Stanley Fischer Will Please Centrists, But He's the Wrong Choice for the Fed

Dec 12, 2013Jeff Madrick

Fischer's track record shows that he'll base his decisions on market ideology instead of empirical evidence about the economy. 

Fischer's track record shows that he'll base his decisions on market ideology instead of empirical evidence about the economy. 

Oh, no, not Stan Fischer. Just when you thought President Obama had come to terms with Janet Yellen, his nominee for the Federal Reserve chairmanship, he sends a counter-message. Yellen, almost sure to be approved by Congress, will be not only the first woman to serve as Fed chair, but the first head of the Fed in a long time who is as concerned with unemployment as she is with inflation. Now the press reports that Obama will appoint Fischer as vice chairman. Wall Street will be soothed. Fischer is a centrist (I’d actually call him center-right) economist, a fully doctrinaire mainstreamer, who is in Obama’s mind probably the next best thing to Larry Summers.

According to press accounts, Summers was Obama’s frontrunner for Fed chair, a man Wall Street would perceive as tough enough to fight inflation, Wall Street’s main bugaboo. The backlash against Summers was too great to be withstood, so Yellen was nominated instead. But Fischer is surely not the person we need as her number two. His resume suggests that in his bones he is an austerian. Although he cut rates sharply during the crisis as head of the Israeli central bank, this is not proof he can manage an economy that is struggling to recover. 

Here is one good reason for concern: one of the comical claims in the admiring and ill-informed press accounts announcing Fischer’s likely nomination is that he was “on the front line” of the 1997 Asian financial crisis, as the Financial Times put it. He sure was. All that financial expertise the press raves about, citing bankers as their sources, and Fischer had no clue that the Asian economies were teetering on the brink in 1996, when he wrote this in a Brookings piece: “none of the East Asian countries has pursued an excessively easy macroeconomic policy, none has tolerated even double-digit inflation, and most have small governments and small budget deficits. So the risk of a prolonged slowdown caused by a need for major macro-economic adjustments is small.”

This is reminiscent of Milton Friedman’s telling Charlie Rose in 2005 that people should stop worrying about the U.S. economy because it was very stable. In 1997, Asia crashed, led by Thailand, which had a property bubble fueled by foreign capital flows. Its “miracle” had been temporary, not driven by good macroeconomic policies based on IMF and World Bank advice, but mostly by exports due to pegging its currency to a dollar adjusted downward by the Plaza Accord. Thailand’s manufacturing exports boomed as Japan, for example, moved production to the cheap currency country.

But Fischer was a pure Washington consensus man, imposing balanced budgets, privatization, and market liberalization everywhere and anywhere he could. Most telling, as number two at the International Monetary Fund in the 1990s, he insisted the developing nations eliminate controls on capital flows. Was this based on any empirical evidence? As far as I know, there was none. It was based on market ideology. 

But worse was to come. To right the ship, the IMF told these nations in the midst of crisis to raise interest rates to keep their currencies from falling. Plummeting currencies encouraged capital flight that brought the countries down. The IMF also demanded budget cuts, assuring very deep recessions and a lot of suffering across Asia. Unemployment and bankruptcies soared.

But you don’t cut budgets in recessions; you stimulate. The IMF imposed austerity and pain on these countries, just as Germany is doing in the eurozone today—and as the U.S. is doing to a lesser extent with sequestration. To heck with Keynes, say the policymakers.

Fischer was a leader in making these enormous policy errors. Should capital flow freely around the world? Yes. But only when nations are ready. The U.S. and Europe waited to end their capital controls. Try gradualism.

What’s sad about this is that Obama may set up another obstacle for Janet Yellen to deal with—another male, no less. The best it says about Obama is that he doesn’t know much about Fischer. The former MIT professor is admired in centrist circles in Cambridge, Massachusetts. But more likely, Obama also wants to placate the inflation and deficit hawks. In truth, he’s leaned that way his entire administration. He’s just a centrist at heart—and maybe somewhat right of that. 

