...Private-sector job growth, such as it is, will be undercut by continuing mass layoffs of public employees. Foreclosures, driven by joblessness and falling home prices, are expected to further depress property values. These factors — along with a faltering stock market — will constrain consumer spending. So it is folly to believe that the economy is ready to stand on its own, if not for passing setbacks. And yet that is the view from Washington.
Federal support for the economy is ending. The stimulus from 2009 is all but spent, while the payroll tax cut and extended federal jobless benefits from 2010 are set to expire at year’s end. Foreclosure relief is paltry. The Federal Reserve bond buying program, which has buoyed the stock market, is scheduled to end this month.
In addition, Republican lawmakers are demanding immediate spending cuts as a condition for raising the debt limit, and the White House is likely to accede. Deep reductions would further damage the economy.
Mr. Bernanke warned of the danger in sharp near-term budget cuts and proposed a sound alternative: avoiding big cuts now in favor of enacting a credible plan for deficit reduction to be rolled out gradually.
Of course, doing no harm will not be enough. The economy needs help, like direct federal job creation and options for homeowners to reduce the principal on troubled loans.
Even that won't make any difference as long as the bank$ters are calling the policy shots. The economic problem has pretty clear solutions economic laureates have been pointing out, and the Laureate-in-Chief has been carefully avoiding. For example, Dr. Krugman:
...On Tuesday, Ben Bernanke, the Fed chairman, acknowledged the grimness of the economic picture but indicated that he will do nothing about it.
And debt relief for homeowners — which could have done a lot to promote overall economic recovery — has simply dropped off the agenda. The existing program for mortgage relief has been a bust, spending only a tiny fraction of the funds allocated, but there seems to be no interest in revamping and restarting the effort.
The situation is similar in Europe, but arguably even worse. In particular, the European Central Bank’s hard-money, anti-debt-relief rhetoric makes Mr. Bernanke sound like William Jennings Bryan.
What lies behind this trans-Atlantic policy paralysis? I’m increasingly convinced that it’s a response to interest-group pressure. Consciously or not, policy makers are catering almost exclusively to the interests of rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense.
Of course, that’s not the way what I call the Pain Caucus makes its case. Instead, the argument against helping the unemployed is framed in terms of economic risks: Do anything to create jobs and interest rates will soar, runaway inflation will break out, and so on. But these risks keep not materializing. Interest rates remain near historic lows, while inflation outside the price of oil — which is determined by world markets and events, not U.S. policy — remains low.
And against these hypothetical risks one must set the reality of an economy that remains deeply depressed, at great cost both to today’s workers and to our nation’s future. After all, how can we expect to prosper two decades from now when millions of young graduates are, in effect, being denied the chance to get started on their careers?
Ask for a coherent theory behind the abandonment of the unemployed and you won’t get an answer. Instead, members of the Pain Caucus seem to be making it up as they go along, inventing ever-changing rationales for their never-changing policy prescriptions.
While the ostensible reasons for inflicting pain keep changing, however, the policy prescriptions of the Pain Caucus all have one thing in common: They protect the interests of creditors, no matter the cost. Deficit spending could put the unemployed to work — but it might hurt the interests of existing bondholders. More aggressive action by the Fed could help boost us out of this slump — in fact, even Republican economists have argued that a bit of inflation might be exactly what the doctor ordered — but deflation, not inflation, serves the interests of creditors. And, of course, there’s fierce opposition to anything smacking of debt relief...
Fierce opposition from the electorate? Heavens, no. From the people that own the candidates? Absolutely, yes. There will be no Recovery until it's profitable for the Right Sort of people.
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