The Federal Reserve has had its monetary throttle fully open for more than two years now. But it is no longer talking about further turbo-charging the engines of growth. Instead, deliberations within the Federal Open Market Committee appear preoccupied with how best to apply the brakes.
A degree of panic would be more appropriate — along with a commitment to use that panic to drive job-creation. The combination of unemployed workers and unmet national needs makes this a uniquely propitious moment for the U.S. government to spend more and tax less. The government’s long-term fiscal imbalances will eventually require us to reverse the mix — to tax more and spend less — so that we arrive at 2020 with a smaller national debt than previously estimated. But that is the wrong policy for today’s emergency.
Still, where is the panic, the sense of urgency? The Obama administration and the Democratic majority in Congress passed a fiscal stimulus plan half the size recommended by Democratic economists fifteen months ago. Since then, they have been unable to assemble a political majority to finish the second half of the job. There seems to be no appetite for addressing ten percent unemployment.
That's economist Brad DeLong on Washinton's unresponsiveness to continued high unemployment.
Unfortunately for out of work Americans, the real sense of panic came and went in the fall of 2008, when it looked like most of our major financial institutions were insolvent. The "monetary throttle" was used, it now seems, to address this problem by recapitalizing banks, not to reduce unemployment.
While it may be true that the Obama administration believes you should never let a crisis go to waste, inaction on the unemployment front seems to indicate you get to use each of them only once.