The public debate on Economic Policy is becoming more important because the US Economy is stalling out with very poor job creation and GDP growth despite nearly 4 years of unrelenting and ridiculously low interest rates plus initial huge bailouts made to the car and financial industries. Trickle Down and”Let No Big Bank Fail” does not appear to be working; Here are two comments on what is going wrong.
Paul Krugman at the NYTimes argues that there is a Pain Caucus recommending Deficit Cutting that will only make matters worse.
Nor is the Federal Reserve riding to the rescue. On Tuesday, Ben Bernanke, the Fed chairman, acknowledged the grimness of the economic picture but indicated that he will do nothing about it.
And debt relief for homeowners — which could have done a lot to promote overall economic recovery — has simply dropped off the agenda. The existing program for mortgage relief has been a bust, spending only a tiny fraction of the funds allocated, but there seems to be no interest in revamping and restarting the effort.
The situation is similar in Europe, but arguably even worse. In particular, the European Central Bank’s hard-money, anti-debt-relief rhetoric makes Mr. Bernanke sound like William Jennings Bryan.
What lies behind this trans-Atlantic policy paralysis? I’m increasingly convinced that it’s a response to interest-group pressure. Consciously or not, policy makers are catering almost exclusively to the interests of rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense.
Of course, that’s not the way what I call the Pain Caucus makes its case. Instead, the argument against helping the unemployed is framed in terms of economic risks: Do anything to create jobs and interest rates will soar, runaway inflation will break out, and so on. But these risks keep not materializing. Interest rates remain near historic lows, while inflation outside the price of oil — which is determined by world markets and events, not U.S. policy — remains low.
And against these hypothetical risks one must set the reality of an economy that remains deeply depressed, at great cost both to today’s workers and to our nation’s future. After all, how can we expect to prosper two decades from now when millions of young graduates are, in effect, being denied the chance to get started on their careers?
Ask for a coherent theory behind the abandonment of the unemployed and you won’t get an answer. Instead, members of the Pain Caucus seem to be making it up as they go along, inventing ever-changing rationales for their never-changing policy prescriptions.
While the ostensible reasons for inflicting pain keep changing, however, the policy prescriptions of the Pain Caucus all have one thing in common: They protect the interests of creditors, no matter the cost. Deficit spending could put the unemployed to work — but it might hurt the interests of existing bondholders. More aggressive action by the Fed could help boost us out of this slump — in fact, even Republican economists have argued that a bit of inflation might be exactly what the doctor ordered — but deflation, not inflation, serves the interests of creditors. And, of course, there’s fierce opposition to anything smacking of debt relief.
What is missing from Krugman’s analysis is the fact that the public is in favor of budget balancing that is “fair” and includes some tax increases. Also, there are a few ideas but not comprehensive analysis about job creation alternatives.
Jamie Dimon, CEO of JPMorgan Chase , recipients of $25B in bailout cash, succinctly questions the whether the failed recovery is due to increased banking and financial regulation:
Here’s what Dimon said to Bernanke in Atlanta during an international banking conference:“Do you have a fear, like I do, that when we look back and look at them all [financial rules], that they will be a reason it took so long that our banks, our credit, our businesses and most importantly job creation started going again?” Dimon asked Bernanke. “Is this holding us back at this point?”
What Dimon fails to mention is that this is the Republican Party line on why the recovery is failing despite the bailout and the fact the banking industry has had access to Federal Reserve Funds at historically low rates for 4 years. Dimon also fails to explain why the banking industry in general and JPMorgan Chase specifically a)has lowered its loans to small and medium size businesses and b) has not helped in ameliorating the foreclosure terms still crippling the housing markets all while earning record profits and return on investments.