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Mitch Daniels’ New Math Ignores the Real Numbers

6:00 am in Politics by Scarecrow

I caught the last half of Indiana Governor Mitch Daniels explaining his new budget math to CNN’s Candy Crowley.  Daniels is trying to pitch himself and his book with the idea that the federal deficits and long-run debt pose an existential threat to the Republic. It’s just arithmetic, he says.  But which numbers matter?

Math can be hard, but it’s impossible for those who ignore the relevant numbers.  The essential numbers (among dozens we could cite) are these:

First:  The US Government can currently borrow money for 10 years at about 1.8 percent, which adjusted for inflation means that the real cost of borrowing money long term is essentially zero.  The market is screaming at us that money is free if we want to borrow more to put people back to work doing stuff that needs to be done.

Second, with unemployment at 9 to 17 percent, depending on what you measure, there are about 25 million people who need jobs or more hours in the jobs they have.  Smart economists told us early on, and more are telling us now that this condition could last for several more years.  And that’s assuming we don’t slip into a worse depression, which we might because Europe is led by people as dumb as Mitch Daniels.  So even the “better” proposals to spend a little more now and postpone austerity measures until 2013 are misguided.

Third, the deteriorating infrastructure in the United States needs over $2 trillion in investments over the next decade, starting yesterday.  Again, it costs us essentially nothing to borrow the money to do this.

Fourth, US poverty rates are at record levels.  There are about 50 million people without health insurance. The number of children in the US who rely on food stamps is shameful and scandalous.

Fifth, the richest 1 percent in America continue to capture a grossly disproportionate share of the nation’s income and wealth, and that trend is continuing.  But their effective tax rates haven’t been lower in decades.

Sixth, we’re laying off tens of thousands of teachers.  It is because we have too many teachers?  Too many  over-educated children?  No, we need more and we need to pay our teachers better.  Our schools are failing, our kids are falling behind those of other nations and we’re losing out in the competition for what we need the next generation to know.  That’s called losing the future.

And on and on.  But Mitch Daniels didn’t bother to repeat any of those numbers.  Instead, he claimed that just the interest payments on debt alone would force us to stop educating our children, which is patently absurd.  He then claimed that historically, when countries reach a certain threshold of debt, they fail.  But he didn’t say what that threshold is or cite any examples from history — he’s probably just misreading Reinhardt, as the GOP tends to do — nor explain why he believes the US is even remotely close to such a threshold when it’s clearly not.  Once again, the government’s 10 year interest rate is around 1.8 percent . . .

Daniels is the “moderate” Republican that gets people like George Will all excited, because, I assume, he thinks Daniels at least has some tenuous grasp of reality while most of the presidential wanna bees don’t.  Nope.  Stick to baseball, George, where the statistics are there for all to see.

Deficit Hysteria Wins: GOP Congress, Obama White House Succeed in Stopping Jobs Growth

5:33 am in Uncategorized by Scarecrow

Zero by Leo Reynolds on flickr

Zero by Leo Reynolds on flickr

The US economy managed to create virtually zero jobs during August, leaving the unemployment rate at 9.1 percent.  And  revised estimates lowered the number of jobs created in July.   With the GOP Congress and the Obama White House still paralyzed by mindless deficit hysteria and unwilling to fund any credible effort to create jobs, the economy is stalled.  From The Financial Times :

The unemployment rate remained steady at 9.1 per cent, with 14m American unemployed. Economists had hoped for a 68,000 boost to non-farm payrolls, which was already modest growth from the previous month.

This is the worst non-farm payrolls report since August 2010.

Private sector payrolls added just 17,000 jobs, well below the 95,000 estimate and the manufacturing sector lost 3,000. In the public sector, where budget are being cut, 17,000 jobs were lost last month despite the return of 22,000 workers following a partial government shutdown in Minnesota.

This is exactly what reputable economists have been warning about. With the housing market still declining, consumers still struggling to recover from losing $8 trillion in wealth from the housing bubble crash, and exports hampered in struggling economies oversees, only government can fill the void. But our leaderless government is paralyzed by a preoccupation with deficits, when only deficits are keeping the economy from going under.  It is the same in Europe, where incompetent central bankers continue to demand national economies shrink deficit spending in pursuit of fantasy confidence fairies.  Krugman sighs: Read the rest of this entry →

Tom Friedman’s Fantasy Dream Is America’s Nightmare

9:30 pm in Uncategorized by Scarecrow

Tom Friedman seems to alternate between days with provocative ideas that challenge conventional wisdom, for better or worse, and days with fantasies built on absurd notions, massive ignorance or delusion, which if implemented would be catastrophic. He’s equally certain and proud of both, so you have to be careful.

