The Fed Continues to Do as Little as Possible

Federal ReserveYesterday over at Washington Post, Matt O’Brien explained, Why the Fed Is Giving Up Too Soon on the Economy. This is in reference to the Federal Reserve ending the third round of “quantitative easing” or QE3. He noted that in 2013, because of all the federal government cutbacks, the economy should have slowed down a lot. But it didn’t. And the reason for that is because of QE3. I’m not sure if I agree with that, but it is a reasonable contention. I will at least go this far: quantitative easing provides at least some stimulus to the economy and it is just crazy to think that it is a bad thing to do given our current economic situation.

O’Brien imagines what it would have been like if the federal government had done its job and not enacted policies to harm the economy. We might have seen 300,000 jobs added per month for the last two years. Except: no. This is something that economists just don’t appreciate enough. If the federal government had done its job and stimulated the economy — as everyone knew was the right thing to do since World War II — then the Federal Reserve would not have done any quantitative easing.

It is true that the unemployment rate has fallen from 7.9% at the start of 2013 to 5.9% now. But is this real? We haven’t seen wages going up. And then there is the employment rate. The following graph shows the percentage of people age 25-54 who were employed before the financial crisis and after. Given the ages, this can’t have anything to do with people retiring. And what we see is that we are maybe 20% of the way back to full employment. So that 5.9% unemployment level isn’t anywhere near full employment.

Employment Rate Ages 25-54: 2004 - 2014

So why is the Federal Reserve ending QE3? Well, if you want the official — “Let’s play nice!” — answer, you can read O’Brien’s article. I would say, however, that in ending QE3, the Fed is doing what it always does: the absolute minimum it can get away with. As long as inflation stays low, the power elite will be happy. The Fed only needs to look like it cares about employment. It doesn’t really have to care about it. After all, employment is just an issue that affects the little people. The Fed is not interested in it and they certainly aren’t afraid of it. Janet Yellen won’t lose her job because millions of people unnecessarily go without work.

So what this all comes down to is that the Fed sees its job as the backstop: something that will stop things from going too far gone. But if the elected government were doing its job, the Fed would be focused on the one thing it really cares about: keeping inflation low. And they care about that, because that is what the plutocrats care about. What matters is that people with lots and lots of money continue to enjoy their rents on it. It is a joke that the Fed has a dual mandate to keep inflation low and employment high. As Matt Yglesias said a couple of years ago, “If the unemployment and inflation rates were reversed, would the Fed do something about it?” The answer is: a lot. But what was it doing about the high unemployment at that time: as little as possible.

No, I’m Not Keen on Republicans

Rush LimbaughIt seems as though people are grabbing onto a factoid and making a big deal out of it. Or at least Cass Sunstein and David Brooks are. It is based on a 2010 poll that found that 33% of Democrats and 49% of Republicans would be displeased if their child married someone of the opposite party. This is up from 1960 when pretty much no one thought that. I think it is worth noting that 1960 was kind of a transitional period when the Republicans were turning into freaks and Democrats were finally starting to shed their historic racism. Of course, this was also a time when the political parties simply didn’t mean that much in an ideological sense. The liberal Republicans were more liberal than the conservative Democrats.

For all the problems I may sometimes have with Jonathan Chait, there are few writers who so easily obliterate this kind of nonsense, Confessions of a “Partyist”: Yes, I Judge Your Politics. But let me lay it out very simply. The problem with racism is, to rip off Martin Luther King, judging people on the color of their skin instead of the content of the character. It isn’t wrong to dislike someone because they hold vile opinions. Political parties are now highly ideological, so “Republican” or “Democrat” is shorthand for certain beliefs. Why is it wrong to say you wouldn’t want someone of the other party marrying your son or daughter?

