wreckage of smaller planes.
The British recommendations, contained in a three-page interim report on the fire investigation, provided the strongest evidence yet that the emergency locator transmitter played a significant role in the fire on the Ethiopian Airlines 787. The findings were good news for Boeing because the fire most likely centered on a generic piece of equipment that is on many types of planes rather than one of the new systems on the Dreamliner.
The British report said the most extensive heat damage to the jet’s carbon-composite skin occurred at the spot where the transmitter was attached to the top of the plane near the rear left door. The report said it was not clear if the fire was initiated by a release of energy in the batteries or by an external mechanism like an electrical short. If a short occurred in the device or its wiring, the battery could have provided the energy for ignition, the report said.
The report said no other systems in that area would have contained enough stored energy to start a fire with the plane’s basic power system turned off. The transmitter, which could broadcast distress signals for many hours after a crash, is designed to operate independently of the jet’s power system.
Still, the investigators expressed surprise that the battery could have caught fire, noting that the manufacturer of the transmitter, Honeywell Aerospace, had produced 6,000 of the transmitters for a wide range of aircraft since 2005, including some Airbus planes, without similar incidents. Honeywell and other manufacturers also make similar devices for thousands of other commercial and business jets.
The report indicated that the plane had landed at Heathrow 10 hours before the fire. After the passengers departed, the plane was towed to a remote parking spot and connected to a ground power station. The power source was turned off shortly afterward.
The fire was detected by an employee in the air traffic tower, who noticed smoke coming from the plane. The report said firefighters encountered thick smoke when they entered the middle of the plane, and it became more dense as they moved toward the rear.
Investigators said a hand-held extinguisher did not stop the fire, and the firefighters had to knock down a ceiling panel to get to an upper compartment where the transmitter was. While the firefighters were then able to put out the blaze, the fire was so intense that it damaged the plane’s carbon-composite structure in that area and caused the exterior paint to blister and peel.
The high-impact plastic composites are used in about half the structure of the 787 instead of aluminum or other metals. The composites are one of the novel features that helps reduce weight and increase fuel efficiency on the 787.
The plane also has new electric and battery systems, which prompted problems in the early stages of the 787’s service. Still, airlines, attracted by fuel savings, continue to place orders for the aircraft, and Boeing expects to eventually sell thousands of the planes.
The transmitter is powered by a small lithium-manganese dioxide battery. It is not rechargeable and normally lasts for 10 years. It is similar to batteries used in fire alarms and military radios.
That battery is much smaller and less flammable than the lithium-cobalt batteries that caught fire or emitted smoke in other areas on two 787s in January. The problems with those batteries led to a four-month grounding of the 787s around the world. British investigators have said those larger lithium cobalt batteries were nowhere near where the fire occurred on the Ethiopian jet and played no role in it.