Judging by today’s New York Times column, today is Tom Friedman’s catastrophic fantasy day.

In a column in which he fantasizes a joint media appearance with Speaker Boehner and President Obama, Friedman dreams of the two men making humble concessions, then walking hand in hand into the White House to negotiate a “grand bargain” that resolves all the country’s outstanding budget deficit/debt issues. Everything’s on the table, and both sides are earnestly committed to bargain in good faith and reach a reasonable compromise. On seeing this, the market immediately rises a zillion points.

There’s only one problem. The deal Friedman assumes these men would likely produce could wreck the economy and harm millions of people.

Like all too many in Washington, Friedman believes that a grand bargain that dramatically reduced near- and medium term deficits and long run debt would actually help the economy and benefit the nation’s citizens. But instead, it would do exactly the opposite. That’s because the prevailing ideas for what goes into this grand bargain do not include solving any of the nation’s actual problems. And though the debt crisis is phony, the proposals are only superficially about reducing debt. But they have everything to do with crippling the federal government’s ability to function in the public interest.

What Mr. Boehner’s Republicans want is not a trimmer, more efficient government; they want a government that can only support a much smaller public sector and is significantly weaker in dealing with the private economy and those it affects. They want a government so weak it cannot threaten the ability of the financial sector to continue looting the economy and so politically constrained and captured it cannot induce industries to internalize the costs of health, safety and environmental measures needed to protect the public from harm; it would function only to enable what industries want. They want to protect the rich from taxation and do nothing to prevent the relentless transfer, through unfettered non-competitive markets, of the nation’s income and wealth from the bottom 90 percent or so to the extreme wealthiest individuals and corporations, whose actions would become essentially unaccountable to consumers, shareholders and investors.

Against this massive looting, wealth transfer, and frontal assault on the public interest, it’s not clear what values President Obama wants to protect, even assuming he’s competent to do so. He doesn’t seem committed to tax equity, seems little concerned about massive inequality, has rarely if ever mentioned the near 15 percent poverty (nearly 20 percent of America’s children relying on government assistance). He clearly does not favor reducing the power or influence of the financial sector that has ravaged the economy, nor has he fought to check other politically powerful industries and corporations that continue to victimize the public.

Further, Mr. Obama refused to consider any form of universal health care that could effectively challenge rising private health care costs. That’s a principal driver of long-run spending. Mr. Boehner’s Party, of course, regards such solutions as evil socialism. So their “compromise” could remove people from the program by making them wait longer.

On top of this, neither Mr. Obama’s team nor Mr. Boehner’s Party has an intellectually coherent grasp of economics, a credible framework for understanding the nature of our current economic problems nor any affinity for the only solutions known to be workable. Indeed, almost every statement both men make on the economy is wrong-headed and often absurd.

In short, any negotiation between Mr. Obama and Mr. Boehner is highly likely to produce a worse mess, as best, or possibly a calamity. Their deal would likely harm the economy or even produce a recession.

If their grand bargain succeeds in reducing government spending by $4 trillion or more over the next decade, it will slow growth, increase unemployment, cause even more foreclosures, throw more people into poverty, increase the number of uninsured, decimate state and local governments. It would leave the country’s future poorer from a serious deficit in investments in everything a country needs to prosper. And the huge inequities in American life will remain, with an even weaker government available to address them.

Dear Tom: Be careful what you ask for. There’s no one protecting the public interest in that grand bargain. So please use your next alternate day to point this out. — John Chandley (Scarecrow).

Update: Dean Baker has a dream.

White House CoS, Bill Daley, Has No Clue What’s Keeping US Out of a Depression

7:36 am in Uncategorized by Scarecrow

Visit msnbc.com for breaking news, world news, and news about the economy

Appearing on Meet the Press, White House Chief of Staff, William Daley made one of the most clueless statements about the American economy we’re likely to hear outside the Tea-GOP.

Explaining why the President was putting so much effort into trying to reach a grand bargain with John Boehner that would include trillions in spending cuts on worthwhile government programs, Mr. Daley essentially said that Obama was doing this not merely because we need to raise the debt limit, but because, “this deficit is a serious drag on the economy.”

Think about that: “The deficit is a serious drag on the economy.”

