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Obama Sings Tea-GOP Song to Unemployed: La, La, La, We Can’t Hear You!

11:40 am in Uncategorized by Scarecrow

President Obama appeared in the Rose Garden this morning to respond to the dismal jobs report (Baker; more here from Konczal) that showed unemployment rising to 9.2 percent over 18 months after the recession supposedly ended. He responded by not mentioning that number or grappling with what it means.

Instead, he continued the excuses and pseudo-economic gibberish that makes sense only to Tea-GOP Zombies and which explains why we’ve made virtually no progress in regaining the jobs we lost. He no longer has a meaningful jobs program but is instead clinging to confidence fairies and expansionary austerity unicorns, which are even less helpful than guns and bibles. It has become pathological.

Misjudging the situation and denying responsibility have become the trademarks of Mr. Obama’s economic record. And so our economy remains at risk, not only because it’s under unrelenting assault by economic Luddites but because he keeps his head in the sands of Tea-GOP talking points.

The only honest response Mr. Obama could have given would be an admission that his employment recovery plans had failed. Tim Geithner and Ben Bernanke saved the banks, for now, and our slanted tax laws and trade agreement outsourcing saved large corporations who are now sitting on nearly $2 trillion in unspent, uninvested funds.

That $2 trillion is about what the economy needs to put a large chunk of the jobless back to work. But there’s no one left in this Administration who either cares or knows how to refocus the nation’s vast wealth to save desperate states, under- and unemployed workers, the uninsured and everyone else in desperate need.

Obama conceded during the twitter event that he and his advisers underestimated the severity of the Great Recession he inherited. Fair enough; lots of smart people did. The last two administrations created the reckless conditions for a housing bubble, financial collapse and an economic depression, and it almost happened. But what are the implications of that truth? Read the rest of this entry →

George Will Proves Krugman’s Point on the Axis of Depression

10:16 pm in Economy, Media by Scarecrow

[Monty Python video from Paul Krugman's post, Austerity in Action.]

In Thursday’s Washington Post column, George Will attacks the Federal Reserves’ latest “quantitative easing,” lamenting that the Fed is required to care about human suffering caused by massive unemployment. Will cites Rep. Paul Ryan, but he’s also following such economic sages as Sarah Palin, Mike Pence, and Bob Corker. It’s all part of the latest coordinated conservative attack on the Fed’s dual statutory mandate to pursue full employment as well as price stability and moderate interest rates.

As Mark Thoma, Paul Krugman, Brad DeLong, Martin Wolf et al have explained, the Fed has traditionally used its authority to move interest rates to help control inflation, and hence to dampen excessive growth or spur anemic growth; each of these then affects employment. The only difference now is that with short term interest rates near zero, the Fed’s usual tools for affecting interest rates are at their limit. So the same concept — via purchasing government bonds — is being used now to help lower longer-term rates.

But of course, if the latest “quantitative easing” effort succeeds (many observers doubt it will go far enough), it would improve the economy and lower unemployment. And what’s wrong with that? Will won’t answer that; he sneers at a former Fed official for “regulating society’s reservoir of self esteem.”

Mishkin said “the rationale for maximizing employment is fairly obvious”: “The alternative situation – high unemployment – is associated with human misery, including lower living standards and increases in poverty as well as social pathologies such as loss of self-esteem, a higher incidence of divorce, increased rates of violent crime, and even suicide.”

One wonders what it is that conservatives find so objectionable about government efforts aimed at reducing human suffering. But no matter, the GOP is now intellectually and morally handcuffed by small government zealots, except that part of government needed to shield corporations, wage wars and enforce economic order. They can’t stand the idea that a fundamental government purpose, not just the Federal Reserve’s mandates, might have something to do with promoting the general economic welfare, rather than simply advancing the narrow interests of banksters, creditors and other masters of commerce.

