Daily Digest - February 21: When Wall Street Worries Too Much

Feb 21, 2014Rachel Goldfarb

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An Aggressive Fed Finds Critics on Wall Street (NYT)

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An Aggressive Fed Finds Critics on Wall Street (NYT)

Some bankers blame easy money for the boom-and-bust cycle, writes Peter Eavis, but Fed supporters like Roosevelt Institute Fellow Mike Konczal argue the critics have unrealistic expectations about the economy.

You Still Need to Care About Sky-High Wall Street CEO Pay (U.S. News & World Report)

Pat Garofalo says that while high CEO pay is a problem across the board, it's especially worrisome on Wall Street, where a CEO's decisions can affect the entire economy.

South Carolina Governor Says Ford, GM, Chrysler Union Jobs not Welcome in State (Detroit Free Press)

Governor Nikki Haley is happier to have unionized companies, including many Detroit-based auto manufacturers, keep their jobs far, far away from her right-to-work state, reports Rudolph Bell.

Why Gap’s Wage Hike Matters (MSNBC)

Ned Resnikoff argues that with House Republicans unlikely to allow a vote on a minimum wage increase, it's worth cheering for companies that do it themselves.

Obama to Drop Entitlement Cuts from 2015 Budget (POLITICO)

Reid J. Epstein reports that the president is done floating compromises for the GOP in his budget. Chained CPI, an inflation metric that would reduce benefit increases for Social Security, is gone.

New on Next New Deal

In Campus Network’s Summer Academy, Students Learn What Good Work Really Looks Like

Roosevelt Institute | Campus Network's Jeff Raines and Joe Swanson consider the effect that the Summer Academy Fellowship has had on their college experiences and career goals.

  • Note: Current students can still apply for the Campus Network's Summer Academy. For more information, click here.

We Need More Nuance from the CBO

Presenting a single number instead of a range of economic opinions is irresponsible of the Congressional Budget Office, writes Jeff Madrick, Roosevelt Institute Senior Fellow and Director of the Bernard L. Schwartz Rediscovering Government Initiative.

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Daily Digest - February 12: Higher Pay Won't Hurt Workers

Feb 12, 2014Rachel Goldfarb

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Who Would Benefit From a Minimum Wage Hike? (Your Call Radio)

The aggregate effects of a minimum wage increase wouldn't lead to job losses, says Roosevelt Institute Fellow Mike Konczal, and it's the easiest way to boost our economy.

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Who Would Benefit From a Minimum Wage Hike? (Your Call Radio)

The aggregate effects of a minimum wage increase wouldn't lead to job losses, says Roosevelt Institute Fellow Mike Konczal, and it's the easiest way to boost our economy.

Now That Boehner Has Backed Down, Let's Fix The Debt Ceiling For Good (TNR)

Since the House GOP has approved a clean debt limit increase, Eric Posner argues it's time to pass legislation that would end this game of chicken over the national debt forever.

Yellen Sets a Familiar Direction for the Fed (NYT)

Binyamin Appelbaum reports that the new Fed chair's testimony to the House Financial Services Committee emphasized that many policies will remain the same under her leadership.

What Do the Jobless Do When the Benefits End? (WaPo)

Ylan Mui interviews people about how they're getting by, and since none of her subjects have full-time work, the GOP theory that benefits keep people from taking jobs seems unlikely.

Why Democrats Will Win on Unemployment Insurance (The Atlantic)

Sarah Mimms writes that the Democrats will come out on top whether they get an extension on unemployment insurance or not. No extension? Then there's the campaign message for 2014.

Responsible Contractors Only: How to Ensure Obama’s Minimum Wage Order Is Enforced (PolicyShop)

Building a "responsible contractor" enforcement mechanism into his executive order will help the president to ensure workers actually get the raise he called for, writes Amy Traub.

Anatomy of a Hunger Crisis (MSNBC)

New York City's food pantries are already unable to handle the needs of the city's hungry, according to Ned Resnikoff, and the president has just signed another round of cuts to food stamps.

New on Next New Deal

The Three Big Questions Janet Yellen Should Answer in Today's Testimony

With the new Fed chair delivering her first testimony to Congress this week, Roosevelt Institute Fellow Mike Konczal lays out what we need to know about her views on the taper, financial reform, and unemployment.

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The Three Big Questions Janet Yellen Should Answer in Today's Testimony

Feb 11, 2014Mike Konczal

Janet Yellen has her first Humphrey-Hawkins testimony today, where she’ll give a prepared speech, already released online, and testify before the Republican-controlled House Financial Services committee. What are the points that she’ll need to cover?