Apparently, the man closest to the President of the United States, and on whom the President relies for political and economy advice, does not know that the only reason the terrible unemployment numbers that may end his President’s re-election hopes are at 9.2 percent and not 11 or 12 percent or higher is because of the increased federal deficit spending of the last two years.

And the only thing that can keep unemployment from reaching higher levels in 2012 is continued federal spending, which they will cover via more deficits. If Mr. Daley’s diagnosis were translated into policy — and that seems to be what’s happening — he and his President will need new jobs in 2013.

Now I wouldn’t expect a political appointee to know much about some accounting identity that explains why federal primary deficits are inescapable when the private sector just lost trillions in housing wealth and we have a trade deficit. So never mind that chasm.

But how is it possible Mr. Daley cannot recall that the principal reasons Mr. Obama proposed and signed the deficit spending stimulus bill in 2009 were to avert a depression and keep unemployment from rising and, they hoped, to reduce it below the higher levels predicted at the time. That their predictions were too optimistic and thus the stimulus too small has become fodder for Tea-GOP demagoguery, but that’s another story.

On the debt reduction negotiations, David Gregory asked Mr. Daley what he must have thought was a gotcha now question. He showed Mr. Daley a graphic showing the increase in the total debt since Obama took office, with the debt going from $10 trillion to $14 trillion or so, and projected to rise another $2 trillion.

Then Gregory smuggly concluded, “can’t you [Mr. Daley] see the logic of those who argue that given this huge increase in the debt, it makes sense that we reduce that only with spending cuts and not tax increases?”

The correct response to a question that jaw-droppingly stupid would have been to award Gregory the Douglas Feith Award and terminate his contract with NBC. Daley may not get the allusion and couldn’t say that in any event.

But in responding, Daley couldn’t even remember to remind viewers that the bulk of that debt increase was entirely the result of the recession: fallen tax revenues and increased safety-net spending, plus the stimulus, all responding to the recession Mr. Obama inherited. Instead, he left us with the lecture on how the debt or deficit was a serious drag on the economy, so our President was really focused on that.

There isn’t a single adult left in this conversation.

DCCC and CREEP Want My Money to Re-Elect President Romney’s Econ Team

2:20 pm in Uncategorized by Scarecrow

Digby, DeLong and likely others have already commented on (wept, pulled hair out, thrown darts at) Ryan Avent’s report of the Obama economic advisers doubling down on their “we’ve done enough for the unemployed” excuses, refusing to acknowledge Obama’s economic policies have failed to produce either healthy, sustainable growth or an acceptable rate of improvement in the nation’s unemployment.

Paul Krugman calls it “learned helplessness,” but it looks more like Stockholm Syndrome or worse. It’s not just the White House folding again to anti-government Tea-GOP demands; Obama’s team seems to believe the same gibberish, and we’re all going to pay for their mistakes. They’ve gone from “spend now, cut spending later,” to “cut now and cut later, and maybe spend a little to save face.” As Avent concludes:

In any case, it seems a sure thing that fiscal policy will be a net drag on the economy in coming quarters, and not an insignificant one either.

For us non-economists, this means the people sitting around Joe Biden’s dining table are debating how much worse to make the economy and unemployment, because they apparently believe in non-existent confidence fairies, bond vigilantes and voodoo economics. In short, these people can’t be trusted to run the government, let alone put Americans back to work doing stuff that needs doing.

DeLong notes that the likely effect on the US economy will be worse than the downturn and pain the UK just experienced from their self-inflicted bout with austerity. (more on UK austerity failure here) You’d think Americans would be grateful for the advance lesson in macroeconomics, but our ruling class is made up of non-learners: Ideas that are wrong in theory and failed in practice have to be enacted here, for no good reason.

That’s bad enough, but then the Obama Pods at the Committee to RE-Elect the President (CREEP) and the DCCC have the nerve to send me e-mails — yes, I’ve sinned in the past , but I’m better now — asking me for money while they push policies that are little different from what we’d expect from a President Romney. That’s not Romney pre-primaries; that’s Romney if he actually fooled the Tea-GOP crazies and became, you know, actually responsible for doing something for which he might be held accountable.

I don’t know why I should contribute to people whose policies have become indistinguishable from what we’d get from a Romney agenda. You’d think even the Obama Pod People would figure that out, but they keep asking.

