Daily Digest - September 19: All Eyes on Worker Centers

Sep 19, 2013Rachel Goldfarb

Click here to receive the Daily Digest via email.

Industry Groups Vow to Expose Union-Backed Worker Centers (The Hill)

Click here to receive the Daily Digest via email.

Industry Groups Vow to Expose Union-Backed Worker Centers (The Hill)

Kevin Bogardus spoke to Roosevelt Institute Fellow Dorian Warren, who says that newly tightened partnerships between unions and worker centers will result in heightened scrutiny. As nonprofits instead of unions, worker centers fall under different laws, and some industry groups don't like it.

Middle-Class Decline Mirrors The Fall Of Unions In One Chart (HuffPo)

Caroline Fairchild pulls a graph from a recent Center for American Progress report that shows the middle-class share of income decreasing right along with union membership. Correlation is not causation, but that doesn't make the image less striking.

Congress and the Budget: Holding Middle-Class America Hostage (The Guardian)

Jana Kasperkevic looks at a Congressional Budget Office report that proves that Congress's recent actions, like sequestration, have been hurting the economy. Their current inaction has the potential to be just as harmful as the economy continues to lose ground.

Two Charts That Show Why Another Debt Ceiling Fight Is A Very Bad Idea (Business Insider)

Josh Barro reminds us why Congress should just authorize raising the debt ceiling without a fight. Last time, American debt was downgraded, the stock market plunged, and consumer confidence fell, all things we really don't need again.

The Fed Decides the Economy Still Sucks (NY Mag)

Kevin Roose reports on the Federal Reserve announcement that there will be no tapering just yet. He says this shows how strongly doves like Janet Yellen are reorienting Fed priorities towards creating new jobs.

Fed Favorite Janet Yellen Is No Dove—and That's a Good Thing (The Atlantic)

Matthew O'Brien points out that while Yellen is called dovish today for her focus on unemployment over inflation, in the Clinton years she was a staunch hawk. Her willingness to shift strategies based on facts only confirms her strengths as a central banker.

New on Next New Deal

The Digital Divide is Holding Young New Yorkers Back

Nell Abernathy looks at a study commissioned by the Manhattan Borough President and the New York City Comptroller on Internet access in public schools. 75 percent of NYC public schools only have access at 10 mbps or less, and the slower access is concentrated in poorer neighborhoods.

Share This

Daily Digest - September 18: Five Years And More to Learn

Sep 18, 2013Rachel Goldfarb

Click here to receive the Daily Digest via email.

There is Still Much to Learn From Lehman (FT)

Click here to receive the Daily Digest via email.

There is Still Much to Learn From Lehman (FT)

Roosevelt Institute Chief Economist Joseph Stiglitz argues that the response to the financial crisis didn't do enough to change the system. The financial sector successfully fought off reforms, and the same ideologies that led to the crisis still hold economic and political power.

Summers' Failed Bid is a Win for the Country (AJAM)

Roosevelt Institute Fellow Mike Konczal thinks the U.S. is better off for Larry Summers's withdrawal from consideration for Fed Chair. The pressure against Summers from the left could be a sign of a new progressive agenda that challenges centrist Democrats and pushes for stronger regulation.

New FCC Head Must Reclaim Authority Over Telecom (Bloomberg)

Roosevelt Institute Fellow Susan Crawford wants to see Tom Wheeler reel in the big telecommunications companies, which have been hard at work convincing the government that there are no regulatory agencies with authority over them.

Why It Matters That Home Care Workers Just Got New Labor Rights (ThinkProgress)

Bryce Covert explains why it's so important that the Department of Labor has closed the "companionship exemption" in the Fair Labor Standards Act. It only took fifty years for this demand of the March on Washington to be fulfilled.

Homeowners vs. Big Bad Banks (TAP)

David Dayen reports that thanks to some recent rulings around class-action certification, homeowners who were deceptively pushed out of mortgage modifications into foreclosure will have to fight Bank of America alone, despite clear evidence of BoA's wrongdoing.

The Typical American Family Makes Less Than It Did In 1989 (WaPo)

Neil Irwin looks at real median household income over the past 25 years, and is horrified to find that it's dropped below 1989 levels. We've lost an entire generation of economic gains in this recession.

Doubling Down on Food Stamp Cuts (U.S. News & World Report)

Pat Garofalo reports on the GOPs newest plan for SNAP, which involves cuts twice as large as those they failed to pass in June. Republicans seem to see recent growth in food stamp enrollment as a flaw, instead of proof of a functioning social safety net.

New on Next New Deal

Why Workers Would Do Better with Janet Yellen as Fed Chair

Jeff Madrick, Roosevelt Institute Senior Fellow and Director of the Bernard L. Schwartz Rediscovering Government Initiative, argues that Yellen is the best candidate for Fed Chair because she believes that right now, the Fed should center its work on increasing employment.

Share This

Why Workers Would Do Better with Janet Yellen as Fed Chair

Sep 17, 2013Jeff Madrick

Wall Street has responded well to Summers's withdrawal, but Main Street would also be better off without an inflation hawk leading the Federal Reserve.

