In recent congressional testimony, Federal Reserve Chairman Ben Bernanke clearly explained what’s still wrong with the economy, outlined the Fed’s thinking on monetary policy and strongly implied that fiscal policy is still off base. His account and policy recommendations reflect mainstream economic thinking – and, thus, run counter to much of the economic doctrine that’s driving Republican budget policies.
Here’s how Bernanke sees the economy: though payroll employment has expanded by about 6 million jobs since its low point and unemployment has dropped by about 2.5 percentage points from its peak, the job market remains weak overall. I couldn’t agree more.
Bernanke points to the same indicators I would. The unemployment rate is still too high, too many of the unemployed have been looking for work for more than six months, too many people have stopped looking at all while job prospects remain dim, and nearly 8 million people are working part time even though they’d prefer full-time work. I’m glad to see him emphasize how “extraordinarily costly” this situation is:
Not only do [high levels of unemployment and underemployment] impose hardships on the affected individuals and their families, they also damage the productive potential of the economy as a whole by eroding workers’ skills and – particularly relevant during this commencement season – by preventing many young people from gaining workplace skills and experience in the first place. The loss of output and earnings associated with high unemployment also reduces government revenues and increases spending on income-support programs, thereby leading to larger budget deficits and higher levels of public debt than would otherwise occur.
While unemployment is still a major concern, inflation isn’t. Therefore, the Fed is appropriately interpreting its “dual mandate” to foster both “maximum employment” and “price stability” as requiring “a highly accommodative monetary policy.” That means keeping its short-term interest rate target as low as possible until unemployment falls closer to normal long-term levels and monitoring its program of purchasing longer-term assets – as long as inflationary expectations remain low. As the Fed notes, this policy carries some risks, but the risks and costs of continuing high unemployment are far greater.
Republicans, in contrast, want to remove “maximum employment” from the Fed’s policy concerns. They seem to see our most pressing problem as the possibility of future inflation, not the reality of current high unemployment. The Republican chairman of the Joint Economic Committee, where Bernanke testified, wants to replace the dual mandate with a single mandate for long-term price stability. Even some conservatives recognize that, during major recessions, that’s a recipe for disaster. An even more extreme policy – a return to a gold standard – made it into the 2012 Republican platform.
On fiscal policy, Bernanke recognizes that recent policy decisions have tilted too far toward short-term budget austerity, while largely ignoring longer-term budget challenges. He neither shared Republicans’ disdain for stimulus policies nor endorsed their flirtation with “expansionary austerity” arguments.
Federal fiscal policy, taking into account both discretionary actions and so-called automatic stabilizers, was, on net, quite expansionary [emphasis added] during the recession and early in the recovery. However, a substantial part of this impetus was offset by spending cuts and tax increases by state and local governments, most of which are subject to balanced-budget requirements, and by subsequent fiscal tightening at the federal level.
While too much fiscal restraint has hampered the economic recovery, policymakers have done little to address longer run fiscal challenges that will begin to reappear later in the decade. Bernanke’s counsel:
Importantly, the objectives of effectively addressing longer-term fiscal imbalances and of minimizing the near-term fiscal headwinds facing the economic recovery are not incompatible. To achieve both goals simultaneously, the Congress and the Administration could consider replacing some of the near-term fiscal restraint now in law with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run.
By contrast, the House Republican budget goes full bore on deficit reduction, starting immediately – jobs be damned.
By: Chad Stone, U. S. News and World Report, May 24, 2013
“Republican Rebranding”: Recent History Tells Us That Victory Isn’t Born Of Subtle Ideological Repositioning
The Republican “rebranding” effort may be on temporary hiatus as all the party’s factions come together in the vain hope that they may finally have something to impeach Barack Obama over, but as soon as these various non-scandals, faux-scandals, and mini-scandals fade, the GOP will surely get back to bickering over how it can pull itself out of its electoral doldrums. In wondering where they might go, The Atlantic‘s Molly Ball does the logical thing and seeks out some veterans of a prior party rebranding, the Democratic effort of the late 1980s and early 1990s, centered around the Democratic Leadership Council. Their take isn’t too surprising—they think what the GOP needs now is to do what they did then. But I think there’s an important point missing from this discussion and the way we talk about this history. The story everyone tells is that there are two paths to take, one of which leads to failure and one to success, and the argument is over which is which. Should the party be more true to its philosophy and sell that philosophy better, or should it reorient itself to respond to changing times? Here’s how Ball’s article closes:
Watching the GOP’s struggles, former DLCers say they recognize all the old symptoms—the alibis, the search for a procedural panacea, the party committee dominated by diehards. But on the question of whether the Republican Party has just been through its version of 1988, they’re not so sure. As Will Marshall put it: “They know they have a political problem—that’s obvious. But I don’t think they’ve come to grips with the fundamental issue, which is their governing philosophy. I think they’re going to have to lose one more.”
Sounds reasonable enough. But I think the degree to which political success comes from the public agreeing with you on issues is being dramatically overstated. If you look at the ups and downs of the parties over the last 20 years, a couple of other factors—timing, and what your opponents do—matter a whole lot more.