Another e-mail tells me Obama’s campaign manager — Pfeiffer? — will be a keynote speaker at NetRoots Nation. I’m can’t make it this year, but if I were going, I’d be saving up confetti to shower on him. I’d cut up lots of pictures of rotten tomatoes and . . . send them in lieu of a donation. Probably get arrested, but I’d feel better. It’s come to that. Nice work, Pod People.

Scarecrow’s Nightmare: Austan Goolsbee Defends President Romney’s Economic Plan

7:00 am in Uncategorized by Scarecrow

If I’d been asleep for the last decade and woke up to ABC This Week’s interview of Presidential economic advisor Austan Goolgbee, I would assume that Mitt Romney won the 2008 election, that he was predictably following Republican dogma about how to recover from a severe financial collapse and recession and that intelligent media folks like Christiane Amanpour were realizing those standard GOP policies aren’t working.

Goolsbee correctly told us that a smart economist wouldn’t get overly excited about one month’s jobs and growth numbers but would instead look at the overall trend. Of course what he wouldn’t want to concede is that GDP grew at a meager annual rate of 1.8 percent over the first three months of 2011 and so far was predicted to grow at only 2.8 percent for the next three. And the overall trend for job growth was still not enough to make a serious dent in unemployment unless you believe taking 5-10 years to get back to full employment is okay.

So Goolsbee was in denial from the opening moment because he didn’t have a decent story to tell even in his own framework. When Amanpour asked him what the Administration could or should be doing to improve conditions, he ticked off items you’d expect to hear from a typical GOP Presidential adviser: we’ve got to get the debt under control; we have a White House effort to identify and get rid of governmental regulations that are preventing the private sector from growing the economy; we should pass “free trade” agreements backed by the Chamber of Commerce; and we should leverage limited public dollars to release billions in private funding for investments.

Goolsbee’s bottom line: “It’s now up to the private sector.” That’s exactly what you’d expect from President Romney’s economic adviser.

It took Paul Krugman and Chrystia Freeland, over the absurd denials by Martin Regalia of the Chamber of Commerce, to remind ABC’s audience that business confidence and concerns about taxes and regulations aren’t the problem: business polls repeatedly show businesses aren’t expanding/hiring much because the demand for their products is weak. Demand is weak because the recession and the housing market crash depleted consumers’ wealth and they’re worried about losing their homes and jobs. You don’t need a degree in economics to grasp the logic of that. When private spending is still depressed, only government spending is keeping the economy afloat, and the stimulus is phasing out.

Goolsbee pointed to Joe Biden’s talks, but it’s blindingly obvious the Biden effort is counter-productive. Democrats should be demanding it be refocused on jobs or shut down.

Regalia’s main talking point, completely unsupported by theory, logic or facts, is that the economy would boom if only the government would “get out of the way.” It’s a wonderful myth if you’re fronting for Wall Street, trying to defang the puny financial regulations from Dodd-Frank, and think the greatest threat to Wall Street’s continued looting is Elizabeth Warren. But we should remember the “get out of the way” mantra the next time Wall Street self immolates, tanks the economy and a former Goldman Sachs CEO become Treasury Secretary gets on his knees to beg Nancy Pelosi to bail out every major Western bank on the planet.

I’m sure I imagined all this. The country wouldn’t possibly be dumb enough to elect an unprincipled moral chameleon like Mitt Romney President. And we’d never put up with someone as defensive and unconvincing as Goolsbee was today, though we’d wonder how the voters got taken.

No, that couldn’t be real, so when I really wake up, I’ll let you know what the adviser for the actual Democratic President said today about the sagging economy and the undefensible unemployment numbers.

More: DeLong, citing Mark Thoma, asks, “where is Plan B?”

Catfood Delirium: US Pretends It’s Not Repeating Europe’s Mistakes

8:13 am in Economy, Politics by Scarecrow

My dead-tree New York Times aptly depicts the mass economic insanity now gripping the US and Europe. There are several related articles, none referring to the others, but they’re all part of the same story: Governments are on their knees from bailing out insolvent banks and rescuing their economies after the financial collapse, but further crippling themselves by pretending that punishing citizens via austerity will keep their economies from tanking further.

On the Times front page, top-right, we read about America’s hysteria over federal deficits. The article frets over whether Obama’s failed Deficit (aka “let them eat Catfood”) Commission can get even a majority, let alone the required 14 of 18 votes, to endorse measures already widely panned, partly because Simpson-Bowles merely wave their hands on health care costs that are the principal driver of structural deficit. Even worse, in the aggregate their proposals shift more wealth from the middle class and elderly to the richest 10 percent of Americans, while restricting the government’s ability to right the inequality. It doesn’t occur to the Times to hope enough members will have the courage and wisdom to just say NO!