Wall Street has responded well to Summers's withdrawal, but Main Street would also be better off without an inflation hawk leading the Federal Reserve.

The stock and bond markets should not be the only ones rejoicing at Larry Summers’s withdrawal from consideration to run the Federal Reserve. The nation’s workers should, too. Janet Yellen, the remaining frontrunner for the position, is no wimp on inflation. But she is the kind of economist America badly needs, one who cares about wages and employment at least as much as about appeasing bond traders. She also doesn’t think higher wages or a bit higher inflation will undo America. She is old enough to remember a pre-Clinton and pre-Reagan world. 

Right now, that means she would leave monetary policy loose far longer than Summers would have. The job market is much too weak; many people are unemployed or have left the work force, and wages are not growing. Without fiscal help from Congress, the Fed is the only protector of growth and employment around.

The Clinton boom covered up Summers’s true conservative ideological bent. He’s a tough inflation fighter underneath it all. The main policy objective of the Clinton Treasury was to focus on the budget deficit. They successfully got a tax increase passed, for which they deserve kudos. But then they restrained social spending. They did at least expand the Earned Income Tax Credit, but they neglected public investment badly, and the flaws of welfare reform are now showing. They assiduously paid down debt instead of investing, even as tax revenues poured in.

It seemed to work. Inequality stabilized, wages rose, GDP soared. But a lot of the boom depended on the high-tech stock bubble—the famed wealth effect, inducing consumers to buy because they thought they were wealthy. The increase in tax revenues was temporarily stoked by capital gains taxes on stocks. Stocks were stoked by malfeasance amid deceptive sales practices.

Would wages have continued to rise rapidly under Clintonomics? Not likely. The stock market collapse, let’s remember, occurred under Clinton. The recession George W. Bush had to cope with in his first term was a Clinton recession.

At bottom, Summers is basically an inflation targeter, converted by the double-digit inflation and higher federal deficits of the 1970s like so many of his Democratic colleagues. This defined Clintonomics. He’d rather have more unemployment than a little more inflation, which of course could spook the markets.

And frankly, Obama is a Clintonite on the deficit and inflation as well. More than anything else, this is why he wanted Summers. He wanted a Clintonite to run the Fed and sit astride inflation. With Summers by his side, he announced he would form a budget balancing commission even before he took office in 2009. His stimulus worked to stanch the Great Recession, but he hardly ever boasted about it and never came back to Congress for another one. He turned his attention to deficit fighting.

Here is a key paragraph from a Yellen speech earlier this year. It sets her apart from Summers, I think.

I believe the policy steps we have taken recently are in accord with this balanced approach. With employment so far from its maximum level and with inflation currently running, and expected to continue to run, at or below the Committee's 2 percent longer-term objective, it is entirely appropriate for progress in attaining maximum employment to take center stage in determining the Committee's policy stance.

Yellen predates Clintonomics. She can remember a time when you could get rapid wage growth, modest inflation, and a well-regulated financial sector at the same time. Summers got on famously with Greenspan. Yellen had her disagreements.

My guess is she’d tighten policy before many progressives think she should anyway, including this writer. She will worry about new speculative bubbles, which Summers and Greenspan did not. She is a mainstream economist, but a thoughtful and compassionate one.

Yellen would also reject the argument that unemployment is basically structural. Some say we have lots of jobs that American’s don’t have the skills for. She had it researched and found, as did others, that there were no increases in demand for workers or resulting increases in wages in the sectors of the economy where workers were supposed to be scarce. So unemployment is cyclical, not structural. We don’t know what Summers believes about structural unemployment, but he almost surely believes the rate cannot fall as far as Yellen thinks. 

Yellen is not part of the old boy network, so Obama may still not appoint her. She is not a backslapper. She’s likely to be more impressed by economists who do very good scholarship than by hedge fund managers.

She is quiet woman. She is personally low-key, which disguises firm, well-developed opinions. But she’s battled before at the Fed, so she’s not afraid of a fight.

Workers should rejoice. Wages may go up handsomely again under her reign. The unemployment rate could fall below 6 percent, where it belongs. That is, if Obama has the stuff to give a pre-Clintonite who seems to dislike Washington networking the job. 

It would be a return to an older Democratic tradition and be damned good for America.

Jeff Madrick is a Senior Fellow at the Roosevelt Institute and Director of the Bernard L. Schwartz Rediscovering Government Initiative.

 

Federal Reserve image via Shutterstock.com

Share This

Daily Digest - September 17: Celebrate Campaign Finance Successes

Sep 17, 2013Rachel Goldfarb

Click here to receive the Daily Digest via email.

New York's Campaign-Finance Law Worked, but New Yorkers Still Won't Celebrate It (TNR)

Click here to receive the Daily Digest via email.

New York's Campaign-Finance Law Worked, but New Yorkers Still Won't Celebrate It (TNR)

Roosevelt Institute Senior Fellow Mark Schmitt applauds the success of New York City's small donor campaign finance law. Outside spending was incredibly low in last week's election, especially when compared to 2012 Senate and House races.

Can Poor Californians Live on $10 Per Hour? (MSNBC)

Ned Resnikoff celebrates California's minimum wage increase even as he questions whether it's enough. Roosevelt Institute Fellow Dorian Warren suggests that a state-by-state strategy could be the best model for the labor movement on this issue.

