It's one thing to be up the creek without a paddle. It's quite another to be stuck up the creek with a paddle that you can't use.
The latter describes where we are in terms of economic policy. The Federal Reserve is trying to do their part with more easing of interest rates, but absent more action on the fiscal side, like the measures in the president's jobs plan, I don't expect anyone much to take advantage of lower rates. What's missing is demand, customers, orders, projects that inspire investors to come in off the sidelines.
In other words, I think that at a time like this, sequencing matters when it comes to monetary and fiscal stimulus, and fiscal needs to go first... without more demand, I fear we're unlikely to see the incentive of lower rates gain more traction.
So what's blocking the fiscal push, as in the jobs plan?
A friend of mine (hat-tip JB) reminded me of this interesting albeit disheartening analysis by James Surowiecki (by the way, in my honest opinion this dude writes a consistently excellent weekly economics column for the New Yorker). His answer to the above question is, of course, Republicans (though I must say, I haven't seen nearly enough push from the Democrats either on the jobs plan), but that begs another question: why is it politically costless for Republicans to go to the do-nothing, or worse (austerity!), place on jobs?
Again, the obvious answer is that what hurts the president helps his opponents, but doesn't that tactic put them in the position I started with: stuck up a creek but not using your paddle to get out?
In order to seal that part of the deal, the Republicans have to argue that the paddle doesn't work -- worse, it's a wasteful, expensive paddle that we should put through the wood-chipper. And that argument has been made much easier for them by the fact that nobody does "counterfactuals" -- what would likely have occurred absent the stimulus.
The Recovery Act passed and unemployment got higher. It would have gone higher still without the Recovery Act -- that's a consensus among non-partisan experts -- but that's an awfully hard hand to play. It's true that the administration (of which I was a member) made our hand even tougher by underestimating how high unemployment would go, by talking about "green shoots" too soon, and by not taking out enough "Rogoff/Koo insurance" -- extra stimulus in the pipeline in light of the long, hard slog characterized by financially driven, balance-sheet recessions.
No matter what we did, however, the president faced a timing problem that was in this regard even tougher than FDR's in the Great Depression: President Obama got there as the storm was breaking (GDP contracted by 9% the quarter before he took office); FDR took the stage when the storm had been upon the land for years already.
The unemployment rate was 8.5% in January 2009; 10.6% a year later... In 1933, it was already above 20%. As Surowiecki puts it:
... voters are more likely to hold politicians accountable for economic conditions when there's "clarity of responsibility" -- and responsibility for the economy now belongs to Obama and the Democrats. The recession started long before Obama took office. But, from a voter's perspective, he had two years with sizable majorities in Congress to do something about it. While the 2009 stimulus plan succeeded in making the recession less awful than it might have been, you rarely get credit in politics for what didn't happen... If you try to fix it, it's yours.
For the opposition, this dynamic means sitting on your hands is the optimal strategy:
Coöperating on a bill would make it harder for them to disclaim responsibility for a weak economy at election time. They need to do enough to seem as if they cared about unemployment but not so much that they get blamed for it.
Unless, of course, you actually want to help people-to help them get back to work, to stay in their homes, to begin to build the incomes back up.
Silly, I know. Being stuck up a creek just looks a whole lot better to one side right now, and it's hard to see what would make them use the paddle for anything other than whacking everybody around.
This post originally appeared at Jared Bernstein's On The Economy blog.
interest really can't go any lower. too low interest discourages saving and encourages debt fueled consumption - two major components of the meltdown
it would be counterproductive for the fed to do any more interest rate cutting
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Mission
The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
Today, the Federal Reserve's duties fall into four general areas:
•conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
•supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
•maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
•providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system.
Now, we have Congress insinuating itself into the very fabric of the Fed.
Whereas, the Fed should be taking the lead in forcing increases in bank capital (equity) to 15%-20%, forcing write-offs of bad mortgage loans and other problem investments (and re capitalizing institutions that default as a result through an enterprise like the Resolution Trust set up to manage the S&L crisis of the 70's). "Class, can we say removing Glass-Stegall led to the financial crisis?"