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

 

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Two Simple Reasons to Not Fight Bubbles With Higher Interest Rates

Nov 27, 2013Mike Konczal

I had no idea that Sweden has gone all-in on raising interest rates to fight "financial instability." (Alas poor Lars Svensson!) Simon Wren-Lewis has details, Krugman has more, and Peter Orszag had a great column about how New Zealand is instead using regulations to fight worries about the financial system.

I've been long fascinated by this topic. The stakes are very high: should we endure a mini-recession, with lower employment and output, to fight a thing called “financial instability”? I offered a list of reasons why the answer should be a resounding "no", but I recently found two more. These two are much clearer, and I think should provide a major hurdle to clear for those who think we should raise rates.

First: Every Target Needs an Instrument

I hate to spoil what happens when you try to kill two birds with one stone, but you usually end up missing both of them.

In policy we have targets and we have instruments. Targets are states of the world we want to bring about but don't control, and instruments are means of bringing them about that policymakers do control. Targets for the Federal Reserve are things like full employment, price stability, and now financial stability, and its main instrument is the interest rate.

There's an old principle in policy called Tinbergen's Rule (h/t JW Mason). Tinbergen's Rule says that you need at least as many instruments as there are targets. One instrument can't hit two targets consistently or with any regularity.

In modern macroeconomics there's an interest rate consistent with both full employment and price stability, so that's functionally one target. Now what people are saying is that we will take one instrument, the interest rate, and try to hit both financial stability and full employment. That can't be done, or at least not regularly or with any consistency. (And there's no reason to think that a set of regulatory tools could, with any real effect or consistency, create full employment, so there's no way to cross them.)

Doing something that common sense tells us we can't is a really bad way to establish how we want macroeconomic policy to look after the crisis. If we need financial stability, and I really believe we do, we need to develop a separate set of tools through law and regulations.

Second: What Would the Net Effect Even Be?

The short answer here is that we have no idea what the actual effects of raising interest rates would be on financial stability. This was on clear display in the IMF's "The Interaction of Monetary and Macroprudential Policies" from earlier this year. Here's a great chart from that report:

That's a lot to take in, so let's walk through it. Imagine we raise interest rates right now, in the name of financial stability. That in turn reduces employment and decreases incomes, making it harder for people to make payments and worsening their balance-sheet situations. The higher rates themselves will lead to higher payments for those with loans linked to variable payments. Raising rates to fight financial instability will lead to weaker balance sheets and more defaults, thus increasing the problem it was meant to solve.

(That's why in the balance-sheet channel of the chart above, there's a red arrow, representing a decline in financial stability, under an increase of policy rates.)

But there are other channels as well. Under the risk-taking channel, lowering rates can cause "intermediaries to expand their balance sheets, increase leverage, and reduce efforts in screening borrowers." However, for the risk-shifting channel, increasing rates "tends to reduce the margins of intermediaries that are funded short-term at variable rates, but lend long-term at fixed rates." Thus, to maintain a return on equity, there may need to be a shift into riskier assets. These two effects go in opposite directions, and it's not clear which would be greater.

There's also an asset price channel. It's not clear how much low interest rates cause asset price booms in practice. But to the extent that they do, they can increase financial stability by increasing asset value and borrowers' net worth. However, in the exchange rate channel, raising interest rates will lead to more capital inflows (the IMF says "excessive capital inflow," heh) and capital growth, which will decrease financial stability. (JW Mason flagged this as a major problem with the "raise rates" crew in a guest blog post here a while ago.)

It shouldn't be clear to a random person which of these would dominate over the other, thus making me believe that raising interest rates would likely be a wash in terms of financial stability. But it would definitely move us further away from full employment and price stability.
 
Now if I had to put money on it, I know that the risk channels can be tackled through financial regulation, while I believe the idea that running a larger output gap, with weaker incomes and more unemployment than necessary, will somehow fix consumer balance-sheets is borderline insane.
 