The first element is how and when she’ll manage the so-called “taper” of monetary policy. At the end of 2012, the Federal Reserve started an extensive program of monetary stimulus designed to boost the economy. They declared that this would stay in full effect until unemployment dropped to 6.5 percent.

We are close to hitting that threshold. The unemployment rate is at 6.6 percent, and will fall below 6.5 percent very soon. Yellen, in her testimony, emphasizes a broader picture of unemployment than just the headline rate, including the amount of people working part-time against their choice and the amount of long-term unemployed.

What’s even more interesting, and a bit new, is her statement that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the 2 percent goal.”

Hopefully Congress will ask her to consider these choices in light of the last two weak job reports. Isn’t it more appropriate to step on the gas rather than test the brakes? However, she’ll likely encounter a skeptical Congress, and as such it will be essential for Yellen to make the case that the weak job numbers, combined with the vagueness of what the headline unemployment rate is telling us, requires continued monetary action.

The second point is how she'll handle financial reform. Given that Yellen is considered a monetary dove, it’s been interesting to see the amount of questions she’s taken from Congress about where Dodd-Frank and other reforms stand. This will no doubt continue into this testimony.

Financial reform has hit an interesting point where much of the rule-writing from the Dodd-Frank Act is finished, and now there’s a transition to both enforcement and clean-up action. Yellen notes in her testimony that rules related to derivatives as well as capital requirements still remain in the works. It would be useful for Congress to ask her where she thinks capital requirements for the largest firms should ultimately end up. Does she think that this number is too high, or too low?

It would also be fascinating for someone to ask Yellen about the recent wave of “postal banking” coverage, and the role the government can play in providing essential banking services to unbanked and underbanked Americans.

The third and most important is how the Federal Reserve will transition to prevent periods of mass unemployment like we are currently experiencing. Is a 2 percent inflation target either high enough, or the right target, for the job?

Sadly, this will be the topic least covered of them all. However, it’s the one that is most essential for preventing the economy from falling back into the situation it now finds itself in.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Image via Federal Reserve

Janet Yellen has her first Humphrey-Hawkins testimony today, where she’ll give a prepared speech, already released online, and testify before the Republican-controlled House Financial Services committee. What are the points that she’ll need to cover?

The first element is how and when she’ll manage the so-called “taper” of monetary policy. At the end of 2012, the Federal Reserve started an extensive program of monetary stimulus designed to boost the economy. They declared that this would stay in full effect until unemployment dropped to 6.5 percent.

We are close to hitting that threshold. The unemployment rate is at 6.6 percent, and will fall below 6.5 percent very soon. Yellen, in her testimony, emphasizes a broader picture of unemployment than just the headline rate, including the amount of people working part-time against their choice and the amount of long-term unemployed.

What’s even more interesting, and a bit new, is her statement that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the 2 percent goal.”

Hopefully Congress will ask her to consider these choices in light of the last two weak job reports. Isn’t it more appropriate to step on the gas rather than test the brakes? However, she’ll likely encounter a skeptical Congress, and as such it will be essential for Yellen to make the case that the weak job numbers, combined with the vagueness of what the headline unemployment rate is telling us, requires continued monetary action.

The second point is how she'll handle financial reform. Given that Yellen is considered a monetary dove, it’s been interesting to see the amount of questions she’s taken from Congress about where Dodd-Frank and other reforms stand. This will no doubt continue into this testimony.

Financial reform has hit an interesting point where much of the rule-writing from the Dodd-Frank Act is finished, and now there’s a transition to both enforcement and clean-up action. Yellen notes in her testimony that rules related to derivatives as well as capital requirements still remain in the works. It would be useful for Congress to ask her where she thinks capital requirements for the largest firms should ultimately end up. Does she think that this number is too high, or too low?

It would also be fascinating for someone to ask Yellen about the recent wave of “postal banking” coverage, and the role the government can play in providing essential banking services to unbanked and underbanked Americans.

The third and most important is how the Federal Reserve will transition to prevent periods of mass unemployment like we are currently experiencing. Is a 2 percent inflation target either high enough, or the right target, for the job?

Sadly, this will be the topic least covered of them all. However, it’s the one that is most essential for preventing the economy from falling back into the situation it now finds itself in.

Mike Konczal is a Fellow at the Roosevelt Institute.

