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Traditionally, when the economy isn't where it needs to be, policymakers have pushed for various forms of stimulus -- the right has preferred monetary stimulus from the Fed, while the left has preferred fiscal stimulus from Congress. When the economy is in especially dire straits, ideally we'd see both efforts simultaneously.
In 2012, that's a problem. As the Republican Party has moved sharply to the right, it now opposes monetary and fiscal stimulus, abandoning what was conventional thought among conservatives for decades. But as Matthew O'Brien explains, Federal Reserve Chairman Ben Bernanke, himself a Republican, still wishes GOP policymakers would wake up and smell the need for fiscal intervention.
It might not look like it, but forecasting sub-2 percent inflation nowadays is the Fed's way of begging Congress to borrow more. That's the big implication of the Fed's big policy moves the past few months. The Fed is already buying $85 billion of bonds a month on an open-ended basis and has promised not to raise rates before unemployment falls below 6.5 percent or inflation rises above 2.5 percent. But it still thinks inflation will remain subdued, despite its bond-buying.
In other words, the Fed is telling us it will tolerate a bit more inflation, but it won't create it. That's as good an invitation as Congress is going to get to cut taxes or increase spending, at least until inflation is around 2.5 percent.
O'Brien didn't mention it, but it's worth noting that Bernanke, over the last couple of years, has occasionally abandoned subtly and explicitly pleaded with Congress to consider fiscal stimulus, but Republicans have always refused. Indeed, GOP lawmakers haven't just been content to ignore the need for fiscal remedies, they've also demanded that Bernanke stop trying to improve the economy through monetary measures.
For much of the last two years, it seemed at least possible that Republicans hoped for a weaker economy in the hopes that it would undermine President Obama's chances for re-election. But since GOP policymakers continue to oppose efforts to improve economic growth, it's also worth considering the notion that Republicans simply haven't the foggiest idea what they're talking about.
A fragile recovery is underway, and it is within Washington's power to make it a robust one. The federal government can borrow money for free, invest in job creation, and inject capital into the economy to strengthen demand, all while enjoying the benefits of quantitative easing, low inflation, and zero percent interest rates.
This is a textbook case for expansive public investment. So what is Washington doing? It's debating austerity measures.
Bernanke wants Congress to act as a partner, working with him to strengthen the economy. Instead, it's acting as a rival, pushing in the wrong direction.
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it's also worth considering the notion that Republicans simply haven't the foggiest idea what they're talking about.
It's hard to know what you're talking about when you're a drooling moron. Republicans haven't known what they were talking about (other than "What's mine is mine, and what's yours is mine if I want it") since 1868.
I wish I had said "drooling moron" to describe Republicans. In fact, I will say that on some forum later today.
Well, right now there's no need to raise taxes on you, or anybody else. In our current liquidity trap, Congress can print money and spend it, with zero risk of inflation. (Not that a little wage inflation would be bad.) Such extra spending would put America back to work, build our infrastructure, and boost the economy.
Later, however, YES: capital gains will eventually need to be taxed more.
By the way, HOORAY for Mr. Benen and his clear and forceful writing. Anybody calling him a "drooling moron" is, well, a moron who's drooling.
Anyone who can recall their first interactions with unstable watercraft like canoes, sailboards or kayaks is familiar with the problem of misapplied instincts.
When a rogue wave suddenly appears, the instinct is to turn the kayak away from the wave born from the experience that head on collisions are worse than oblique collisions. This is totally the wrong reflex because offering the wave the side of your boat is exactly what you do if you want to capsize. Instead the correct move defies "common sense": you must turn into the wave and cut through it.
What is baffling to me is the impotence of republican economists who have the knowledge and credibility to explain to the landlubber GOP electorate why their instincts for the correct move are the surest path to capsizing the national economy.
The great Republican Recession of 2013. It's like the great Republican Recession of 2008, only more conservativy.
And in debating austerity, they're trying to avoid Greece by being exactly like Greece.
We aren't like Greece, we're like Japan. they borrow huge amounts of money with no intention of paying it back, and have just announced plans to print all the money it wants.
We're already printing a trillion this year, why not print up another trillion and give each household $10,000?
Oh here shooter goes again whine whine whine without saying a thing. Not paying off their debts has been the GOP plan since Ronnie the ass clown Reagan left office owing 1 trillion dollar deficit, not to be out done by Reagan Bush 41 left a 3 trillion dollar deficit, but GWB just can't be left without a legacy so he doubles his dads deficit, we know shooter why ruin a good whine with reality.