So why are so many countries going this way? Does capital just have an inherent right to a certain level of return regardless of mass suffering?
 
Follow or contact the Rortybomb blog:

 

  

 

I had no idea that Sweden has gone all-in on raising interest rates to fight "financial instability." (Alas poor Lars Svensson!) Simon Wren-Lewis has details, Krugman has more, and Peter Orszag had a great column about how New Zealand is instead using regulations to fight worries about the financial system.

I've been long fascinated by this topic. The stakes are very high: should we endure a mini-recession, with lower employment and output, to fight a thing called “financial instability”? I offered a list of reasons why the answer should be a resounding "no", but I recently found two more. These two are much clearer, and I think should provide a major hurdle to clear for those who think we should raise rates.

First: Every Target Needs an Instrument

I hate to spoil what happens when you try to kill two birds with one stone, but you usually end up missing both of them.

In policy we have targets and we have instruments. Targets are states of the world we want to bring about but don't control, and instruments are means of bringing them about that policymakers do control. Targets for the Federal Reserve are things like full employment, price stability, and now financial stability, and its main instrument is the interest rate.

There's an old principle in policy called Tinbergen's Rule (h/t JW Mason). Tinbergen's Rule says that you need at least as many instruments as there are targets. One instrument can't hit two targets consistently or with any regularity.

In modern macroeconomics there's an interest rate consistent with both full employment and price stability, so that's functionally one target. Now what people are saying is that we will take one instrument, the interest rate, and try to hit both financial stability and full employment. That can't be done, or at least not regularly or with any consistency. (And there's no reason to think that a set of regulatory tools could, with any real effect or consistency, create full employment, so there's no way to cross them.)

Doing something that common sense tells us we can't is a really bad way to establish how we want macroeconomic policy to look after the crisis. If we need financial stability, and I really believe we do, we need to develop a separate set of tools through law and regulations.

Second: What Would the Net Effect Even Be?

The short answer here is that we have no idea what the actual effects of raising interest rates would be on financial stability. This was on clear display in the IMF's "The Interaction of Monetary and Macroprudential Policies" from earlier this year. Here's a great chart from that report:

That's a lot to take in, so let's walk through it. Imagine we raise interest rates right now, in the name of financial stability. That in turn reduces employment and decreases incomes, making it harder for people to make payments and worsening their balance-sheet situations. The higher rates themselves will lead to higher payments for those with loans linked to variable payments. Raising rates to fight financial instability will lead to weaker balance sheets and more defaults, thus increasing the problem it was meant to solve.

(That's why in the balance-sheet channel of the chart above, there's a red arrow, representing a decline in financial stability, under an increase of policy rates.)

But there are other channels as well. Under the risk-taking channel, lowering rates can cause "intermediaries to expand their balance sheets, increase leverage, and reduce efforts in screening borrowers." However, for the risk-shifting channel, increasing rates "tends to reduce the margins of intermediaries that are funded short-term at variable rates, but lend long-term at fixed rates." Thus, to maintain a return on equity, there may need to be a shift into riskier assets. These two effects go in opposite directions, and it's not clear which would be greater.

There's also an asset price channel. It's not clear how much low interest rates cause asset price booms in practice. But to the extent that they do, they can increase financial stability by increasing asset value and borrowers' net worth. However, in the exchange rate channel, raising interest rates will lead to more capital inflows (the IMF says "excessive capital inflow," heh) and capital growth, which will decrease financial stability. (JW Mason flagged this as a major problem with the "raise rates" crew in a guest blog post here a while ago.)

It shouldn't be clear to a random person which of these would dominate over the other, thus making me believe that raising interest rates would likely be a wash in terms of financial stability. But it would definitely move us further away from full employment and price stability.
 
Now if I had to put money on it, I know that the risk channels can be tackled through financial regulation, while I believe the idea that running a larger output gap, with weaker incomes and more unemployment than necessary, will somehow fix consumer balance-sheets is borderline insane.
 