Follow or contact the Rortybomb blog:

  
 
Image via Federal Reserve

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Daily Digest - February 3: Financial Reform Enters a New Era

Feb 2, 2014Rachel Goldfarb

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What's the Deal: What's Next for Financial Reform (YouTube)

Roosevelt Institute Fellow Mike Konczal talks about what the Dodd-Frank financial reform law accomplished, what still needs to be done to change the system, and why there are reasons for reformers to be optimistic about the future.

Click here to receive the Daily Digest via email.

What's the Deal: What's Next for Financial Reform (YouTube)

Roosevelt Institute Fellow Mike Konczal talks about what the Dodd-Frank financial reform law accomplished, what still needs to be done to change the system, and why there are reasons for reformers to be optimistic about the future.

  • Roosevelt Take: Read "An Unfinished Mission," the report from the Roosevelt Institute and Americans for Financial Reform that Mike discusses in this video, here.

New Fed Chief Janet Yellen Lets a Long Career of Breaking Barriers Speak for Itself (WaPo)

Ylan Q. Mui profiles Janet Yellen's career with a focus on gender, as Yellen has been a prominent face for women in economics over the years. She notes that Yellen has rarely spoken on gender issues, and has asked her staff to use the title "chair" rather than "chairwoman."

Oh, Sweet Mercy, Are We About To Have Another Debt Ceiling Fight? (HuffPo)

Jason Linkins examines why another debt ceiling fight seems likely, even though the GOP has already lost bargaining power by giving in on the last two. He sees the Republicans' insistence on turning everything into a fight against Obamacare as a losing strategy.

Domino’s Delivery Workers Settle Suit for $1.3 Million (NYT)

Steven Greenhouse reports on the settlement between 61 deliverymen and a Manhattan Domino's franchise. The workers filed the suit based on minimum wage and overtime violations after many were forced to list far fewer hours on time sheets than they actually worked.

Walmart’s Holiday Profits are Way Down. Food Stamp Cuts are a Big Part of the Reason. (Washington Monthly)

Kathleen Geier says the most interesting part of this story is the explicit tie Walmart has made between food stamp cuts and low sales. She sees this as part of the cycle of austerity politics, which fail to recognize how government cuts can slow the overall economy.

Jerry Brown's Austerity Kick Unpopular with Advocates for Poor (LA Times)

Anthony York writes that Californians disagree on how to use their multibillion-dollar budget surplus. In his State of the State address, Governor Brown pushed for a rainy-day fund, but others are discussing popular social safety net proposals like universal pre-K and paid sick leave.

The Problem with Retirement Savings: Making Enough Money to Save (The Guardian)

Suzanne McGee praises President Obama's MyRA plan as a "tiny positive step," but points out that it won't do anything to solve the real problem. As wages have flatlined, increased options for saving won't help workers who need every dollar for bills today.

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Lesson from December's Jobs Report: Turn On the Fiscal Jets

Jan 10, 2014Jeff Madrick

The economy is not yet strong enough to cope with tighter monetary policy, but fiscal policy is what's really missing from this recovery.

The weak employment report out today reinforces the view that the Federal Reserve should not ease up on monetary policy soon. The strength of this economic recovery is not yet clear, and the Fed is the only game in town due to sequestration of government funds.

The economy is not yet strong enough to cope with tighter monetary policy, but fiscal policy is what's really missing from this recovery.

The weak employment report out today reinforces the view that the Federal Reserve should not ease up on monetary policy soon. The strength of this economic recovery is not yet clear, and the Fed is the only game in town due to sequestration of government funds.

Waiting another three or four months to tighten policy and reduce quantitative easing will not change the course of America’s destiny. But moving now, as they have done ever so slightly, could easily pull the rug out from under this modest recovery.

The sharp fall in the unemployment rate to 6.7 percent was just about entirely accounted for by people dropping out of the work force. The employment-to-population rate is roughly at its lowest level in more than 30 years. Too many people are not working in America. For all the economic weakness in Europe, they have higher participation rates than the U.S. does.

The drum beat of optimism emanating from most economists recently will now be muted until the next set of data. The jobs numbers are the most telling indicator of economic strength. Economists turn on a dime when they are issued, but only because they can, given the computerized models that shift modestly with every piece of economic news. They should have a stronger analytical thesis than to depend on one month’s data.

The path forward is clear. We should keep in mind that the economy is not doing badly. On average, there has been moderate job growth over the last three months, just not nearly enough to justify an end to monetary stimulus now. We should wait at least a few months to make sure this recovery and expansion is truly solid.