I talk as much as I can to conservatives. And on economic issues, we usually have a lot of common ground — at least until an issue starts to be propagandized on the right. But the fact remains that on social issues, these people tend to hold positions that I find troubling. They tend to have very unsophisticated notions of sociology that, in their extremes, lead to blatant racism. And, as John Dean documented in Conservatives without Conscience, most conservatives have strong authoritarian tendencies. Does all this apply to all Republicans? Certain not. But as Chait observed:

Note that the wording of the poll asks if you’d feel “displeased” about your child marrying an opposing party loyalist, not whether such a thing would be Montagues-and-Capulets unacceptable. I consider Republicanism a negative factor in a potential in-law. That is not the only ideological objection. I would likewise bring healthy skepticism to a Marxist, anarchist, radical Islamist, monarchist, or advocate of Greater Russia. That goes for advocates of belligerent, hypernationalism of any kind — though, come to think of it, most belligerent hypernationalists you run into in this country happen to be Republicans.

And I can understand it from the other side, although I think it is weird that Republicans feel more strongly about this than Democrats. Liberals tend to be naive, always wanting to find good in people, even when it isn’t there. Liberals aren’t patriotic in the way that conservatives tend to define the word. We are very often embarrassed by ostentatious expressions of nationalism whereas conservatives see this as what patriotism is. Liberals are trying to destroy America by tearing down the most successful and elevating the weak. Again, I don’t see it this way. Conservatives actually show a shocking lack of understanding about sociology and psychology, but I get that they look at me and see an America-hating wimp.

What the numbers most likely mean is that the really ideological people (roughly 20% on the left and 20% on the right) have a problem with their children marrying people of the opposite ideology. And to be honest, I don’t see any problem with that. It makes as much sense as religious parents having problems with heretical in-laws. It’s all about ideas. I think the vast majority of Americans would not want to have to spend every Thanksgiving with a neo-Nazi in-law. It wouldn’t be the label that was the problem — it would be what the label says about what they think. No one wants to have that argument about Aryan skull shape and the inferiority of Jews. Just the same, we Democrats are not interested in hearing how right what Rush Limbaugh said about catcalls was.

The Real Social Security Problem: Income Inequality

Dean BakerI have only ever had one real complaint against Dean Baker, because he is, you know, brilliant — perhaps the best practical macroeconomist in the world. (And yes, I do know what a remarkable claim that is.) But where I differ with him is that sometimes he sticks to the economics too tight without admitting political realities. For example, he dismisses the concern about decreasing numbers of workers for each retiree. He argues that it doesn’t matter because wages should go up at a faster rate that will dwarf this effect. This is true. The problem is that middle class wages have been pretty stagnant the last 35 years as almost all productivity gains have gone to the rich. Baker’s implicit point is that this problem has nothing to do with Social Security and so shouldn’t be phrased as though it did.

In an article today, I think Baker did a much better job of explaining the whole situation, Washington Post Offers Lesson in Bad Public Opinion Polling. He explained that the problem is that we have other (non-Social-Security) policies that affect the distribution of incomes:

A tax hike of this magnitude is less than 10 percent of the projected rise in average real wages over the next two decades. In the last three decades, most workers have seen little or no real wage gains because the vast majority of wage growth has gone to those at the top of the income distribution. It will make far more difference to workers’ living standards in 2033 whether we continue the policies that have led to this upward redistribution (eg Federal Reserve Board policy that uses high interest rates to keep unemployment from falling, trade policy that uses international competition to lower the wages of most workers, and financial policy that subsidizes Wall Street) than if we raise Social Security taxes to maintain benefit levels.

Yes, yes, yes! Of course, that really is the point of the people who are now and forever wringing their hands about Social Security: they take it is a given that the rich should be taking all the gains from the economy. They take it as such a given that they never even think it is open to discussion. The way things are is the way that things must be.

It reminds me of all the upper-middle class urban journalists who just love Uber. I don’t personally have against companies like that. But these same journalists never seem to get excited about things like strong unions that would give workers more power. No, it is always some “free market” solution that ends up with workers doing worse and just so happens to provide marginal gains for upper-middle class urban journalists.

So we get the same kind of thing from the Washington Post. I know it doesn’t work this way, but it seems like there is an explicit decision making process: we must only consider solutions that the power elite will go along with. What is probably more the case is that the rich are the ones who fund think tanks and so there are reports that come out that talk about the necessity of chained-CPI (Social Security cuts). There are not nearly as many reports about raising the payroll tax cap, because that would cost the rich more money. And there is virtually no talk about the policies that have destroyed unions and which funnel money from the poor to the rich.