So why are so many countries going this way? Does capital just have an inherent right to a certain level of return regardless of mass suffering?
 
Follow or contact the Rortybomb blog:

 

  

 

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Daily Digest - November 21: Lobbyists Without Big Money

Nov 21, 2013Rachel Goldfarb

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Witnesses to Hunger (and Poverty) on the Hill (The Nation)

Greg Kaufmann reports on an unusual group of lobbyists on Capitol Hill: five "Witnesses to Hunger" who currently receive food stamps, who advocated for maintaining SNAP funding. Their goal was to give a face to social safety net programs.

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Witnesses to Hunger (and Poverty) on the Hill (The Nation)

Greg Kaufmann reports on an unusual group of lobbyists on Capitol Hill: five "Witnesses to Hunger" who currently receive food stamps, who advocated for maintaining SNAP funding. Their goal was to give a face to social safety net programs.

Obama’s Mystery Man for Derivatives (ProPublica)

Jesse Eisinger profiles Timothy Massad, the relatively unknown nominee for Commodity Futures Trading Commission chair. He questions if Massad may be too friendly to banking interests for this particular regulatory role.

What would the Fed do if the US defaulted on its debt? (Quartz)

Tim Fernholz says that it appears the Fed has limited tools that it could use in the event of a default, which could be a concern again in March. What few tools might be usable are so politically tenuous that just not hitting the debt ceiling would be greatly preferred.

Federal Reserve weighs slowing bond buys soon (Marketwatch

Steve Goldstein says that according to minutes released from the Fed's October 30 meeting, quantitative easing is probably coming to a close soon. But that consensus doesn't mean the Fed has decided how to end the program.

Wal-Mart's No Good, Very Bad, Pre-Thanksgiving Week (Bloomberg Businessweek)

Susan Berfield reports on Wal-Mart's difficult news week. Between the food drive for their own employees and the new report from Demos explaining how they could pay more without increasing prices, Wal-Mart is probably looking forward to the holiday.

Detroit accused of exaggerating $18bn debts in push for bankruptcy (The Guardian)

Dominic Rushe looks at a new report from Demos that questions the way Detroit's debt was calculated for bankruptcy. The report suggests that cutting pensions would work against the city's long-term needs.

New on Next New Deal

How Can We Help America's Opportunity Youth? Five Lessons Learned in New Orleans

Following up on an event in New Orleans this summer, Nell Abernathy, Program Manager for the Roosevelt Institute's Bernard L. Schwartz Rediscovering Government Initiative, considers the steps that will be needed to help youth who are neither in school nor working.

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Daily Digest - November 18: Some Audits Have Bad Intentions

Nov 18, 2013Rachel Goldfarb

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Here’s What’s Wrong With Rand Paul’s ‘Audit the Fed’ Bill (WaPo)

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Here’s What’s Wrong With Rand Paul’s ‘Audit the Fed’ Bill (WaPo)

Roosevelt Institute Fellow Mike Konczal argues that the Federal Reserve Transparency Act may sound like a nice idea, but it's really just those opposed to the Fed creating another chance to question it. Reforming the Fed shouldn't come from opposition.

Over 50 and Out of Work: Program Seeks to Help Long-Term Unemployed (NBC News)

Roosevelt Institute | Pipeline Fellow Nona Willis Aronowitz looks at Platform to Employment, a program in Bridgeport, CT that works with the the long-term unemployed. The program's founder points out that his work exists because Washington isn't doing enough.

Caught in a Revolving Door of Unemployment (NYT)

Annie Lowrey looks at the effects of long-term joblessness, which quickly becomes an impediment of its own in the job search. One of Lowrey's subjects was told directly that the company didn't hire the unemployed, and studies confirm that bias.

Regulations Are Killed, and Kids Die (The Nation)

Mariya Strauss reports on the tragic consequences of the Labor Department's withdrawal of regulations that would have limited child workers in agriculture. The child labor protections were killed by pressure from the agricultural lobbies.