The good news is that the disappointing employment data will reduce pressure on the Fed as Janet Yellen takes over the reins. The bad news is that it will unleash the anti-Obama forces who blame the slow economy on Dodd-Frank’s costs to the financial community, future fears of inflation, and of course the federal budget deficit. Tune in to Fox News after the employment data release and you'll find them saying "Obama did it."

Larry Summers offers the best advice: we have to turn on the fiscal jets. The first words out of anyone’s mouth about the economy should be that sequestration did it. Fiscal de-stimulus was huge in 2013. Government spending fell sharply. The deficit is no longer an issue, given unemployment around the current level.

Summers is being criticized by economists and commentators from across the political spectrum for claiming the nation may be in a period of secular stagnation. Summers noted that the economy was disappointing even before 2007. How could that be, ask some, if the unemployment rate got down to roughly 4.5 percent? 

John Taylor of Stanford is especially vociferous about how good the economy was under George W. Bush. Of course, he worked for Bush. But even apart from that, it is hard to take his claims seriously. 

Three points here. The labor participation rate under Bush never rose to the heights it reached in the second half of the 1990s. Had it done so, the unemployment rate would likely have been around 5.5 percent.

Second, wages rose very slowly. The low unemployment rate—to the extent that it fell—had a lot to do with slow-rising wages. And the wage share of GDP fell significantly, to levels well below what they were in the 1990s. The rise in consumption to support growth was based on borrowing, as we know, not strong incomes.

Third, capital investment was weak before 2007, never even close to returning to the levels of the second half of the 1990s. The right wing loves to blame lack of business confidence on low levels of capital investment today, but how do they explain the Bush era? 

So, to reiterate, Summers is right. We are wading in dangerous territory. On top of all this, there has been a confusing and disturbing downturn in productivity growth for several years—starting, again, before 2007.

We have a tool to deal with this: more government spending. But we get the opposite. Obsession with the budget has led to full-fledged austerity policies in America, as well as Europe.

There are some sweet spots in the economy. I am skeptical of fracking, but it is helping the economy now. Housing is picking up.

But any increase in interest rates without serious fiscal stimulus now is outright dangerous. The inflation fear-mongers are still out in force, of course. So let me repeat this: there is no appreciable inflation right now. And one last point: more growth in output could stimulate growth in productivity as well, a well-known economic relationship known as Verdoorn’s Law.

Will America do what’s necessary? Not enough of it. But at the least it should not reverse monetary policy yet. And there may be a little political room to push Washington toward spending in 2014. If so, the nation had better take advantage of it. 

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

Banner image via ThinkStock.

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In 2013, the Fed Showed Why Fiscal Policy is Still Important

Jan 10, 2014Mike Konczal

Last April I had a piece in Wonkblog saying we’d get to see whether or not the expansion of monetary policy in fall 2012 would offset 2013 fiscal austerity. I concluded that it wasn’t looking too good at the start, that QE3 was a smart idea anyway (and should go further), and, most importantly, that a fiscal multiplier would be in effect, and we should run a larger deficit and cancel out things like the payroll tax cut while the economy is still fragile. It received a lot of responses at the time (see the endnotes here for a list).

Recently, there’s been a wave of posts by Scott Sumner and David Beckworth calling me and others out, saying that the votes are in and it's a victory for the market monetarists, the team that said monetary policy would offset austerity in 2013 and fiscal policy wouldn't matter. (There have also been responses from Brad DeLong and Noah Smith.)

I don’t see it. I’m willing to be convinced, but the two clearest tests I saw the market monetarists put forward in early 2013 have resulted in failure. Let’s go through them:

1. “Paul Krugman Will Not Like These Figures,” David Beckworth, December 2, 2012, Macro and Other Market Musings

At the end of 2012, David Beckworth told the Keynesians they were wrong. In a provocative post, he argued “that nominal GDP (NGDP) growth has been remarkably stable since about mid-2010 despite a contraction in federal government expenditures" and that "the Fed has been doing a remarkable job keeping NGDP growth stable.” He posted a graph showing year-over-year NGDP growth at a steady clip.

My Wonkblog column was addressed to Beckworth specifically, and he reiterated the same exact data graphic in his response, arguing, “The U.S. series shows a stable NGDP growth rate.”

Even though the approach of examining year-over-year NGDP growth drew criticism, I like this test because it draws a line in the sand and it also fits with my understanding of how the market monetarists view the situation. The Federal Reserve picks the NGDP path it wants, as if it was off a menu, no matter what is going on with the rest of the economy.

