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.
2 comments:
"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."
I disagree. The real sense of panic for out of work Americans was that they were out of work.
And rightfully so. Citibank's solvency problems in 2008 should take a back seat to finding a way to put food on the table when you don't have a job. And that's the problem here. The Fed has effectively recapitalized the banks by using the "monetary throttle", but out political leadership has failed on the fiscal front. We've failed to use the printing press to put people back to work and soften the blow from this crisis. Now that the political landscape has changed, we've all but assured ourselves of years of subpar growth, undercapacity and relatively high unemployment.
"The "monetary throttle" was used, it now seems, to address this problem by recapitalizing banks, not to reduce unemployment."
The Fed. has used every tool in it's toolbox to recapitalize banks and reduce unemployment. Bernanke has done his job following the 2008 crisis. The failure lies with Congress. This is what Delong was trying to say.
Strupp,
I'm surprised you disagree. My take here seems to be amenable to yours (and DeLong's).
There was a sense of crisis, but it has passed. It was used to rescue banks that got into trouble, not unemployed Americans.
I wasn't arguing that this was a good thing.
I don't think DeLong is arguing the Fed has done everything it can to reduce unemployment. He laments they are talking about "applying the breaks," as I quoted.
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