Paul Krugman, who suggested the video above, concludes the GOP belongs in an “axis of depression” along with China and Germany. The latter two are condemning Ben Bernanke, because the Fed’s buying US Treasuries could, among other things, push down the dollar’s value against their currencies. That could improve US exports at the expense of those economies dependent on supporting large trade surpluses with the US.

But why, Krugman asks, is the GOP aligned with Germany and China whose self-interested trade policies are hurting US exports and increasing US unemployment? The reasons are both “odd” and “incoherent.”

The odd: on Monday, a somewhat strange group of Republican figures . . . released an open letter to the Fed warning that its policies “risk currency debasement and inflation.” These concerns were echoed in a letter the top four Republicans in Congress sent Mr. Bernanke on Wednesday. Neither letter explained why we should fear inflation when the reality is that inflation keeps hitting record lows.

And about dollar debasement: leaving aside the fact that a weaker dollar actually helps U.S. manufacturing, where were these people during the previous administration? The dollar slid steadily through most of the Bush years, a decline that dwarfs the recent downtick. Why weren’t there similar letters demanding that Alan Greenspan, the Fed chairman at the time, tighten policy?

Meanwhile, the incoherent: Two Republicans, Mike Pence in the House and Bob Corker in the Senate, have called on the Fed to abandon all efforts to achieve full employment and focus solely on price stability. Why? Because unemployment remains so high. No, I don’t understand the logic either.

So what’s really motivating the G.O.P. attack on the Fed? . . . [T]he budget expert Stan Collender predicted it all. Back in August, he warned Mr. Bernanke that “with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed. . . .

China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.

So what’s the GOP’s response to America’s unemployed? And why isn’t the GOP’s handcuff-the-Fed gang required to register as lobbyists of foreign governments?

Konczal/Rortybomb, Survey of 30 conservative economists
NYT, Fed Officials brief Congress, bolster defense of QE
Martin Wolf/Financial Times, The Fed is right to turn on the tap

Why Bernanke’s Confirmation Is, and Should Be, in Trouble

7:02 pm in Uncategorized by Scarecrow

No sooner had the New York Times released an initial story that "Opposition Grows Against Second Term for Bernanke," noting opposition from Sens. Feingold and Boxer, than Sen. Harry Reid made a Friday evening announcement that he would support Bernanke.

With presumed White House urging, Reid was hoping to head off further erosion in Bernanke’s support. But it may not be enough.

One unconfirmed vote count late Friday suggested there were still up to 59 Senators undecided, with those supporting/opposing split about 25/16. That was before Reid’s announcement.

The fact that over half the Senate doesn’t know what to do about Bernanke speaks volumes. For such an important position, and with so much already known about Bernanke’s record, you’d think Bernanke’s fate would be known by now.

While Mrs. Greenspan may want to spin this as scapegoating Bernanke, and Chuck Todd may think Tuesday’s MA Senate election changed everything, I think the more important story lies in an answer Bernanke gave last December to UC Berkeley economist Brad DeLong [a strong Bernanke supporter; see update links below], who asked why the Fed wasn’t temporarily raising its inflation target to 3 percent. His answer undermined whatever basis for support he had at the time.

The question was designed to determine whether Bernanke’s Fed would be willing to tolerate more inflation in the short run as a means to stimulate economic growth and reduce unemployment. From The Economist:

Why haven’t you adopted a 3% per year inflation target?

And Mr Bernanke responded:

The public’s understanding of the Federal Reserve’s commitment to price stability helps to anchor inflation expectations and enhances the effectiveness of monetary policy, thereby contributing to stability in both prices and economic activity. Indeed, the longer-run inflation expectations of households and businesses have remained very stable over recent years. The Federal Reserve has not followed the suggestion of some that it pursue a monetary policy strategy aimed at pushing up longer-run inflation expectations. In theory, such an approach could reduce real interest rates and so stimulate spending and output. However, that theoretical argument ignores the risk that such a policy could cause the public to lose confidence in the central bank’s willingness to resist further upward shifts in inflation, and so undermine the effectiveness of monetary policy going forward. The anchoring of inflation expectations is a hard-won success that has been achieved over the course of three decades, and this stability cannot be taken for granted. Therefore, the Federal Reserve’s policy actions as well as its communications have been aimed at keeping inflation expectations firmly anchored.