So how did this line in the sand turn out? Here’s the data updated through 2013, with year-over-year (Beckworth’s line) and two quarters showing:

It was stable, until it wasn’t. You can see the year-over-year stable at 4-5 percent from 2011 through part of 2012, but when government spending starts to fall in late 2012 and through 2013, this falls as well. NGDP growth was lower in the first two quarters of 2013 than it was in 2012.

The third quarter did spike, but it was mostly the result of inventories, which, as Yglesias says, is probably bad news. Even more interesting, there wasn’t any additional government austerity in this quarter. Government spending actually increased slightly as state and local spending increased, which more than canceled out declining federal spending. (If continued, this would be an excellent trend, like the opposite of the downturn in which state and local austerity canceled out additional federal spending. I was hoping we'd have more data before we started this conversation.)

I’d note Beckworth didn’t mention this data or his old approach at all in his victory lap. Scott Sumner used this graph and data for his "Most Important Graphic of 2013," but didn’t include any of the 2013 data.

1.a Another related way of judging how the economy evolved in 2013 is to compare it to the Federal Reserve’s projections of it. As some market monetarists believe (e.g. Ryan Avent), these projections are an engine, not a camera -- they aren’t neutral projections of inflation and growth but also a communication of what the Fed thinks about what it can accomplish, which in turn will have an impact and determine what happens in the economy.

How did the Fed's projections for 2013 turn out? Did the economy end up how the Fed said it would when it announced expanded monetary policy?

It fell, both in real GDP and especially core inflation. Which leads me to the second test…

2: “The Federal Reserve's New Yield Curve,” Matt Yglesias, January 21, 2013, Slate

One way to read 2012’s monetary actions was that the Federal Reserve really wanted to hit a 2 percent inflation target. First they announced said target, then they announced open-ended purchases, then they announced that 2 percent wasn’t a ceiling and that they’d tolerate inflation above 2 percent.

Many people considered this an important part of the Fed’s ability to boost the economy (e.g. “the commitment to allow higher inflation in the future is one of the key methods through which the central bank can have a positive effect on an economy stuck at the zero lower bound”). I had written a lot about the Evans Rule, and why it would be a good idea for people to support, so I was watching this closely.

Yglesias, in the linked post, pointed to higher inflation projections in the short- and medium-term as of January as a success story. But, as you can see above, we then went on to have inflation rates collapse, leading to some of the lowest inflation rates in decades.

Regardless of what you think the Fed wanted in late 2012, they certainly weren't trying to generate lower inflation. If the Fed truly is omnipotent, we shouldn't see this. You can say that the bickering over the taper caused these problems, but this is precisely, as Michael Woodford has pointed out, one of advantages of fiscal stimulus in these situations (as I said in last year’s piece, “Using fiscal policy also avoids the expectations problems that plague monetary policy”).

To reiterate, I think the Federal Reserve should be doing more. I’d love to see Yellen enact a genuine regime change at the Fed. But we shouldn’t doubt that fiscal policy, at this moment, is making a difference in the giant slack that still smothers our economy and is collapsing our labor force.

Follow or contact the Rortybomb blog:

  

 

Last April I had a piece in Wonkblog saying we’d get to see whether or not the expansion of monetary policy in fall 2012 would offset 2013 fiscal austerity. I concluded that it wasn’t looking too good at the start, that QE3 was a smart idea anyway (and should go further), and, most importantly, that a fiscal multiplier would be in effect, and we should run a larger deficit and cancel out things like the payroll tax cut while the economy is still fragile. It received a lot of responses at the time (see the endnotes here for a list).

Recently, there’s been a wave of posts by Scott Sumner and David Beckworth calling me and others out, saying that the votes are in and it's a victory for the market monetarists, the team that said monetary policy would offset austerity in 2013 and fiscal policy wouldn't matter. (There have also been responses from Brad DeLong and Noah Smith.)

I don’t see it. I’m willing to be convinced, but the two clearest tests I saw the market monetarists put forward in early 2013 have resulted in failure. Let’s go through them:

1. “Paul Krugman Will Not Like These Figures,” David Beckworth, December 2, 2012, Macro and Other Market Musings

At the end of 2012, David Beckworth told the Keynesians they were wrong. In a provocative post, he argued “that nominal GDP (NGDP) growth has been remarkably stable since about mid-2010 despite a contraction in federal government expenditures" and that "the Fed has been doing a remarkable job keeping NGDP growth stable.” He posted a graph showing year-over-year NGDP growth at a steady clip.