And Bull calls our attention to the Japanese hyperinflation.
It isn't so much that the Republicans don't know what they're talking about, it's that in recent years, a stance they take for reasons of temporary convenience quickly solidifies into holy writ.
During Obama's first term, they may have initially been against fiscal or monetary stimulus because they wanted to bring Obama down. But now they're against both means of stimulus, period, so much so that even if a Republican gets elected President in 2016, I suspect they'd have a hard time getting the base to change its tune.
That's the problem with acting the fool.
Before you know it, it becomes policy.
I would agree that this is not a case of Republicans not knowing what they are talking about, but a matter of policy that they have adopted since Obama was elected. This is merely a progression of Republican mentality that they are the rightful owners of Congress and the White House while Dems are the usurpers. We can see the evolution of the Republican mentality since Reagan was elected. When Bill Clinton was elected, the Republicans and Fox started a nonstop war against him and Hillary. What is happening to Obama is merely a continuation of that war. It makes no difference whether that a policy is good, but the fact that a Dem has proposed it makes it a Republican target. We can thank Newt Gingrich and Fox for most of the divisive politics we have today. The nonstop war keeps going at full speed regardless of whether Dems control the White House, Senate or House. I don't think we have reached critical mass where voters say enough and put an end to this. The recent elections indicate that there are more than enough voters who favor this ongoing strife and gridlock.
This is a textbook case for expansive public investment. So what is Washington doing? It's debating austerity measures.
The scary part is that neither party is making the case for expansive public investment. A political debate where the Dems were for it but the GOP was dead set against it would represent major progress, unfortunately.
Obama was -- and was shot down.
Public investment has been part of Obama's position in the "fiscal cliff" talks. It's part of why Boehner and McConnell were "flabbergasted" at the offer -- how dare he call for additional spending when what they were demanding was spending cuts! And the American Jobs Act is still on the table. I happened to be listening to C-SPAN yesterday, and Hoyer talked about it in his "why are you idiots not here working" speech on the House floor.
It's not just the DEM party, it's the White House. For example, Romer advocated a much bigger stimulus when Obama was at the height of his power- citing Laura Tyson, Stiglitz, Rogoff, and Krugman. The outcome? Obama didn't believe it could pass the House, and it appears from Suskind's book that Obama's angry rebuke of Romer's repeated urging of further stimulus was due to his confidence in Emmanuel's advice rather than an assessment of someone closer to the orbit of Pelosi's staff.
In the end Romer was ejected from the White House. Romer told the President that the plans for modest stimulus were "Oh so wrong". Obama responded with the mock, "“It’s not just wrong, it’s oh so wrong?”, then uncharacteristically raising his voice to leave no doubts that Romer's arguments were to be dismissed.
The president has the benefit of his own experience to show which of his advisers were right, and which were wrong.
It is time to reject Wall Street and bring Romer back as Treasury Secretary.
It is time to reject Big Oil and persuade Lisa Jackson to stay and lead a forceful charge against the XL pipeline and climate change.
Oh brother. So let's see, we should print more money, kill off business that makes actual profit, and invest in unspecified public works that take 5-10 years to get through the permit process?
And you people wonder why business goes outside the US?
You have very European ideas, Shooter. Perhaps you should move there, because they are strongly pursuing austerity measures. You might not be too happy their economies are contracting, while ours is expanding.
Things to think about- that is in case you are interested in facts rather than knee jerk "intuitive" ideas about how real economies work.
He isn't he is just afraid that the gobernment might cut back on his handout so he must act now to prevent it even if it means no one gets a handout, its the republican spite thing in action.
John, I wouldn't assume austerity is actually occurring.
http://www.nationalreview.com/corner/299233/show-me-savage-spending-cuts-europe-please-veronique-de-rugy#
An analogy, if I may:
On Monday morning the websites of each NFL team allows "fans" to comment- (much as Steve does here.)
And the comments always involve replacing the quarterback/coach/owner. And calling more/less running/passing plays. Etcetera.
And, -like congressmen & economics-, NONE of the "fans" actually ever played the game.
The bankers and traders take that free money and use it to bet against the economy under the pretense of providing liquidity and supporting innovation.
I saw a news clip about a 120 mile cross country race using Unmanned vehicles. In the all but immediate future we could have unmanned trucks on our highways. No more 8 hour driving shifts, union or union benefits, cleaner air (not leaving truck engines on while drivers sleep), etc. How many jobs will that innovation create? Negative 2 million?
