Wednesday, June 26, 2013

3 Georgia Congressmen don't care about massive unemployment. Where are the pitch forks?

I'm not an expert on monetary policy but sometimes Republicans do idotic things that require bringing attention to bland and boring stuff my friends don't always stay up to date on. This mornings "edition of idiocy of the GOP" is on Federal Reserve policy--the FFOCUS Act of 2013.

So bear with me as this is a dozy in a very boring kind of way.*

The Federal Reserve is the central bank of the United States. The Fed's duties, according to its own Board of Governors [PDF] fall into four general areas:
• conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates 
• supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers 
• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets 
• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system
The Federal Reserve is considered an independent body because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government.  But the Federal Reserve System's authority is derived from statutes of Congress and is subject to Congressional oversight.

For the most part, since the beginning of the current economic crisis, the Fed has been relatively proactive on the monetary policy front.  The reason workers are facing, what amounts to a depression, is that Congress and the President have been sitting on their hands on the Fiscal policy side of the equation.

Well now 30 Republicans (3 from here in Georgia) are trying to utilize their oversight powers of the Fed in a way that will not really change anything at the Fed over the short term but does give us a good idea about their priorities as members of Congress.

Let me outsource to Josh Israel over at Think Progress:
Rep. Marlin A. Stutzman (R-IN) introduced hisFFOCUS Act of 2013 earlier this year. The bill, which has 29 Republican co-sponsors, claims to be about “focusing” the Federal Reserve on its mission of preserving stable prices. To do this, the legislation strips the Board of Governors of the Federal Reserve System and the Federal Open Market Committee of their other mission — encouraging “maximum employment.”
While the Federal Reserve has focused more of its efforts on controlling inflation than on stimulating job growth, monetary policy has the potential to be a key component for spurring job growth. By taking that out of the Fed’s mission altogether, these Representatives would effectively eliminate a major government tool from their alleged “jobs, jobs, jobs” mission.
Now this is where it gets interesting because ending the Fed's "dual mandate", ending its mission to seek maximum employment, would not change anything over the short term.

Matthew Yglesias noted this last month:
Ben Bernanke's appearances before Congress are usually a parade of clueless questions, but Sen. Amy Klobuchar of Minnesota just asked him a great one. Noting that some members of Congress think the Fed should drop its dual mandate on inflation and unemployment and just focus on price stability, she asked Bernanke to explain what he would do differently if the mandate changed.
Bernanke hemmed and hawed a bit, but the crux of his answer was: nothing.
He seemed to interpret the question as perhaps an attack on his inflation record, but his answer was a damning attack on his growth record. (His answer starts around the 39-minute mark here.) Bernanke noted that "inflation, if anything, is a little bit too low" and said that even though many foreign central banks have a single mandate: "I think our inflation record is as good as really any major central bank, and so there's not really been a sacrifice in that respect."*
That's a huge tell right there. Bernanke can't name a single way in which his policy would change if Congress rescinded his legal mandate to attempt to maximize employment.
So ending the Fed's employment mandate changes nothing over the short term according to Bernanke.

This gives Yglesias a moment to pause and do some of that oversight we might hope our members of Congress do.  Hold up a minute Matt says:
In other words, he's ignoring that mandate. The Federal Reserve's attitude with respect to price inflation has been identical to what its attitude would be in a world in which it wasn't legally required to care about inflation. And that attitude is hammering the economy. Normally there's no substantial tradeoff between inflation and unemployment, but things are different at the zero bound. Once nominal interest rates reach zero, the most potent way to reduce real interest rates is to raise expectations of future inflation. Lower real rates mean more investment and more durable goods purchases—in other words more jobs. So right now there is an inflation-unemployment tradeoff, and Bernanke is behaving as if he has no employment mandate.
So right now, in the middle of massive unemployment we have a Federal Reserve not acting on its employment mandate and GOP members of Congress openly admitting they have no concern about massive unemployment.  Their concern is for the 1% who get them elected and fund the think tanks where the get their "free market" ideological talking points from.

Sadly we've elected a large group of people to Congress (on both sides of the aisle) who could care less about the concerns of every day people.

The 3 members of Congress from Georgia who don't care about the 8.2% unemployment rate Georgia is currently facing are:
Rep Graves, Tom [GA-14] 
 Rep Westmoreland, Lynn A. [GA-3]
 Rep Woodall, Rob [GA-7]
We passed some stimulus early out of the gate of the great recession.  But it was not nearly the size it needed to be to make up for the giant hole in the economy that was created by the bursting of the housing bubble.

Now we have massive unemployment giving us a devastating real world counter-example to shut down simplistic notions that "Capitalism efficiently and effectively allocates resources to the needs of society without the need of Government intervention."

We have people who want to work and lots of work, as a society, that needs to be done.

The obvious solution, which the U.S. did during the Great Depression, is to proactively jump in and make up for the failures of the private sector. To connect those two needs together via massive jobs programs and a spending spree on investment in infrastructure (both physical and social/cultural) to get people working and get some investment and development that will stick around long after the private sector has regained appropriate momentum.

Instead we have the likes of these 30 Republicans using their majority power in Congress to ignore the plight of citizens in their district.  Hold on to your hats boys and girls--this is going to be a really long economic depression.

Dean Baker over at the Center for Economic and Policy Research fleshed out this issue a bit more for me this morning via email:
There is a small point in defense of Bernanke (until now). They interpret price stability as 2.0 percent inflation. Since the inflation rate has generally been somewhat below this for the last 4 years, expansionary monetary policy was actually consistent with price stability. Of course Bernanke's announcement of his plans for tapering goes in the opposite direction.

Matt is also a bit off -- there is a tradeoff when the unemployment rate gets lower. Suppose the unemployment rate were 5.0 percent and the inflation rate were 2.0 percent. Should the Fed allow the unemployment rate to fall and risk higher inflation? My answer is yes, but that is a trade-off story.
For more on the tapering recently announced that Dean is talking about you can check out his recent op-ed over at Al Jazeera: The Ben Bernanke pre-mature taper blues.

*pardon the 3am blogging spelling/grammar as I'm off to work without an edit.
**strike that, 1 edit as Matt's post and Bernanke's testimony were from back in May.

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