My Wonkblog column was addressed to Beckworth specifically, and he reiterated the same exact data graphic in his response, arguing, “The U.S. series shows a stable NGDP growth rate.”

Even though the approach of examining year-over-year NGDP growth drew criticism, I like this test because it draws a line in the sand and it also fits with my understanding of how the market monetarists view the situation. The Federal Reserve picks the NGDP path it wants, as if it was off a menu, no matter what is going on with the rest of the economy.

So how did this line in the sand turn out? Here’s the data updated through 2013, with year-over-year (Beckworth’s line) and two quarters showing:

It was stable, until it wasn’t. You can see the year-over-year stable at 4-5 percent from 2011 through part of 2012, but when government spending starts to fall in late 2012 and through 2013, this falls as well. NGDP growth was lower in the first two quarters of 2013 than it was in 2012.

The third quarter did spike, but it was mostly the result of inventories, which, as Yglesias says, is probably bad news. Even more interesting, there wasn’t any additional government austerity in this quarter. Government spending actually increased slightly as state and local spending increased, which more than canceled out declining federal spending. (If continued, this would be an excellent trend, like the opposite of the downturn in which state and local austerity canceled out additional federal spending. I was hoping we'd have more data before we started this conversation.)

I’d note Beckworth didn’t mention this data or his old approach at all in his victory lap. Scott Sumner used this graph and data for his "Most Important Graphic of 2013," but didn’t include any of the 2013 data.

1.a Another related way of judging how the economy evolved in 2013 is to compare it to the Federal Reserve’s projections of it. As some market monetarists believe (e.g. Ryan Avent), these projections are an engine, not a camera -- they aren’t neutral projections of inflation and growth but also a communication of what the Fed thinks about what it can accomplish, which in turn will have an impact and determine what happens in the economy.

How did the Fed's projections for 2013 turn out? Did the economy end up how the Fed said it would when it announced expanded monetary policy?

It fell, both in real GDP and especially core inflation. Which leads me to the second test…

2: “The Federal Reserve's New Yield Curve,” Matt Yglesias, January 21, 2013, Slate

One way to read 2012’s monetary actions was that the Federal Reserve really wanted to hit a 2 percent inflation target. First they announced said target, then they announced open-ended purchases, then they announced that 2 percent wasn’t a ceiling and that they’d tolerate inflation above 2 percent.

Many people considered this an important part of the Fed’s ability to boost the economy (e.g. “the commitment to allow higher inflation in the future is one of the key methods through which the central bank can have a positive effect on an economy stuck at the zero lower bound”). I had written a lot about the Evans Rule, and why it would be a good idea for people to support, so I was watching this closely.

Yglesias, in the linked post, pointed to higher inflation projections in the short- and medium-term as of January as a success story. But, as you can see above, we then went on to have inflation rates collapse, leading to some of the lowest inflation rates in decades.

Regardless of what you think the Fed wanted in late 2012, they certainly weren't trying to generate lower inflation. If the Fed truly is omnipotent, we shouldn't see this. You can say that the bickering over the taper caused these problems, but this is precisely, as Michael Woodford has pointed out, one of advantages of fiscal stimulus in these situations (as I said in last year’s piece, “Using fiscal policy also avoids the expectations problems that plague monetary policy”).

To reiterate, I think the Federal Reserve should be doing more. I’d love to see Yellen enact a genuine regime change at the Fed. But we shouldn’t doubt that fiscal policy, at this moment, is making a difference in the giant slack that still smothers our economy and is collapsing our labor force.

Follow or contact the Rortybomb blog:

  

Banner image via ThinkStock.

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Daily Digest - January 7: New Fed Chair, Same Economic Challenges

Jan 7, 2014Rachel Goldfarb

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This is the Biggest Challenge Janet Yellen Will Face as Fed Chair (WaPo)

Click here to receive the Daily Digest via email.

This is the Biggest Challenge Janet Yellen Will Face as Fed Chair (WaPo)

Neil Irwin considers an op-ed by Larry Summers, which argues that without fiscal policy changes from Congress, the Fed's policies have side effects that encourage bubbles. Yellen's dilemma is whether those bubbles are worse than slow or stalled economic growth.

Just a Reminder: The US Still has Ludicrously High Long-Term Unemployment (Quartz)

Tim Fernholz demonstrates just how unusual current long-term unemployment rates are with a chart covering 65 years of data. Eliminating emergency unemployment benefits, the federal program that expired last week, won't magically create jobs for these workers.