What is a positive solution to having 5 billions of people on this planet? I would suggest a very cheap idea to encourage small farming/environment rehab (especially in China, India,,,).
It's like Mike McKinnon suggested the other day; at this point the Republicans are just standing on principle in order to look taller. In fact, both their ability and their desire to govern are actually shrinking before our eyes.
Doubtless the Republicans are much weaker since the Tea Party has swung them far right from mainstream politics, but still very dangerous in that if they can't control everything, they will take the rest of us down with them. Like spoiled little kids, if they can't have their way they will send us all into a tailspin.
The cadre of Tea Partiers is simply composed of those with a Confederate mentality: they hate us and every single thing we stand for. They are the real terrorists. And we should root them out of Congress and keep them at a safe distance from OUR country.
It would be real nice Steve woud spend some time telling us exactly what conservatives are thinking when the oppose any kind of stimulus. I would like to know exactly what conservatives are thinking. The media doesn't know how to present two sides of any issue. Rachel does the best job on cable, but even she puts her thumb on the scale occasionally. There don't seem to be any serious journals where public policy is debated without resort to name calling. It is really hard to be an informed citizen. Seriously I really want to know what conservatives are thinking on this issue. I remember that just 5-6 years ago, deficits didn't matter to those highest in the conservative movement.
5-6 years ago an out of control deficit was 300 billion. Today it's 1300 billion.
As for what conservatives are thinking, stimulus doesn't work. All it does is make somebody feel good for a bit and leave a pile of debt nobody plans to pay back. The paradox in all this is that "stimulus" is to get business going, while Democrats continue to foster an anti-business environment.
Meanwhile, consider Shooter's law... a little money from a lot of people makes a lot of money. And a lot of money to a lot of people makes for very little. The payroll taxcut for instance netted every household about $10/wk. Big whoop. But it cost hundreds of billions. That's a huge amount of debt for no real stimulus.
OTOH since we're currently printing a trillion dollars, why not print one trillion more and send every household a check for $10,000? I guarantee that would be a game changer.
Shooter,
Compared to our last major financial crisis, that of 1929, I would say stimulus has proven itself to work.
By this time following the 1929 crash (1932-ish): National unemployment was over 20%, municipalities and states were bankrupt (e.g. Alabama closed over 80% of its public schools for more than a year), and there were very real fears of violent revolution.
Oh, and the real comparison is with 12 years ago, when we had a $300+ billion surplus. Remember, before the ineffective Bush Tax Cuts and fighting two wars without paying for them with either a war tax or a draft?
It took WW2 to end the Depression, and a stock market bubble to produce any surplus. Got a plan "B"?
Shooter, WWII was a stimulus program. The US government paid out a lot of money to create military equipment and other war preparations and it led to almost full employment, thus priming the economic pump and lifting us out of the depression. There were also other programs like TVA to get people working building dams, roads, bridges, railroads and other infrastructure. The effect on lifting the economy is the same whether its war or building infrastructure, but war just creates death and debt whereas building infrastructure creates a better, safer place for business to operate.Its Keynsian economics and it has been proven to work. Austerity plans just lead to a deeper hole and more unemployment.
I feel the need to shout a cautionary note about the press' use of the word "inflation".
For instance, back in the Clinton years when unemployment numbers were low, the stock market would fall because of "fears of inflation."
Joe Sixpack hears "inflation" and thinks it means "prices going up." But for the true audience of Greasepan's pronouncements, "inflation" means "wages going up," and Wall Street tycoons make less money.
For most of us, higher wages would be a Good Thing, but the financial press uses "inflation" as a code word for "higher wages," knowing that most of us hear the word and think "higher prices" and think of inflation as a Bad Thing.
So don't be manipulated: when you hear the word "inflation" in a financial news story, they are NOT talking about prices going up (bad), but WAGES going up (good). So their wish to "control inflation" is code for "keeping wages down."
I would think big oil would be for infrastructure improvements, better highways, more comfortable travel, major work sites equal lots of fuel and asphalt use, and busy factories use lots of lubricants and plastics. Add all the employees driving to work every day and the payoff becomes enormous. If they spoke, some would listen.
Bernanke deserves about 90% of the credit for our economy improving after the financial collapse. Congress has been next to useless on this issue.
As you say, Congress has been next to useless, so why is it the President wants to give them all pay raises???!!