Let’s quickly run over this history, starting with the Democrats’ first revival, with the election of Bill Clinton in 1992. Was it important that Clinton was a centrist Democrat who sought to neutralize the party’s electoral problems on being seen by white voters as too solicitous of black people and too soft on crime?1 Sure. But had the country not been in a recession in 1992, that wouldn’t have been enough. And if that was a Democratic revival that went beyond one guy getting elected, it didn’t last very long; two years later, Republicans took over both houses of Congress.
That brings us to the opposition factor. After the Gingrich Revolution, voters got to see the new version of the Republican party, and they were completely turned off. In 1996, Clinton ran one ad after another featuring pictures of Bob Dole and Newt Gingrich together to taint Dole with the stain of the unpopular House Speaker. But what got him re-elected, more than anything else, was the humming economy. We could argue about how much credit he deserved for it, but the importance it had was undeniable, and it wasn’t a judgment voters were making about his New Democrat philosophy that got him a second term.
Then four years later, despite all that New Democrat repositioning, George W. Bush gets elected and the Democratic Party is back in the toilet. And what brought them back? Was it yet another repositioning? Nope. It was George W. Bush. The abysmal failure of his presidency was what allowed Democrats to win back both houses of Congress in 2006. Then in 2008, Barack Obama got elected because of both a continued rejection of Bush and the economic meltdown.
My point is, all of this back-and-forth happened despite any ideological movement that was going on within each party. Right now the Republicans are indeed grossly out of step with the public on issues. But they were just as out of step in 2010, when they won a huge victory in the midterm elections. It isn’t that issues don’t matter, but a lot of the ideological judgments voters make are relative. The Democratic party is benefiting from the fact that Republicans look like (and are!) a bunch of reckless, irresponsible extremists. Could they benefit from becoming more sane? Sure. But given the right circumstances, they can win even if they get no less crazy than they are right now. If you’re in the opposition and the president’s policies fail, you’ll be rewarded; if they succeed, you’ll be in trouble (which, of course, is why Republicans have worked so hard to make sure Obama’s policies fail). Nobody is going to be hailed as a brilliant party strategist for saying, “We just need to wait for things to turn in our favor, and everything will be OK.” But that’s probably the truth.
1If you’re too young to remember the 1992 campaign, Google “Ricky Ray Rector” and “Sister Souljah” to see what I’m talking about.
By: Paul Waldman, Contributing Editor, The American Prospect, May 24, 2013
Since it’s Furlough Friday, a day when by recent tradition conservatives get together to festively celebrate how little across-the-board budget cuts actually affect anyone who matters, some findings from last week’s WaPo/ABC poll, as explained by ABC’s Gary Langer, are perhaps in order:
The federal budget sequester may be dampening a rise in economic optimism: Nearly four in 10 Americans now say sequestration has hurt them personally, up substantially since it began in March – and they’re far less sanguine than others about the economy’s prospects overall.
Thirty-seven percent in the latest ABC News/Washington Post poll say they’ve been negatively impacted by the budget cuts, up from 25 percent in March. As previously, about half of those affected say the harm has been “major.”
And as the effects of the sequester spread, the trend lines are unmistakable and cut across partisan and ideological lines:
More Americans continue to disapprove than approve of sequestration, now by 56-35 percent – again, a view influenced by experience of the cuts. Eight in 10 of those who report serious harm oppose the cuts, as do about two-thirds of those slightly harmed. But the majority, which has felt no impacts, divides exactly evenly – 46 percent favor the cuts, vs. 46 percent opposed.
Further, this poll, produced for ABC by Langer Research Associates, finds that 39 percent overall “strongly” disapprove of the cuts – but that soars to 66 percent of those who say they’ve been harmed in a major way. (Just 16 percent overall strongly approve.) Experience of the cuts even trumps partisanship and ideology: Among Republicans, conservatives and Tea Party supporters who’ve been harmed by the cuts, most oppose them. Support is far higher among those in these groups who haven’t felt an impact of sequestration….
Ideology has an effect: Forty-seven percent of “very” conservative Americans approve of the cuts, as do 42 percent of those who call themselves “somewhat” conservative. It’s 36 percent among moderates and 24 percent among liberals. But again, impacts of the cuts are a bigger factor in views on the issue. Among conservatives hurt by the cuts, 65 percent disapprove of them; among those unhurt, just 34 percent disapprove.
This means, of course, that the strongest constituency for the sequester is “very conservative” voters who have not been personally affected by the cuts. If that sounds like the “conservative base” that exerts a particularly strong influence on Republican lawmakers, maybe we have an explanation for why so many of said lawmakers incautiously chortled about the whole thing being a nothingburger that proved government had plenty of excess fat to shed.
They might want to rethink that position.
By: Ed Kilgore, Contributing Writer, Washington Monthly Political Animal, May 24, 2013
This morning, Eric Rosengren, chief executive of the Boston Federal Reserve, cautioned lawmakers against further fiscal retrenchment, lest they slow the recovery. As he said at the Global Interdependence Center’s Central Banking Conference in Italy: “Given the economic realities I would urge policymakers to consider scenarios where some elements of fiscal rebalancing take effect only after the economy has more fully improved.”