In Jobless Youth, U.S. Is Said to Pay High Price (NYT)

Shaila Dewan looks at a new report from the Young Invincibles, which estimates that state and federal governments could recoup nearly $9 billion through increased taxes and reduced social services if youth unemployment returned to prerecession levels.

Wisconsin Lawmaker Wants To Take Away Workers’ Weekends (ThinkProgress)

Bryce Covert looks at Wisconsin state Senator Glenn Grothman's proposal to allow workers to give up their right to one day off work out of seven. Grothman seems to think there are more workers who want to work seven-day weeks than there are employers who would force it.

GOP Declares War on ‘War on Poverty’ (MSNBC)

Morgan Whitaker reports that Senator Marco Rubio (R-FL) has declared the "big government" approach to fighting poverty a failure, but he doesn't suggest any new options for solving the problem. Repealing the Affordable Care Act is the most solid suggestion he has right now.

New on Next New Deal

Do Economists Understand How Power Shapes the Labor Market?

Roosevelt Institute Senior Fellow and Rediscovering Government Director Jeff Madrick praises Paul Krugman for recognizing that employers hold far more power than workers in the current labor market. This power suppresses wages, which Jeff connects to the need for a minimum wage hike.

The Bernard L. Schwartz Rediscovering Government Initiative: Building on the Successes of 2013 in the New Year

Jeff also wrote a retrospective on the Rediscovering Government Initiative's accomplishments in 2013. Highlights include the Jobs Emergency conference held in D.C. in June and a panel tackling youth unemployment in New Orleans in August.

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Daily Digest - December 20: Grand Bargain Dreams, Meet Political Reality

Dec 20, 2013Rachel Goldfarb

Click here to receive the Daily Digest via email.

2013 Was the Year the Grand Bargain Died. Good Riddance. (TNR)

Click here to receive the Daily Digest via email.

2013 Was the Year the Grand Bargain Died. Good Riddance. (TNR)

Mark Schmitt argues that striking a budget deal has received so much emphasis because it allows politicians to appear to be outside the usual partisan fights. But that's really just magical thinking, and Congress still needs to figure out how to function.

The Fed Transformed (TAP)

Robert Kuttner looks back at the ways the Federal Reserve has changed under Ben Bernanke, and looks ahead to the challenges facing Janet Yellen. Her task, says Kuttner, is to transform the financial system into one that serves the economy rather than ruling it.

Sen. Reid Gets Agreement For Yellen Confirmation Vote in January (WSJ)

Siobhan Hughes reports that the Senate will hold the Yellen confirmation vote, among others, in the new year. Thanks to this new schedule, the senators will be spared from having to work into the weekend before Christmas - unlike many Americans.

This Chart Blows Up the Myth of the Welfare Queen (The Atlantic)

Jordan Weissmann looks at a chart from the Bureau of Labor Statistics comparing the yearly spending of families that use public assistance programs and families that don't. Families receiving assistance have tight budgets, particularly in non-essential categories like entertainment.

The Adjunct’s Lament (In These Times)

Rebecca Burns sees adjunct professors as an example of how even so-called professionals can become part of the "precariat," a class characterized by insecurity. She looks at the difficulties in organizing these groups of workers, particularly when they seek higher wages.

Seattle Mayor-Elect Announces Minimum Wage Task Force (KIRO 7)

Graham Johnson reports that Seattle is taking its first steps toward a $15-per-hour minimum wage. One council member-elect has put a time constraint on the task force's work, stating that she'll start collecting signatures for a ballot initiative if the increase isn't passed quickly.

New on Next New Deal

Farewell to Health Care for America Now

Roosevelt Institute Senior Fellow Richard Kirsch writes about Health Care for America Now's closing shop, praising their focus on movement-building and local engagement. This kind of grassroots organizing, says Richard, is key to achieving transformational progressive change.

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Daily Digest - December 13: Who Has Real Family Values in Politics?

Dec 13, 2013Rachel Goldfarb

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Why Democrats’ Doomed Family Leave Bill Matters (MSNBC)

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Why Democrats’ Doomed Family Leave Bill Matters (MSNBC)

Irin Carmon argues that even though there's almost no chance of Congress passing it, the Family and Medical Insurance Leave Act ensures that issues of caregiving and economic justice are in the news. It also creates an opportunity to push back on the GOP's brand of "family values."