Only an intelligent, comprehensive and dramatically bold effort from our presidents and our legislators will turn things around and, considering our public officals of today, the likelihood of that seems quite remote. The Republicans offer only policies well proven to be failues and they seem quite will to take down the country, in their effort to make Obama a one term president. The Democrats and President Obama offer only half hearted and piecemeal measures like the one Mr. Bernstein speaks about in his article. At best, measures like this one will only help partially, and are woefully inadequate to meanigfully address our problems, even before they are initiated. The phrase "too little, too late" may best describe this package from Presdient Obama; indeed, the phrase may best describe the Obama presidency, itself.
It seems clear to me that we must have something new, a new political party that will genuinely represent the long term interests of the country, including the middle class and the poor. It's quite clear that neither the Democrats nor the Republicans will ever again be "the party of the people", if they ever really were. The two traditional parties are destroying the country.
Instead people snipe at each other and look to a tiny number (or tiny %) of the "winners" in the society to "fix" things and bestow gifts like liberty, justice, and a decent standard of of living upon the masses.
Look at how in the last year, with the a large percentage of the entire wealth of the country consentrated into the hands of the 3-4% of the population, the people who are now jobless and healthcareless do everything they can to praise and appease the monolithic "job creators" who like Greek Gods worshipped from below are being begged to come down and bestow the jobs abd benefits on the hapless masses.
The American people cannot self-govern. We will not or can not collectively vote for government leaders who will help us and instead turn against one another and towards a small group of dictatorial "great" men who will tell us how to fix things.
No wonder America is still called "An Experiment in Democracy."
http://www.globalresearch.ca/index.php?context=va&aid=26818
The whole article should be read. It is an excellent summary of most of the factors involved in that event. It further shows the startling parallels we are seeing today.
A truly independent Fed, operating per it's Mission Statement (www.federalreserve.gov) would be a major influence and asset today, instead of the political hack it is rapidly becoming.
If a governments functions were to be solely directed at providing for the general populace it could not exist for long. A government that provided solely for the interests of business; likewise, could not exist for long, they would be properly called a fascist government, by the way.
I think you would agree that a pragmatic, practical mix of the two extremes would be a much better solution.
We are an example of what can go wrong when we swing to far to either extreme. From the Johnson administration on the one hand, to the Reagan-Bush ones on the other this country flounders. This time we have swung quite a ways towards the fascist end and its effects are fairly severe. Granted it is not much farther than the Johnson swing the other way. But both have and are causing great harm to this country. Time to dampen the pendulum.
That means, in this situation (like many others, EPA, FDA, SS, etc.) the government HAS to step in, spend some money, invest in jobs building infrastructure and alternative energy, etc. That creates more people with more money and more demand (as well as more taxes).
That allowed, we also have to start cutting waste and subsidies and billions to other countries and our unilateral wars.
And as hard as it is we need to wean people off this idea of instant gratification no matter what. No if you don't have the 10%-15% downpayment for a mortgage loan and closing costs no second mortgage to pick up the slack. Or a $20K credit card line (at an interest rate of 28% of course) for 21 year olds.
Trade with communist China devalues labor and empowers a communist dictatorship which has evil intents towards the US.
And don't forget H-1b work visas and all the other work visas our government issues to drive down wages. That all needs to stop. But nobody is talking about that. Romney is the only one talking about the dangers of trade with China.
Perhaps if we put more, or at least as much efforts into really competitive hi tech for future educations as we do competitive sports, we might get out of the mess.
By the way ole evil China, is strong union nation, even at WalMart, and by the way they have more miles of active high speed, hi tech trains then USA is even thinking about. Note Germany is into clean energy, recently they had to give away power as the turbines due to winds were making more then they could use. And USA is doing what?
He really is a terrible leader. He doesn't sound like he understands economics. He seems incapable of working with a divided congress and he always vilifies the private sector. We need a better advocate for sensible policies not a class warrior.