The Myth of the “Free Market” and How to Make the Economy Work for Us (Robert Reich)

According to Robert Reich, there's no such thing as a free market, because even in so-called free markets people set rules, like forbidding the sale of other human beings. So why not set the rules in a way that would decrease inequality?

Employment Inequality: Job Gap Between Rich And Poor Widest On Record (ThinkProgress)

Bryce Covert reports that while the unemployment rate for families earning at least $150,000 is only 3.2 percent, families at the bottom of the income scale have an unemployment rate of over 21 percent. That's not far off Great Depression unemployment numbers.

Did Summers Spoil It for Yellen? (TAP)

Robert Kuttner suggests that President Obama should nominate Janet Yellen for Fed Chair right away - not only because she's well qualified for the position, but because a quick nomination will make him look decisive after a summer of dithering over Summers.

How Larry Summers Paid for Obama’s Sins (NY Mag)

Jonathan Chait says that the Summers backlash was influenced by the fact that Democrats could push left with less risk. The GOP isn't going to block a Fed nominee like they've blocked others, even if the nominee is more liberal then the GOP would like.

Subsidizing Spouses (NYT)

Nancy Folbre argues that provisions in our tax code and Social Security that subsidize non-working spouses may be pro-marriage, but they aren't pro-family. Tax credits to support caregivers would do far more for low-income families, who benefit least under current structures.

New on Next New Deal

Why New York is Home to So Many of the Working Poor, in Graphs

Nell Abernathy looks at graphs from Roosevelt Institute Fellow Annette Bernhardt that show how New York City represents an amplified version of national trends: middle-wage jobs lost in the recession are being replaced by low-wage work, and wages are stagnating or falling for all but the wealthiest Americans.

Share This

Daily Digest - September 16: Exceptionally Poor Social Safety Nets

Sep 16, 2013Rachel Goldfarb

Click here to receive the Daily Digest via email.

SNAP Proposal Would Deny Benefits to Millions (Melissa Harris-Perry)

Roosevelt Institute Fellow Dorian Warren pointed out the disappointing side of American exceptionalism: the most children in poverty of any wealthy democracy. Cutting SNAP benefits means more of those children go hungry.

Click here to receive the Daily Digest via email.

SNAP Proposal Would Deny Benefits to Millions (Melissa Harris-Perry)

Roosevelt Institute Fellow Dorian Warren pointed out the disappointing side of American exceptionalism: the most children in poverty of any wealthy democracy. Cutting SNAP benefits means more of those children go hungry.

What We Get Wrong When We Talk About ‘The Financial Crisis’ (WaPo)

Roosevelt Institute Fellow Mike Konczal says that the narrative of the financial crisis shouldn't center on the Lehman Brothers bankruptcy. We can't forget the mortgage crisis, and ordinary Americans' distrust in financial systems is still a concern.

Summers Over (Reuters)

Felix Salmon suggests that the trial balloon raised for Larry Summers in July caused the politicization of the nomination for Fed Chair, and ultimately Summers's withdrawal. Sadly, his hopes that the position can remain technocratic instead of political seem unlikely.

Give Jobs a Chance (NYT)

Paul Krugman asks the Fed to put off the taper a little longer. With labor force participation so low, and unemployment still too high, he doesn't want to risk rocking our already unsteady recovery any more than necessary.

Could You Live on $11,940 a Year? (TAP)

Paul Waldman examines the decreasing value of the minimum wage. He supports a bill that would index the minimum wage to inflation, so workers would no longer have to wait on Congress to do something about the decreasing real value of their pay.

Why a Foreign Car Maker Might Be About to Say Yes to a U.S. Union (The Atlantic)

Jordan Weissmann explains how the United Auto Workers may finally get a hold in a foreign company's car plant on U.S. soil. Half the battle, he says, is PR, since there's an assumption that unionization would cause foreign manufacturers to pull out of the U.S.

How Detroit Went Broke: The Answers May Surprise You - and Don't Blame Coleman Young (Detroit Free Press)

Nathan Bomey and John Gallagher examine the financial history of Detroit back to the 1950s, and find that there were plenty of opportunities to prevent today's bankruptcy. Their in-depth analysis shows that Detroit may want to reconsider which mayors it blames or praises.

 

Share This

Daily Digest - September 9: Economic Inequality and the Fed Chair

Sep 9, 2013Rachel Goldfarb

Click here to receive the Daily Digest via email

Why Janet Yellen, Not Larry Summers, Should Lead the Fed (NYT)

Click here to receive the Daily Digest via email

Why Janet Yellen, Not Larry Summers, Should Lead the Fed (NYT)

Roosevelt Institute Chief Economist Joseph Stiglitz argues that Summers's role in deregulation in the 1990s led to today's economic issues. He'd much prefer a Fed chair with proven judgement and expertise who didn't help to create the inequality we deal with now.

  • Roosevelt Take: Roosevelt Institute Senior Fellow and Director of the Bernard L. Schwartz Rediscovering Government Initiative Jeff Madrick and Roosevelt Institute Fellow Mike Konczal agree with Stiglitiz's pick for Fed chair.