I can’t imagine getting a more direct answer from the chairman than that. Mr Bernanke does not want to risk a de-anchoring of inflation expectations. He is willing to accept 10% or greater unemployment and the resulting economic and political fall-out in order to avoid that risk.

Personally, I think that Mr Bernanke owes us all a better explanation of why he has opted to place so much more emphasis on the price stability aspect of his mission than the full employment aspect. And, there should be a policy debate on this question, the resolution of which should inform the choice to reappoint (or not) Mr Bernanke.

Bernanke’s answer puzzled, disappointed, and/or shocked even those who might have supported him. Matt Yglesias, later echoed by DeLong and Paul Krugman, summed it up:

When I complain that it’s inappropriate of Bernanke to be prioritizing inflation-fighting over unemployment-fighting, people always . . . say there’s nothing more Bernanke can do. But as you can see from Bernanke’s answer, Bernanke doesn’t think there’s nothing more he can do. Bernanke thinks there’s something he could do that would probably reduce unemployment but might make it more difficult to control inflation in the future.

I think it’s a bizarre reading of the relative risks and relative benefits. But it’s one that’s in keeping with the class interests of the wealthy, and it’s hardly shocking to learn that’s what matters most to conservatives like Bernanke. I just wish we could get more attention front and center for what it is that’s happening here. Unemployment is high in large part because the policymakers with primary responsibility for achieving full employment don’t want to use the tools at their disposal to achieve that goal.

[my bold]

Until that point, the debate had been between those, like Dean Baker and others, who argued that Bernanke’s failure to see and head off the housing bubble and regulate the banks before the crisis should cost him his job . . . and those who argued that, "okay, but he did a competent job rescuing the economy from the brink once the crisis became acute, and besides, who else is there?"

As long as folks were focused on escaping the brink of disaster, the latter argument was probably enough to get Bernanke through, but as the concern faded and folks had time to learn more about how negligent a prudential regulator the Fed had been for years, the argument lost much of its credibility. If he missed the massive risk to the economy the first time, why should he be trusted again?

But Bernanke’s December statement, which followed his apparent confusion over the adequacy of the stimulus, provided a more powerful argument against a second term.

The Administration is struggling to redefine itself in populist terms; it must escape the impression/reality it has protected banks instead of the public. So the last thing they — and the country — need is a Fed Chairman that Congress and the public identify with bailing out the banks with insufficient conditions or care for the suffering on Main Street.

And when Bernanke’s answer to DeLong showed he didn’t think there was anything he should do to help the 10 percent unemployment problem, it sent a signal to Senate Democrats that he was exactly the wrong man person to help Main Street recover, no matter how competent anyone thought his Wall Street crisis management was.

FDL/David Dayen, Bernanke: Yes To Social Security Cuts, No to New Jobs Bill

Yglesias, Bernanke’s Plan for Unemployment: Do Nothing

Paul Krugman, The Bernanke Conundrum, with pro/con links to DeLong (Don’t Block Ben) and Calculated Risk (We Can Do Better)
See, FCIC Hearings, Sheila Bair testimony
Mother Jones/Joseph Stiglitz, Moral Bankruptcy
Base Line Scenario/Simon Johnson, Questions Bernanke Must Answer
HuffPo/Sam Stein, How Bernanke Became a Toxic Asset
FDL/Jane Hamsher, Will Reid and Dodd Ignore Hold (Petition for Fed audit)
Dean Baker, Bernanke’s approval is clearly on the ropes

Baseline Scenario/Simon Johnson, Paul Krugman for the Fed

Brad DeLong, Responds to Krugman, and see other links to various views on his site.