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

Sep 18, 2013Rachel Goldfarb

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There is Still Much to Learn From Lehman (FT)

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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.

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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

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