Why Keynes Wouldn’t Have Too Rosy a View of our Economic Future (WaPo)

Roosevelt Institute Fellow Mike Konczal breaks down Keynesian theory to explain why employment might not bounce back on its own. If that's the case, it would be nice to see policy that actually reflects the need to create jobs.

This Chart Shows The Real Problem With The August Jobs Report (Business Insider)

Josh Barro's big issue? The August jobs report is proof that the economy isn't actually improving as much as it was thought all summer. Job creation is stagnant at about 2 million new jobs per year, and the Fed seems to think that slow and steady is just right.

Did the White House’s Trial Balloon for Larry Summers Just Pop? (Quartz)

Tim Fernholz suggests that without the support of three liberal Democrats on the Senate banking committee, it may not matter if the President wants Summers for Fed chair. The administration would need to attempt the impossible: securing Republican votes.

A.F.L.-C.I.O. Has Plan to Add Millions of Nonunion Members (NYT)

Steven Greenhouse examines the A.F.L.-C.I.O.'s new plan to reinvigorate the labor movement. It's based on a simple question: if 49 percent of employees in a workplace vote for a union, why doesn't the union welcome that 49 percent?

Walmart Workers Plan 'Widespread, Massive Strikes and Protests' for Black Friday 2013 (The Nation)

Josh Eidelson reports on continued momentum in the OUR Walmart strikes as workers begin to think about retail's busiest day. Walmart still claims that none of their employees are actually involved in the strikes: apparently, it's all a union-backed stunt.

A Different Type of Poverty (U.S. News & World Report)

Happy Carlock interviews Sasha Abramsky about his new book, The American Way of Poverty: How the Other Half Still Lives. American poverty is about economic insecurity, and it's made worse, he says, by increasing inequality.

Share This

What Policy Do We Want Out of the Next Fed Chair?

Sep 5, 2013Mike Konczal

What a difference a year makes. Last year, the Jackson Hole conference was focused on how monetary policy and central banks were still effective at the zero lower bound if they were willing to take chances. It provided the intellectual basis for several "asks," including targeting states, allowing for conditional higher inflation under the Evans Rule, alongside a commitment to open-ended purchases in QE3. These asks were executed that winter.

This year it isn’t clear what “asks” there are for the Federal Reserve. Stop the taper? A higher inflation target? Targeting something else? More purchases? The Evans Rule and state-targeting established a specific goal that allowed us to measure whether or not the Federal Reserve was taking its responsibility seriously. There isn’t the same ask for this year.

Which is a problem, because there’s going to be a new Federal Reserve chair nominated in a few weeks. Last year, asking if the candidates supported the Evans Rule and QE3 would have helped us figure out if they took their role seriously. This year, the questions are more vague.

This hasn’t been helped by the lack of concrete writing on monetary policy during the crisis by the presumed frontrunner for the position, Larry Summers. As such, it’s hard to connect commentary on Summers with specific demands from monetary policy in the Great Recession. And much of Summers’ writings on financial reform are from before Dodd-Frank, so it is tough to link them to the specifics of what is happening right now.

Zachary Goldfarb at Wonkblog has a post, ”Here’s what Larry Summers would do at the Fed, that tries to determine what Summers would emphasize. It’s “based on interviews with some of the people who know him best, primarily sources who have worked closely with him, along with parsing his public comments,“ which Goldfarb found while researching a longer piece on the politics of Obama nominating Summers.

You should read it, as I want to comment on four things that stand out from it. I hate formatting a post this way, but I want to use Goldfarb’s bullet points to emphasize what questions people should have of Summers if his name goes forward. Bold is Goldfarb:

“Summers wouldn’t be any more dovish or hawkish than Ben Bernanke… While he’s likely to focus on employment while inflation remains low, he’ll be a hawk if inflation starts to rise much beyond the 2 percent target.”

If Summers would get aggressive if inflation started to rise above 2 percent, that would be significantly more hawkish than current policy, which has the Federal Reserve willing to tolerate inflation until 2.5 percent if it’s seen as controlled. If it became an important part of his policy, the Fed could reinstate a de facto 2 percent ceiling on inflation.

Bernanke spent 2011-2012 moving the FOMC to endorse the Evans Rule. On the first read, it’s not clear that Summers would have done that if he had been appointed back in 2010, especially if he was skeptical of QE in general. If this is the case, it’s a major abandonment of what was hard fought for by doves like Bernanke and Janet Yellen.

More generally, many economists are calling for a move to a higher inflation target, both as a means to deal with our current recession and to prevent future episodes at the zero lower bound. If Summers is excluding this possibility out of hand, that’s a problem.

“He thinks capital is king.”

The biggest question in town is whether or not U.S. regulators should raise capital requirements over what is required in Basel III. Daniel Tarullo thinks so. So does the FDIC. The administration is currently seen as being opposed to this. As Undersecretary for Domestic Finance Mary Miller said in a recent speech pouring cold water on the idea, “It is important to consider the totality of what the Dodd-Frank Act and Basel reforms do and give existing reforms time to take both shape and effect.”