The same article goes on to describe President Obama’s efforts to negotiate with Republicans about how large the tax gift should be to the richest Americans. If you’ve been following this “debate” and the White House negotiate-with-yourself tactics, you know the argument is over whether we should give the wealthiest 2 percent a $700 billion gift for ten years or only a $400 billion gift over ten years. You’re supposed to cheer for the “only $400 billion.” Or if they’re clever, the negotiators might decide now to give the same groups about $40 billion per year in gifts for a year or two and give the rest of the $400 bn to $700 bn to them later, which they undoubtedly will. These are what now pass for Serious people.

The only rational, moral response the public could make to the continuing massive wealth transfer to the rich would be to show up at the capital with pitchforks and run all of these rascals out of town. But you won’t find that in paper of record.

On the opposite side of the Times front page we read the first of several recent Times articles on the deepening crisis in Europe. It seems the Euro countries have been following advice similar to that urged by the Catfood folks and deficit hawks and it’s landed half of Europe in a mess.

Like the US, they’ve bailed out European banks without cleaning out the banksters or making the creditors pay for their reckless investments during the European credit/housing bubbles. So countries like Ireland or Portugal that bailed out their banks are now facing their own default risks, made worse by the fact there is no central fiscal authority to protect the larger economy, while a common Euro prevents individual countries from devaluing.

Meanwhile Europe’s own deficit hysterics — led by the central bankers — demanded each country impose severe fiscal austerity — you know, like the massive government spending cuts the Republicans and deficit hysterics are proposing for the US — and what has it gotten them? As Krugman et al predicted, it’s bought them declining growth heading for another recession, rising unemployment even before the worst austerity measures take hold, declining tax revenues, higher safety-net costs, which leads to failed efforts to achieve deficit reduction targets, which then require even harsher austerity measures, etc, with no end in sight. [And see DeLong on Eichengreen on Ireland] Predictable and predicted.

In between these two front page stories is a picture of protesters battling police in Italy over proposed austerity measures — similar pictures could have been used from Ireland, or Portugal, or France — in this case, education cutbacks that make it harder and more expensive to get an education to make you and your country competitive. If that seems stupid, just remember Americans are already seeing similar drastic budget cuts in their home states.

What’s astonishing about these stories is how disconnected they are, as though what’s happening there has no relevance to what could happen here. But the stories from Europe about failing governments, declining economies, growing unemployment and enraged citizens are teaching moments for America. This is where we’re headed, unless we reject the “reign of error” that Republicans pass off as “grownup conversation” in our nation’s capital. And there’s no excuse for it.

We’ve watched our own states slash budgets and lay off teachers, firemen, police. So we know that if US states — which are not sovereign with their own currencies — have to slash their budgets and/or raise fees and taxes and lay off hundred of thousands, that it will depress their economies and cause higher unemployment unless the federal government steps up to offset the economic contraction such actions create.

The Euro group has almost no ability for a centralized authority to offset the fiscal contraction in its Euro member states. But the US does have this authority, so it is not required to sit by helplessly and follow Europe’s fate. To borrow Krugman’s phrase, not using the tools we have to avoid the predictable catastrophe is not merely criminal, it’s a mistake.

John Chandley

Obama Flunks Economics with Pointless Federal Wage Freeze

8:35 am in Economy, Executive Branch, Uncategorized by Scarecrow

The Obama White House just announced details of a two-year federal wage freeze as a means to reduce federal spending and deficits. [David Dayen has more.] The move is obviously political and only symbolic, because the dollars involved are trivial in relation to the total deficit. But more important, the White House rationale confirms for the umpteenth time that the Obama White House’s economic thinking and priorities are deeply flawed.

From today’s White House Fact Sheet: [my bold]

Because of the irresponsibility of the past decade, the President inherited a $1.3 trillion projected deficit upon taking office and an economic crisis that threatened to put the nation into a second Great Depression. He moved quickly to get the economy moving again. Now, the economy is growing, and we have gained private sector jobs for the past 10 months. But families and businesses are still hurting, and our top priority is making sure that we are doing everything we can to help boost economic growth and spur job creation.