So the Washington Post can shed crocodile tears about raising the payroll taxes of the poor by 3 percentage points in 2033. But there is no talk of the fact that for almost four decades the poor have not participated in our economic growth and there is no reason to think this will change in the next two decades. In fact, those writing for mainstream media outlets don’t even seem to be aware of these problems. So they continue to claim fealty to the well-being of the poor, when their only concern is the continued bleeding of the poor to enrich the power elite.

“Comfort the afflicted, and afflict the comfortable”?
That’s not the modern American way!

Politics and Cultivated Stupidity

Charles PierceHow can anyone possibly look at the past 14 years and conclude that the modern Republican party can be trusted to “make the economy favor regular people again”? The party of deregulation, privatization, obstruction, and Mitt Freaking Romney? Well, one reason is that there is no apparent opposition to it on the core economic issues. There has been lip service, and moans of impotent frustration, and Tim Freaking Geithner as Treasury Secretary. So kids come to believe the darndest things…

Yeah, this is about a kind of willful detachment and deliberately cultivated stupidity on the part of what is still allegedly a self-governing people. But it’s also about every Democratic politician who made The Deficit more of a priority than stimulating the economy, all the Democratic politicians who fed Vaal on the Simpson-Bowles fiasco, and every Democratic senator in a “red” state, most of which took the brunt of the collapse right in the teeth, who chose austerity because that’s what “my constituents” want. This is Creationism in a political context, true. But it’s Creationism that both parties pitched to the country. Come next Tuesday, we may see the true triumph of calculated and crafted ignorance. Nice job, everyone.

—Charlie Pierce
Kill Me Now

John Adams Was Not All Bad

John AdamsOn this day in 1735, John Adams was born. When I was a kid, I thought quite highly of him. He had a nice wife and most of the best songs in 1776. It was only later that I learned about the four Alien and Sedition Acts. The republic had only been in existence for a scant decade and already Adams and his allies were trying to destroy it. I’m not saying that they weren’t right to have concerns. Armed rebellion was a very good possibility. But the Naturalization Act and the two Alien acts were just xenophobic power grabs. And the Sedition Act was nothing but an attempt to stop the political competition from talking. The truth is, I don’t see how any of the acts made an armed rebellion less likely. But I suspect the real concern — what conservatives are always worried about — was that democracy would work and the Federalists would be thrown out of power. Indeed, Adams would be the last Federalist president, and the party would be gone completely in Adams’ own life.

What Adams most symbolizes to me is the desire among many people in the early days of the United States to have hereditary rule. It is true that Adams said many things during his life, but it is clear what he thought. He did spend much of the later years of his life disavowing this belief. But that was just because Jefferson and company had beat up on him so much. When Adams had political power, he really did have classist beliefs. And I understand that. It is hard not to look out on the world and escape the conclusion that if only everyone listened to my wise self, all would be grand. But good sense always gets in my way. Adams had no such blocking mechanism.

(My ultimate dream is that I could be a kind of Kermit the Frog. I would be the calm in the middle of the storm of creative insanity. I could add that little bit of structure that they all need for greatness. Sadly, in humans — as opposed to the superior puppets — the creative insane tend to break off into their own creative twisters. Alas, my dream is destined to die with me.)

On the other hand, there is the Boston Massacre. Not only did it show some fortitude to take the case, it showed a good deal of open-mindedness. And in the case, he said something that conservatives of my age have lost sight of:

It is more important that innocence be protected than it is that guilt be punished, for guilt and crimes are so frequent in this world that they cannot all be punished.

But if innocence itself is brought to the bar and condemned, perhaps to die, then the citizen will say, “whether I do good or whether I do evil is immaterial, for innocence itself is no protection,” and if such an idea as that were to take hold in the mind of the citizen that would be the end of security whatsoever.

So I don’t think Adams was all bad. He wasn’t a slave owner! And he lost the 1800 election to Jefferson because of the South’s inflated population size because of the slave population, which were only citizens for the purpose of giving slave owners more political power. Ultimately, John Adams is no worse than Edmund Burke. And it is clear that neither man would be welcome in the modern conservative movement. And that’s shocking.

Happy birthday John Adams!