If Summers agrees with Treasury, then expect him to make life difficult for Daniel Tarullo. If he agrees with Tarullo, that’s great for Tarullo. But if that’s the case, why hasn’t Summers done anything to publicly support him while Tarullo has stuck his neck out?

“He would use the Fed to pressure global banks to be more transparent and accurate.”

Summers is concerned about foreign financial institutions and their regulatory status. If you are concerned about foreign regulators and foreign standards for the financial sector, the biggest issue, by far, is cross-border derivatives. Should foreign subsidiaries of U.S. financial firms follow United States rules or weaker European rules?

As Gary Gensler, the chair of the CFTC, has argued, “All of these common-sense reforms Congress mandated [in Dodd-Frank], however, could be undone if the overseas guaranteed affiliates and branches of U.S. persons are allowed to operate outside of these important requirements.”

The administration did not agree. According to a blockbuster story by Silla Brush and Robert Schmidt at Bloomberg, Treasury Secretary Jack Lew put pressure on Gensler to back off this part of Dodd-Frank. According to the story, Gensler had “been hearing the same request from lobbyists seeking to slow the process, and he told the Treasury chief it felt like his adversary bankers were in the room.”

As a potential member of FSOC, Summers would have a lot of influence in supporting or stopping the CFTC. As with capital requirements, does Summers support the administration and the Treasury Department seeking to cool Dodd-Frank rule-writing, or does he support people like Tarullo and Gensler seeking to write more aggressive rules?

As a reminder, Summers does not have a great track record of respectfully dealing with regulatory heads who want more aggressive reforms than he wants while in public office. And, oddly, his connections to the administration could cause him to fight, rather than support (or just ignore), these regulatory heads pushing more aggressively.

“If a crisis did occur, he’d be no-holds-barred.”

Minor aside point, but I haven’t seen whether or not Summers supports the limits to the 13(3) powers the Federal Reserve invoked in 2008. Section 13(3) of the Federal Reserve Act was amended under Dodd-Frank so that "any emergency lending program or facility is for the purpose of providing liquidity to the financial system, and not to aid a failing financial company," and any such lending program has to have "broad-based eligibility.” The Federal Reserve will also need permission from the Treasury Secretary before proceeding in some cases.

This is designed to prevent the Federal Reserve from being no-holds-barred in rescuing an individual firm (like AIG) instead of an entire market (like commercial paper). This may be a big wake-up call come the next financial crisis, and I'm curious if the Fed would simply push in ways that try to circumvent the rule.

This is just a baseline, but it shows how much is still open when it comes to the future of monetary policy and financial reform. Or the two biggest things the next Fed Chairman will have to deal with.

Follow or contact the Rortybomb blog:

  

 

What a difference a year makes. Last year, the Jackson Hole conference was focused on how monetary policy and central banks were still effective at the zero lower bound if they were willing to take chances. It provided the intellectual basis for several "asks," including targeting states, allowing for conditional higher inflation under the Evans Rule, alongside a commitment to open-ended purchases in QE3. These asks were executed that winter.

This year it isn’t clear what “asks” there are for the Federal Reserve. Stop the taper? A higher inflation target? Targeting something else? More purchases? The Evans Rule and state-targeting established a specific goal that allowed us to measure whether or not the Federal Reserve was taking its responsibility seriously. There isn’t the same ask for this year.

Which is a problem, because there’s going to be a new Federal Reserve chair nominated in a few weeks. Last year, asking if the candidates supported the Evans Rule and QE3 would have helped us figure out if they took their role seriously. This year, the questions are more vague.

This hasn’t been helped by the lack of concrete writing on monetary policy during the crisis by the presumed frontrunner for the position, Larry Summers. As such, it’s hard to connect commentary on Summers with specific demands from monetary policy in the Great Recession. And much of Summers’ writings on financial reform are from before Dodd-Frank, so it is tough to link them to the specifics of what is happening right now.

Zachary Goldfarb at Wonkblog has a post, ”Here’s what Larry Summers would do at the Fed, that tries to determine what Summers would emphasize. It’s “based on interviews with some of the people who know him best, primarily sources who have worked closely with him, along with parsing his public comments,“ which Goldfarb found while researching a longer piece on the politics of Obama nominating Summers.

You should read it, as I want to comment on four things that stand out from it. I hate formatting a post this way, but I want to use Goldfarb’s bullet points to emphasize what questions people should have of Summers if his name goes forward. Bold is Goldfarb:

“Summers wouldn’t be any more dovish or hawkish than Ben Bernanke… While he’s likely to focus on employment while inflation remains low, he’ll be a hawk if inflation starts to rise much beyond the 2 percent target.”

If Summers would get aggressive if inflation started to rise above 2 percent, that would be significantly more hawkish than current policy, which has the Federal Reserve willing to tolerate inflation until 2.5 percent if it’s seen as controlled. If it became an important part of his policy, the Fed could reinstate a de facto 2 percent ceiling on inflation.

Bernanke spent 2011-2012 moving the FOMC to endorse the Evans Rule. On the first read, it’s not clear that Summers would have done that if he had been appointed back in 2010, especially if he was skeptical of QE in general. If this is the case, it’s a major abandonment of what was hard fought for by doves like Bernanke and Janet Yellen.