Now, we need to turn our attention to addressing the massive deficits we inherited and the unsustainable fiscal course that we are on. Doing so will take some very tough choices. Just as families and businesses around the nation have tightened their belts so must their government. That must be done in a targeted way that focuses our investments in what works and in what will lay the foundation for job creation and economic growth for years to come while cutting back elsewhere in our budget.

For the umpteenth time, the Obama White House has made the foolish mistake of confusing efforts to “boost economic growth and spur job creation” with the need for near-term deficit reduction. Even his economic team tried to keep the two different time frames — short run vs long-run — separate. And for the umpteenth time, this President has repeated discredited Republican gibberish that when households are having to cut back spending during a recession, government should do the same thing.

That’s just wrong. Foolishly wrong. Depressingly (literally), tragically wrong.

The economy is suffering from, among other things, the collapse of the housing market and it’s relationship to a massively fraudulent, rapacious financial system. When housing prices collapsed — and they’re not done yet — households lost over $6 trillion in wealth and families lost trillions in retirement savings. With 15 million unemployed and millions more living in job and health insecurity, typical non-wealthy households have no choice but to cut back. So private spending cannot pull the economy out of the ditch as it has in the past. But that is not true of the federal government.

Government spending can pull the economy up from the bottom. And only government has the resources and the power to fill in the gap in aggregate demand to bring the economy and jobs back.

A government with its own currency is not a household. It has different abilities, different ways of affecting the economy and paying for things. It controls the money supply. And it has different responsibilities, including the obligation to pull the economy out of a deep recession, to help create jobs and foster job creation in the private sector. To do this under today’s conditions requires enhanced spending/investments by government, not less. And there has never been a better time for government to act, nor has the cost of acting ever been lower.

It’s counterproductive and stupid for the President of the United States to keep telling Americans the false argument that government needs to tighten its belt when households are tightening theirs. And it’s even worse to falsely claim that by focusing on deficit reduction, the government is “doing everything we can to help boost economic growth and spur job creation.”

It’s clear from watching Ireland, Portugal and Spain that government-imposed austerity does not solve the problem of depressed demand. It makes it worse, deepening the recession, worsening unemployment and imposing pain on the populace while crippling government’s ability to act. We’re watching these countries test all of the Republican and neo-liberal doctrines, and they’re all failing, yet we pretend not to notice and follow the same path. Republicans would even force the US to act as though it’s Spain, even though Spain is trapped into austerity by the Euro. That’s mindless.

As DeLong often explains, those who have the ability to borrow (or create money) — e.g., the federal government — must do so when the private sector can’t or won’t. As Krugman recently wrote in discussing austerity in Ireland, “punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.”

This is not the first time this President has issued such, uh, unhelpful statements on the economy and deficit. Maybe he’s just badly served by economic or political advisers, or just doesn’t know any better. Either way, get some decent help, Mr. President, including someone who can tell you “NO!” the next time your instincts or advisers tell you to keep making the same mistakes, over and over.

John Chandley

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?

More:
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

Rand Paul: I Can Be A Spoiled Child, Because Adults Will Stop Me

12:50 pm in Economy, Legislature by Scarecrow

Apparently, Rand Paul thinks being a U.S. Senator means he gets to stomp his feet and throw a temper tantrum whenever he wants to “send a message.” And the reason it’s okay is because he’s assuming enough adults in Congress will be responsible enough not to give him what he wants.

Let’s be clear, we know why he’s throwing his mock temper tantrum. Congress periodically sets — and raises — the cumulative limit on how much debt the U.S. can hold. But since we’re in a period of unavoidable budget deficits — the near depression helped push it to $1.3 trillion this fiscal year and almost that much in President Bush’s last budget — and will be for many years to come, the cumulative debt is steadily increasing, even though the annual deficits will be declining. That’s not necessarily a problem in itself, but Very Serious Persons think it should be brought down over time.

If Congress doesn’t raise the cumulative debt ceiling, the U.S. cannot fund its budget beyond the still depressed levels of incoming revenues without shutting down and/or defaulting on its debt payments. A government shutdown or debt default would be catastrophic for government financing and public services.

Since there’s no plausible scenario in which a “balanced budget” can be accomplished in the foreseeable future — and no coherent economic theory that justifies doing so — the newly elected senator from the State of Kentucky is saying he’s willing to vote for a governmental collapse and destruction of its credit.

But it’s okay, the child-senator explains, because there aren’t enough other senators as idiotic as he is. So the country is safe and it’s okay for him to behave irresponsibly. Good luck, America: Rand Paul is coming to take back your government.