Labor Secretary: Raising Minimum Wage is ‘job one’ (MSNBC)

Ned Resnikoff reports that Labor Secretary Thomas Perez supports legislation that would raise the minimum wage and tie future hikes to the Consumer Price Index. White House support follows a wave of popular support demonstrated in this month's elections.

Why No Bankers Go to Jail (Bloomberg View)

Paula Dwyer explains one federal judge's theories on why prosecutors are charging the banks rather than executives with criminal wrongdoing. One theory focuses on the difficult and time-consuming nature of financial fraud investigations, which can take years.

JPMorgan's Twitter Mistake (The New Yorker)

Emily Greenhouse looks at last week's Twitter snafu by JPMorgan Chase, in which the company invited public questions and got piles of criticism. #AskJPM became proof that the bank doesn't understand their standing in the power structures of social media.

 

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Daily Digest - November 15: Financial Reform Wasn't Finished With Dodd-Frank

Nov 15, 2013Rachel Goldfarb

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Mike Konczal: The Unfinished Mission: Making Wall Street Work For Us (Majority Report)

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Mike Konczal: The Unfinished Mission: Making Wall Street Work For Us (Majority Report)

Sam Seder spoke to Roosevelt Institute Fellow Mike Konczal about the new report on financial reform from the Roosevelt Institute and Americans for Financial Reform. They discuss the problems with implementing Dodd-Frank, and what can be done next.

  • Roosevelt Take: You can read "An Unfinished Mission: Making Wall Street Work For Us" here.

Nominee to Run Federal Reserve Unsure When It Will Curb Its Powers to Bail Out Banks (MoJo)

Erika Eichelberger reports that when Janet Yellen was asked when the Fed will limit its powers to bail out banks, as required under Dodd-Frank, she had no answer. Roosevelt Institute Fellow Mike Konczal suggested that this isn't high on the Fed's priority list.

Volkswagen Isn’t Fighting Unionization—But Leaked Docs Show Right-Wing Groups Are (In These Times)

Mike Elk reports that while the company promised not to oppose the United Auto Workers attempts to organize their Chattanooga, TN plant, outside groups disagree with that decision. They're pumping hundreds of thousands of dollars into anti-union campaigns.

Wall Street Isn’t Worth It (Jacobin)

John Quiggin argues that thirty years of looser regulations on the financial sector have proven that the massive profits aren't worth the cost to society. We would all be better off, he says, if Wall Street were smaller, and made correspondingly smaller returns.

Harsher Cuts Are On Their Way (MSNBC)

Suzy Khimm looks at how sequestration cuts will affect poor families in the coming year, as funds get even tighter. The cuts are particularly worrying as winter rapidly approaches, with cuts to programs that fund heating and housing for low-income Americans.

New on Next New Deal

President's Insurance Announcement Keeps Eyes on the Prize

Roosevelt Institute Senior Fellow Richard Kirsch argues that President Obama's decision to allow people to keep insurance plans that don't comply with the Affordable Care Act's requirements allows us to keep our focus on the larger goal: insuring more Americans.

Given the Myth of Ownership, is the Idea of Redistribution Coherent?

Roosevelt Institute Fellow Mike Konczal argues that redistribution still makes sense conceptually, even when we agree that property rights are a creation of the state. He warns: "This post is probably not of interest to general readers."

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Larry Klein's Lesson for the Single-Minded Economists Who Rejected Keynes

Oct 23, 2013Jeff Madrick

The late Nobel laureate knew that fiscal and monetary policy worked best together, and that low inflation alone would not sustain a strong economy.

The late Nobel laureate knew that fiscal and monetary policy worked best together, and that low inflation alone would not sustain a strong economy.

Larry Klein, a 1980 Nobel Prize winner in economics, died on Sunday. I interviewed him often when I was an economics reporter, and one of his most vehement beliefs had long stuck in my mind. He was an early Keynesian and built models to simulate the economy that could have predictive power. Because, like Keynes, he believed in the power of aggregate demand to drive the economy, he forecast that there would be no post-World War II Depression because of pent-up demand and the buying power of returning soldiers.