More generally, many economists are calling for a move to a higher inflation target, both as a means to deal with our current recession and to prevent future episodes at the zero lower bound. If Summers is excluding this possibility out of hand, that’s a problem.

“He thinks capital is king.”

The biggest question in town is whether or not U.S. regulators should raise capital requirements over what is required in Basel III. Daniel Tarullo thinks so. So does the FDIC. The administration is currently seen as being opposed to this. As Undersecretary for Domestic Finance Mary Miller said in a recent speech pouring cold water on the idea, “It is important to consider the totality of what the Dodd-Frank Act and Basel reforms do and give existing reforms time to take both shape and effect.”

If Summers agrees with Treasury, then expect him to make life difficult for Daniel Tarullo. If he agrees with Tarullo, that’s great for Tarullo. But if that’s the case, why hasn’t Summers done anything to publicly support him while Tarullo has stuck his neck out?

“He would use the Fed to pressure global banks to be more transparent and accurate.”

Summers is concerned about foreign financial institutions and their regulatory status. If you are concerned about foreign regulators and foreign standards for the financial sector, the biggest issue, by far, is cross-border derivatives. Should foreign subsidiaries of U.S. financial firms follow United States rules or weaker European rules?

As Gary Gensler, the chair of the CFTC, has argued, “All of these common-sense reforms Congress mandated [in Dodd-Frank], however, could be undone if the overseas guaranteed affiliates and branches of U.S. persons are allowed to operate outside of these important requirements.”

The administration did not agree. According to a blockbuster story by Silla Brush and Robert Schmidt at Bloomberg, Treasury Secretary Jack Lew put pressure on Gensler to back off this part of Dodd-Frank. According to the story, Gensler had “been hearing the same request from lobbyists seeking to slow the process, and he told the Treasury chief it felt like his adversary bankers were in the room.”

As a potential member of FSOC, Summers would have a lot of influence in supporting or stopping the CFTC. As with capital requirements, does Summers support the administration and the Treasury Department seeking to cool Dodd-Frank rule-writing, or does he support people like Tarullo and Gensler seeking to write more aggressive rules?

As a reminder, Summers does not have a great track record of respectfully dealing with regulatory heads who want more aggressive reforms than he wants while in public office. And, oddly, his connections to the administration could cause him to fight, rather than support (or just ignore), these regulatory heads pushing more aggressively.

“If a crisis did occur, he’d be no-holds-barred.”

Minor aside point, but I haven’t seen whether or not Summers supports the limits to the 13(3) powers the Federal Reserve invoked in 2008. Section 13(3) of the Federal Reserve Act was amended under Dodd-Frank so that "any emergency lending program or facility is for the purpose of providing liquidity to the financial system, and not to aid a failing financial company," and any such lending program has to have "broad-based eligibility.” The Federal Reserve will also need permission from the Treasury Secretary before proceeding in some cases.

This is designed to prevent the Federal Reserve from being no-holds-barred in rescuing an individual firm (like AIG) instead of an entire market (like commercial paper). This may be a big wake-up call come the next financial crisis, and I'm curious if the Fed would simply push in ways that try to circumvent the rule.

This is just a baseline, but it shows how much is still open when it comes to the future of monetary policy and financial reform. Or the two biggest things the next Fed Chairman will have to deal with.

Follow or contact the Rortybomb blog:

  

 

Share This

Daily Digest - August 23: Fed Chair Needs Consensus Building

Aug 23, 2013Rachel Goldfarb

Click here to receive the Daily Digest via email.

The Changing of the Monetary Guard (Project Syndicate)

Click here to receive the Daily Digest via email.

The Changing of the Monetary Guard (Project Syndicate)

Roosevelt Institute Chief Economist Joseph Stiglitz lists a number of qualities that he thinks are important for the next Federal Reserve Chair. His pick is Janet Yellen, for her ability to form consensus and her strong attention on labor markets.

Fast Food Wage Protests Head South (CNN Money)

Emily Jane Fox speaks to Roosevelt Institute Fellow Dorian Warren about the importance of fast food strikes moving into southern states. He says labor organizing is more difficult in that region, so the expansion is a significant turning point.

It Takes A Community (Campus Technology)

Mary Grush looks at the work Roosevelt Institute Fellow Susan Crawford is doing to increase access to high-speed internet in the United States. Grush suggests that higher education institutions could take a greater part in this push.

Student Advocates Call For Deeper Reforms on Debt as Obama Outlines Education Plan (Free Speech Radio News)

Alice Ollstein talks to Roosevelt Institute | Campus Network National Field Strategist Joelle Gamble about potential reforms that go far further than the President's proposals. The audio file contains multiple segments; this one begins at 16:56.

Fired Walmart Workers Arrested at Rally Announcing Labor Day Deadline (The Nation)

Josh Eidelson reports on arrests at a protest calling for Walmart to raise wages and reinstate workers who were allegedly fired for union activism. One of the fired workers says that organizing has slowed at his former store, because employees fear retaliation.

Private Gain to a Few Trumps Public Good for the Many (Robert Reich)

Robert Reich argues that when public goods are partially privatized, all taxpayers contribute but only those with income have access. That means the wealthiest still have the schools, parks, and infrastructure they want, while those with lower incomes do without.