He’s right, in large part because Congress has already done a fair amount of deficit reduction. Beginning in 2011, with unemployment still high and the economy on a long, slow climb out of recession, Congress — led by a new Republican majority in the House of Representatives — moved to make big cuts in medium-term discretionary spending. It slashed $1 trillion with the Budget Control Act of 2011, and followed that with hundreds of billions more in spending cuts and tax increases with the fiscal cliff deal and sequester.
Now, as a result of this deficit reduction, the Congressional Budget Office projects a $642 billion budget deficit for fiscal year 2013, down $200 billion from its projection at the beginning of the year, and the lowest level of deficit spending since President Obama entered office. The near-term deficit projection also shows improvement; the CBO estimates a 2015 deficit of $378 billion. For Washington’s deficit hawks, this is cause for celebration. It’s a sign the federal government is on its way to a more sustainable debt load.
But this rapid deficit reduction is far less of a boon for most Americans, who have to live in an economy that’s been largely stalled by Congressional inaction. At 7.5 percent, unemployment is still too high, and there’s little sign of rapid improvement. According to most projections, joblessness won’t reach pre-recession levels for another three years.
Congress’ push for deficit reduction has a lot to do with this. As noted in the New York Times last week: “The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011.”
To put that in more concrete terms, 1.5 million more Americans would have jobs if not for Washington’s decision to pursue deficit reduction in the midst of a sluggish economy.
Unfortunately, news of successful deficit reduction is unlikely to result in any respite from new cuts or tax increases. The Obama administration still has its Social Security cuts on the table — as part of a potential “grand bargain” — and Congressional Republicans are gearing up to demand still more spending cuts in exchange for raising the debt ceiling.
Will Washington avoid endangering the still-fragile recovery with further deficit reduction? If the refusal to end or replace the sequester is any indication, I wouldn’t hold my breath.
By: Jamelle Bouie, The American Prospect, May 16, 2013
“Worsening Jobs Crisis”: America’s Middle Class Is Burning To The Ground, While Washington Fiddles With Scandal Nonsense
At last, some excellent economic news for folks long-mired in the stagnant labor market!
At least, those were the headlines recently trumpeted across the country. “Jobs Spring Back,” exclaimed a typical headline or report that companies added a better than expected 165,000 private-sector jobs in April. Wow — the thunderous, three-year boom of prosperity that has rained riches on Wall Street is finally beginning to shower on our streets, right?
Well, as dry-land farmers can tell you, thunder ain’t rain. Read beneath the joyful headlines hailing April’s uptick in job numbers, and you’ll see the parched truth.
For example, more than a third of working-age Americans are either out of work or have given up on finding a job. Also, last month’s hiring increase was almost entirely for receptionists, waiters, clerks, temp workers, car-rental agents and other low-wage positions with no benefits or upwardly mobile possibilities. On the other hand, manufacturing — generally the source of good, middle-class jobs — did not add workers in April and has cut some 10,000 jobs in the last year.
Especially problematic was the continued rise in underemployment — people wanting full-time work, but having to take part-time and temporary jobs. Underemployment is also pounding college graduates. While they’ve been more successful than non-grads at landing jobs, they’re not getting jobs that fit their career goals or even require the degrees they spent money and time to obtain. Indeed, many of those rental agents and restaurant employees you encounter hold four-year degrees, forcing everyone else to scramble for the few, even lower-paid jobs further down the skill ladder.
Meanwhile, the next graduating class is already beginning to flood into the labor market from colleges and high schools with nowhere to go.
In May, another headline shouted: “Stock Market Soars.” It expressed delight that the Dow Jones Average topped 15,000 for the first time in its history.
Yet this index of Wall Street wealth gives a totally false picture of our nation’s true economic health. Yes, the privileged few are doing extremely well. But the workaday many are struggling — and falling further and further behind as the jobs market sinks steadily from mere recession down into depression.
The monthly unemployment reports don’t tell the depths of misery that’s out here in the real world, beyond the view of Wall Street and Washington elites. For example, President Obama hailed the news that unemployment dipped to 7.5 percent in April. Unstated, though, was the stark reality that this good-news dip was not due to a jump in job offerings, but to a bad-news labor market so weak and discouraging that more and more Americans are dropping out of it or never entering it.
More than a third of our working-age population is no longer even in the job market, and only 58.6 percent of us are employed. Put the opposite way, 41 percent of the potential workforce is not working — about 102 million people. One more statistic, and it’s a chiller: More than one out of five American families report that, last year, not a single family member had a job.
Our people are trapped in a jobs crisis that is sucking the economic vitality out of our nation, but our leaders refuse even to acknowledge it, much less cope with it. In fact, corporate chieftains are deliberately exacerbating the crisis by hoarding trillions of dollars that ought to be rushed into job-creating expansions, and politicians keep adding to the casualties by gleefully eliminating the middle-class jobs of hundreds of thousands of teachers, firefighters, police and other valuable public employees.
America’s middle class is burning to the ground, while Washington fiddles with nonsense and Wall Street feathers its own nest. It’s disgraceful.
By: Jim Hightower, The National Memo, May 15, 2013