What stuck in my mind was Klein’s anger about evolving government policy. Even Keynesian economists had come to believe that monetary policy was more effective than Keynes’s fiscal policies. Klein argued to me that these stimulus policies only worked well in tandem. You need both monetary loosening, meaning mostly lower interest rates, and fiscal stimulus, meaning government spending or tax cuts, to restore strong economic growth.

The economic consensus did not take this lesson seriously. Most economists were pretty certain across much of the political spectrum that they had already learned how to manage the economy, and it wasn’t Klein’s way. Both Robert Lucas, the rational expectationist, and Olivier Blanchard, who leaned a bit towards Keynes, said with no small trace of hubris that macroeconomists had pretty much solved the big problem. Ben Bernanke also expressed confidence that the profession had at last learned the job.

There were some disagreements between the Lucas school of thought and economists like Blanchard. What they agreed on was that fiscal policies a la Keynes were not needed. Consumers and business would expect a rise in taxes if the federal government ran deficits, and so would save rather than spend, countering any stimulus. This phenomenon is known as Ricardian equivalence. At best, fiscal policy was politically clumsy, requiring Congressional approval for spending and all that.

In a 2010 publication called Rethinking Macroeconomic Policy, written with colleagues for the International Monetary Fund, where he is still chief economist, Blanchard admitted economists had been wrong. It took the housing and financial crash of 2007-2008 and the Great Recession to bring some sense to the profession. Blanchard and his co-authors wrote that what economists thought they knew was wrong. Economists had believed there was a single policy objective for controlling the economy, which was stable inflation, and there was also only a single tool, the interest rate. The 2010 piece was a mea culpa.

What lulled economists into complacency was what many now call the Great Moderation, an economy that was not too hot and not too cold. The way to get to this ideal state was merely to use monetary policies to stabilize inflation, preferably at low levels. It was the justification for what came to be called inflation targeting, either the hard kind with a precise target or the soft kind that was discretionary. Economists noted that the result of these policies since the early 1980s was both less volatile inflation and less volatile output (basically, GDP).

That was it. The major assumption was that stable GDP would push the economy to its optimal rate of growth, or in Blanchard’s more technical terms, “So long as inflation was stable, the output gap was likely to be small and stable and monetary policy did its job.”

But fiscal policy was decidedly secondary. And there is no mention of maximizing employment at all in the Blanchard piece; it wasn’t a thought in a mainstream economist’s mind, apparently. It was believed that the economy operated so efficiently with low, stable inflation that unemployment would automatically settle at its lowest, non-inflationary rate. Moreover, there was no serious discussion of growth, even though economic growth in the U.S. was not especially fast in these years. Here, then, was the general equilibrium model, a central assumption in economics and policymaking, simply taken for granted as true.

One other sentence in Blanchard is worth quoting: “[W]e thought of financial regulation as mostly outside the macroeconomic policy framework.”

Speculative bubbles, these economists believed, should not be deflated by regulators. The mess could easily be cleaned up later.

Macroeconomists were wrong not only about regulations and bubbles, admit Blanchard and his colleagues, but also about placing fiscal stimulus in the back seat. 

It’s by no means clear that macroeconomists have cleaned up their act. They still think low inflation will get us to maximum employment, for example. But at least they are now entertaining more objectives than one.

Their bad theory led us to sequestration today. There is too much water under the bridge for economists who correctly recommend fiscal stimulus to easily win the day when so many argued for so long that Keynesianism did not work. This is why Larry Klein was deeply frustrated.

America’s version of austerity economics is still winning the day, despite recantations like Blanchard’s. In coming months an agreement to cut the deficit over the next 10 years will be discussed, or apparently reckless Republicans will close the government down again. Medicare and Social Security cuts will be on the table. There is absolutely no economic need for this. The deficit is under control, and so is federal debt.