New on Next New Deal

New Orleans's Youth Unemployment Problem Demands a Government Solution

Roosevelt Institute Senior Fellow and Director of the Bernard L. Schwartz Rediscovering Government initiative Jeff Madrick and Research Assistant Nell Abernathy examine how government can create new opportunities for disconnected youth in New Orleans.

This Weekend

Million Hoodies Movement for Justice Virtual March on Washington

The Roosevelt Institute is proud to cosponsor tomorrow's Virtual March. Roosevelt Institute Engagement Editor Dante Barry, Roosevelt Institute | Campus Network National Field Strategist Joelle Gamble, and George Washington University chapter member Yasemin Ayarci will appear on the livestream from 1pm to 2pm EDT.

Share This

Denialism and Bad Faith in Policy Arguments

Aug 14, 2013Mike Konczal

Here’s the thing about Allan Meltzer: he knows. Or at least he should know. It’s tough to remember that he knows when he writes editorials like his latest, "When Inflation Doves Cry." This is a mess of an editorial, a confused argument about why huge inflation is around the corner. “Instead of continuing along this futile path, the Fed should end its open-ended QE3 now... Those who believe that inflation will remain low should look more thoroughly and think more clearly. ”

But he knows. Because here’s Meltzer in 1999 with "A Policy for Japanese Recovery": “Monetary expansion and devaluation is a much better solution. An announcement by the Bank of Japan and the government that the aim of policy is to prevent deflation and restore growth by providing enough money to raise asset prices would change beliefs and anticipations.”

He knows that there’s an actual debate, with people who are “thinking clearly,” about monetary policy at the zero lower bound as a result of Japan. He participated in it. So he must have been aware of Ben Bernanke, Paul Krugman, Milton Friedman, Michael Woodford, and Lars Svensson all also debating it at the same time. But now he’s forgotten it. In fact, his arguments for Japan are the exact opposite of what they are now for the United States.

This is why I think the Smithian “Derp” concept needs fleshing out as a diagnosis of our current situation. (I’m not a fan of the word either, but I’ll use it for this post.) For those not familiar with the term, Noah Smith argues that a major problem in our policy discussions is “the constant, repetitive reiteration of strong priors.” But if that was the only issue, Meltzer would support more expansion like he did for Japan!

Simply blaming reiteration of priors is missing something. The problem here isn’t that Meltzer may have changed his mind on his advice for Japan. If that’s the case, I’d love to read about what led to that change. The problem is one of denialism, where the person refuses to acknowledge the actually existing debate, and instead pantomimes a debate with a shadow. It involves the idea of a straw man, but sometimes it’s simply not engaging at all. For Meltzer, the extensive debate about monetary policy at the zero lower bound is simply excised from the conversation, and people who only read him will have no clue that it was ever there.

There’s also another dimension that I think is even more important, which is whether or not the argument, conclusions, or suggestions are in good faith. Eventually, this transcends the “reiteration of strong priors” and becomes an updating of the case but a reiteration of the conclusion. Throughout 2010 and 2011, an endless series of arguments about how a long-term fiscal deal would help with the current recession were made, without any credible evidence that this would help our short-term economy. But that’s what people want to do, and so they acknowledge the fresh problem but simply plug in their wrong solutions. The same was true with Mitt Romney’s plan for the economy, which wasn’t specific to 2012 in any way.

Bad faith solutions don’t have to be about things you wanted to do anyway. Phillip Mirowski’s new book makes a fascinating observation about conservative think tanks when it comes to global warming. On the one hand, they have an active project arguing global warming isn’t happening. But on the other hand, they also have an active project arguing global warming can be solved through geoengineering the atmosphere. (For an example, here’s AEI arguing worries over climate change are overblown, but also separately hosting a panel on geoengineering.)

So global warming isn’t real, but if it is, heroic atmospheric entrepreneurs will come in at the last minute and save the day. Thus, you can have denialism and bad-faith solutions in play at the same time.

The fact that we can get to the denial and bad-faith corner makes me think this can be made generalizable and charted on a grid, but I still feel it’s missing some dimensions. What Smith identifies is real, but I’m not sure how to place it on these axes. What do you make of it?

Follow or contact the Rortybomb blog:

  

 

Here’s the thing about Allan Meltzer: he knows. Or at least he should know. It’s tough to remember that he knows when he writes editorials like his latest, "When Inflation Doves Cry." This is a mess of an editorial, a confused argument about why huge inflation is around the corner. “Instead of continuing along this futile path, the Fed should end its open-ended QE3 now... Those who believe that inflation will remain low should look more thoroughly and think more clearly. ”

But he knows. Because here’s Meltzer in 1999 with "A Policy for Japanese Recovery": “Monetary expansion and devaluation is a much better solution. An announcement by the Bank of Japan and the government that the aim of policy is to prevent deflation and restore growth by providing enough money to raise asset prices would change beliefs and anticipations.”