N.Y.U. Graduate Assistants to Join Auto Workers’ Union (NYT)

Steven Greenhouse reports on the graduate assistants' overwhelming support for unionizing. As the only graduate assistants' union recognized by a private university, the union hopes to create better conditions that would also make NYU's programs more attractive to applicants.

Only Progressives Care About Public Investment (The Blog of the Century)

Andrew Fieldhouse writes that while centrists claim to want adequate funding for public investment, their budget proposals suggest otherwise. Increased public investment requires increased revenue, and only the Congressional Progressive Caucus's budget proposal has enough.

The War Over Austerity Is Over. Republicans Won. (MoJo)

Kevin Drum pulls from the work of conservative wonk Yuval Levin to discuss the shift in the conversation on government spending. He notes that the Murray-Ryan budget deal sets spending lower than the original Ryan budget, which was seen as pretty extreme only a couple of years ago.

New on Next New Deal

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

Roosevelt Institute Senior Fellow Jeff Madrick says that Stanley Fischer is too much of an austerian and too doctrinaire to be the best choice for Janet Yellen's Vice Chair. He points to the 1997 Asian financial crisis for evidence that Fischer will put ideology first.

Stanley Fischer is the Right Choice to be the Fed's Vice Chair

Roosevelt Institute Senior Fellow Bo Cutter argues in favor of Fischer's diverse background and his experience in difficult policymaking arenas. With the Republicans preparing to evaluate and examine the Fed, Bo suggests that Fischer will be a valuable resource for Yellen.

Local Government is the Secret Weapon in the Fight Against Economic Inequality

Roosevelt Institute | Campus Network National Field Strategist Joelle Gamble argues that it's time to consider new ways to push back against economic inequality. Cities and towns should provide innovative incentives to businesses that encourage the right kind of economic growth.

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Stanley Fischer is the Right Choice to be the Fed's Vice Chair

Dec 12, 2013Bo Cutter

Fischer has the temperament and the experience to help guide the Federal Reserve through the difficult policy debates ahead.

A brief comment on the possible nomination of Stanley Fischer to be the Vice Chair of the Federal Reserve Board. Full disclosure: I know Professor Fischer well and think extremely highly of him. He has been a leading light of the Aspen Institute's annual seminar on the world economy, which I co-chair.

In a singe declarative sentence: this would be a wonderful nomination. I don't know why he wants to do this, but we should be so lucky.

Fischer has the temperament and the experience to help guide the Federal Reserve through the difficult policy debates ahead.

A brief comment on the possible nomination of Stanley Fischer to be the Vice Chair of the Federal Reserve Board. Full disclosure: I know Professor Fischer well and think extremely highly of him. He has been a leading light of the Aspen Institute's annual seminar on the world economy, which I co-chair.

In a singe declarative sentence: this would be a wonderful nomination. I don't know why he wants to do this, but we should be so lucky.

Stan Fischer has vast central banking and international economic policy experience. Remarkably, he just stepped down as Chairman of the Central Bank of Israel (a 10-year stint), he has been the principal deputy at the IMF, and he has long been one of the world's leading macroeconomists. There is no one in this sector Stan Fischer doesn't know and hasn't worked with.

He understands the requirements and realities of policymaking at this level. I suspect there isn't a policy environment in the world more "rough and tumble" than Israel. This is a background that will become useful in a hurry. The Republicans in the House have announced their intention to do a thorough examination of the Fed. There's no reason any major institution should be immune from being evaluated, but this is to be read as an intention to beat up the Fed as much as possible and collect as much media attention for the home districts as possible. Janet Yellen will find Stan an invaluable resource as all of this happens.

I've watched Stan for well over 10 years in discussions and debates. He is calm, he listens unusually well, and he rarely regards the person on the other side as the enemy. He actually learns in the course of a debate. The Fed faces tough calls over the next years and it will require that its leadership listen to a wide range of very smart people who passionately hold very different views.

The only area I can imagine where Stan will be attacked will be his roughly four-year period 10 years ago as a vice-chair of CitiBank. I sure hope that attack doesn't emerge. I think it's a very good thing that one of the world's leading central bankers actually has a working experience-based understanding of large commercial banks.

Finally, back to Janet Yellen. It says a lot about her - all good - that she would seek a number two as strong as Stan Fischer. You can tell a lot about how capable the person at the top is by seeing if he or she is threatened or energized by having first-rate colleagues. Clearly Janet Yellen is very comfortable with who she is and the kind of leader she wants to be.

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

 

 

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