But the misleading macroeconomics practiced by America’s most prestigious university professors has left a long and damaging shadow. Klein would have shed some light.

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

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Daily Digest - October 10: Finally, a Fed Chair Nominee

Oct 10, 2013Rachel Goldfarb

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Yellen, if Confirmed, Faces Daunting Task (AJAM)

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Yellen, if Confirmed, Faces Daunting Task (AJAM)

Roosevelt Institute Fellow Mike Konczal considers the challenges facing Janet Yellen. We'll know that she's a success if she can balance the duel mandate of employment and inflation and work towards a better economy for Americans who haven't seen much recovery yet.

Janet Yellen: who is the woman set to lead Federal Reserve? (The Week)

In its profile of Janet Yellen, The Week quotes Roosevelt Institute Senior Fellow and Director of the Bernard L. Schwartz Rediscovering Government Initiative Jeff Madrick, who points out the value of Yellen's focus on employment.

Twilight of the Economics Elites (Foreign Policy)

Daniel W. Drezner questions why Republicans are so insistent on ignoring the advice of economists. One reason, that the right has their own experts, pulls from Roosevelt Institute Fellow Mike Konczal's piece on right-wing economists' opinions on the debt ceiling.

If Congress Only Reopens the Government Piece by Piece, it Could Take Until Next Spring (WaPo)

Brad Plumer points out another reason to avoid piecemeal funding bills: if the government is funded on a service-by-service basis, it will take more than 100 working days to finish. Whoever relies on that last service would have a long wait.

The 8 Most Plausible Ways a Debt-Ceiling Catastrophe Could Be Averted (NY Mag)

Dan Amira and Jonathan Chait rank the possible solutions to avoiding a default on October 17. They also include a prediction of the Senator Ted Cruz reaction to any given solution, ranging from "anger" to "epic, 47-hour speech on Senate floor."

Janet Yellen: The Most Powerful Woman in US History (Quartz)

Matt Phillips argues that the Federal Reserve Chair has more power then the Secretary of State, or the Speaker of the House. No one approves the Fed Chair's decisions, and major coalition building would be required to curtail the Fed's powers.

McCutcheon, the Next Victory for the 1 Percent (TAP)

Scott Lemieux is concerned after oral arguments for McCutcheon vs. FEC. He thinks that it's likely that the Supreme Court will strike down aggregate campaign contribution limits, and that doesn't seem good for American democracy.

Unpaid Intern Is Ruled Not an ‘Employee,’ Not Protected From Sexual Harassment (Bloomberg Businessweek)

Venessa Wong reports on a U.S. District Court decision that determined that unpaid interns are not protected by the New York City Human Rights Law. Sexual harassment charges require being an employee, and being paid in "experience" isn't enough.

 

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Daily Digest - October 9: Economy Doing the Limbo, Going Nowhere

Oct 9, 2013Rachel Goldfarb

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Five Years in Limbo (Project Syndicate)

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Five Years in Limbo (Project Syndicate)

Roosevelt Institute Chief Economist Joseph Stiglitz writes that five years after the financial crises that set off the recession, the economy is still in limbo. It's true that some problems have been addressed, but no one can call our current economy a success.

What Should Democrats Demand in the Budget Showdown? (The Nation)

Bryce Covert thinks it's time for Democrats to go on the offensive and put in some budget demands of their own. She draws on Roosevelt Institute Fellow Mike Konczal's work for one of her suggestions: free public colleges and universities.

This Graph Explains Why Obama Rejected the Piecemeal Approach to Funding Government (The Atlantic)

Derek Thompson agrees with the president's decision to veto any piecemeal funding bills, because that will only drag out the crisis. If the most visible effects of the shutdown disappear, then the Republicans risk less in the public eye.

Amid Big Salmonella Outbreak, USDA Says It's On The Job (NPR)

Allison Aubrey reports that the USDA inspectors and investigators were working through the shutdown, and the current salmonella outbreak back in July. The CDC unit that tracks these outbreaks has called in some furloughed workers, who are suddenly essential too.