He knows that there’s an actual debate, with people who are “thinking clearly,” about monetary policy at the zero lower bound as a result of Japan. He participated in it. So he must have been aware of Ben Bernanke, Paul Krugman, Milton Friedman, Michael Woodford, and Lars Svensson all also debating it at the same time. But now he’s forgotten it. In fact, his arguments for Japan are the exact opposite of what they are now for the United States.

This is why I think the Smithian “Derp” concept needs fleshing out as a diagnosis of our current situation. (I’m not a fan of the word either, but I’ll use it for this post.) For those not familiar with the term, Noah Smith argues that a major problem in our policy discussions is “the constant, repetitive reiteration of strong priors.” But if that was the only issue, Meltzer would support more expansion like he did for Japan!

Simply blaming reiteration of priors is missing something. The problem here isn’t that Meltzer may have changed his mind on his advice for Japan. If that’s the case, I’d love to read about what led to that change. The problem is one of denialism, where the person refuses to acknowledge the actually existing debate, and instead pantomimes a debate with a shadow. It involves the idea of a straw man, but sometimes it’s simply not engaging at all. For Meltzer, the extensive debate about monetary policy at the zero lower bound is simply excised from the conversation, and people who only read him will have no clue that it was ever there.

There’s also another dimension that I think is even more important, which is whether or not the argument, conclusions, or suggestions are in good faith. Eventually, this transcends the “reiteration of strong priors” and becomes an updating of the case but a reiteration of the conclusion. Throughout 2010 and 2011, an endless series of arguments about how a long-term fiscal deal would help with the current recession were made, without any credible evidence that this would help our short-term economy. But that’s what people want to do, and so they acknowledge the fresh problem but simply plug in their wrong solutions. The same was true with Mitt Romney’s plan for the economy, which wasn’t specific to 2012 in any way.

Bad faith solutions don’t have to be about things you wanted to do anyway. Phillip Mirowski’s new book makes a fascinating observation about conservative think tanks when it comes to global warming. On the one hand, they have an active project arguing global warming isn’t happening. But on the other hand, they also have an active project arguing global warming can be solved through geoengineering the atmosphere. (For an example, here’s AEI arguing worries over climate change are overblown, but also separately hosting a panel on geoengineering.)

So global warming isn’t real, but if it is, heroic atmospheric entrepreneurs will come in at the last minute and save the day. Thus, you can have denialism and bad-faith solutions in play at the same time.

The fact that we can get to the denial and bad-faith corner makes me think this can be made generalizable and charted on a grid, but I still feel it’s missing some dimensions. What Smith identifies is real, but I’m not sure how to place it on these axes. What do you make of it?

Follow or contact the Rortybomb blog:

  

 

Share This

Daily Digest - August 9: Uncertainty Isn't Holding Us Back

Aug 9, 2013Rachel Goldfarb

Click here to receive the Daily Digest via email.

Uncertainty Isn't Killing the Recovery The Atlantic)

Click here to receive the Daily Digest via email.

Uncertainty Isn't Killing the Recovery The Atlantic)

Matthew O'Brien draws on Roosevelt Institute Fellow Mike Konczal's work to discuss why the Economic Policy Uncertainty (EPU) index is not a useful measure of recession and recovery. There is no statistically significant tie between the index and jobs.

  • Roosevelt Take: Mike wrote about the EPU earlier this week, arguing that we shouldn't look to changes in EPU to predict what is to come.

The Yellen/Summers Fight Is Important . . . and Not Just for the Reasons You Think (Blog of the Century")

Harold Pollack looks to Mike Konzcal's work for support in explaining why Larry Summers's past in politics really matters in choosing the next Fed Chair. Summers's history treating those he works with disrespectfully ought to be discussed.

Out of Work Over 9 Months? Good Luck Finding a Job (WSJ)

Ben Casselman details the concerns of economists who find that long-term unemployment dramatically reduces job interviews for low- and medium-skilled workers. Some go as far as to suggest that these workers may never work again.

Is Obamacare Forcing You to Work Part-Time? (Bloomberg)

Evan Soltas points to the data errors that conservatives are using when they claim Obamacare is causing employers to shift workers into part-time work. There have been no surges in work weeks just under 30 hours, nor drops in work weeks over 30 hours.

The Economics of a Higher Wage Floor (NYT)

Jared Bernstein strikes down the usual arguments against raising the minimum wage. The arguments make it clear that the opposition isn't interested in improving the lives of minimum wage workers at all, and instead want to maintain the status quo.

  • Roosevelt Take: Roosevelt Institute | Campus Network Summer Academy Fellow Emily Chong agrees with Bernstein, and also lays out the data for how a minimum wage increase will serve as a poverty reduction tool.

The Curse of Student Loan Debt: Owe While You're Young, Live When You're Old (The Guardian)

Helaine Olen reports on the significant struggles revealed by new analysis of student loan data, which shows that about one in five borrowers can't repay their federal student loans. This debt is slowing down the entire economy, from housing to savings to entrepreneurship.

New on Next New Deal

Mortgage Rule Debate Pits Dreams of Homeownership Against Market Fears

Jack Houghteling explains new models for mortgage standards debuted by Dodd-Frank. These rules should stabilize the market, but banks claim they won't be able to help Americans achieve their dreams of homeownership under these regulations.

Share This

Pages