Obama to Pick Yellen as Leader of Fed, Officials Say (NYT

Jackie Calmes reports that the President has chosen the next chair of the Federal Reserve. His choice of Janet Yellen is somewhat expected and welcomed by many, but we'll have to wait a while for confirmation since the Senate is a little busy with the shutdown.

  • Roosevelt Take: Roosevelt Institute Senior Fellow and Director of the Bernard L. Schwartz Rediscovering Government Initiative Jeff Madrick and Roosevelt Institute Fellow Mike Konczal wrote about their reasons for supporting Yellen for this position.

Strong Enough for a Man, Effective Enough For A Woman (In These Times)

Sarah Jaffe looks at Senator Gillibrand's five point plan for families and the economy, which demonstrates just how closely these two policy areas are tied. Jaffe applauds the senator for taking such an aggressive stance on labor issues, which remain distinctly unpopular in Congress.

The She-covery that Wasn't (TAP)

Bryce Stucki argues that while women are holding a number of jobs equal to or exceeding pre-recession numbers, that doesn't mean policymakers can stop worrying about women in the workforce. Too many of these jobs are low paying and low quality.

New on Next New Deal

California's Environmental Regulations Provide a Vision for the Future

Roosevelt Institute | Campus Network Senior Fellow for Energy and Environment Melia Ungson sees environmental regulations as key for Millennials looking for a healthy future. That doesn't mean those regulations need to stand in opposition to economic development.

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Daily Digest - September 20: The Last Five Years of Financial Crisis

Sep 20, 2013Rachel Goldfarb

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

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

Sam Seder speaks with Roosevelt Institute Fellow Mike Konczal about his most recent piece at the Washington Post's Wonkblog, where he argued that Lehman shouldn't be the center of the financial crisis narrative.

Finally, JPMorgan Admits The Bank Broke The Law (HuffPo)

Mark Gongloff reports on JPMorgan's admission that they broke securities laws in the "London Whale" debacle. The fine is an inconsequential amount for the firm, as it often is in these cases, but it's unusual for banks and bankers to actually admit to their wrongdoing.

The Fed Has Investors Overjoyed, And It's For All the Wrong Reasons (The Atlantic)

Mohamed El-Erian sees this week's surprise announcement of no taper from the Fed as symptomatic of their failure to plan long-term strategy. That's a big problem, since the Fed's uncertainty leads to market instability.

The Fed Stays the Course (TAP)

Robert Kuttner is glad that the Fed will maintain bond buying programs for now, but it's a decision that primarily benefits Wall Street. Hopefully, a Yellen-chaired Fed would reconsider a plan to purchase bonds that put money in the Main Street economy.

Job And Business Growth Strong Under Seattle’s Paid Sick Days Law (ThinkProgress)

Bryce Covert looks at an analysis of the impact of a new paid sick leave law on the Seattle economy. Seattle continues its economic growth, just as has been the case in every other municipality that has enacted paid sick leave legislation.

Rousing Workers to Seek Higher Wages (LA Times)

Alana Semuels speaks with Naquasia LeGrand, a KFC employee who has been heavily involved in Fast Food Forward in NYC. Naquasia was anti-union at first, but after learning more about the movement, she's become a strong supporter and recruiter.

Women Waiting Tables Provide Most of Female Gains in U.S. (Bloomberg)

Ian Katz and Alex Tanzi report on a study by the National Women's Law Center that looks at women's employment gains. Most of the increases in employment for women since 2009 are in the service industry, with 60 percent of new jobs paying less than $10.10 an hour.

Red State Pain (NYT)

Timothy Egan considers the GOP's continued inability to empathize with poor constituents as the House passes a bill that will kick 3.8 million people off SNAP. The underlying assumption is that the poor, even children, have done something to deserve going hungry.

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Daily Digest - September 19: All Eyes on Worker Centers

Sep 19, 2013Rachel Goldfarb

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

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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.

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