By embracing the gratuitous anti-government rhetoric and archaic economic theorizing that passes for policy analysis in much of today’s G.O.P., Congress and the White House might be making the same mistake that F.D.R.’s Administration made in 1937, when it brought on another recession. And Fed Chairman Bernanke, a much-ballyhooed expert on the Great Depression has, on many occasions, shown the willingness to tell members of his own party things they don’t want to hear.
Of course, his warnings are likely to be ignored, but that is beside the point. Bernanke has done his bit for sanity and reason. He and many of his colleagues are worried that by embracing austerity policies, the U.S. will be making the mirror image of the mistakes made both before and during the Great Depression.
The U.S. Never Learns
Not only does the U.S. voting public refuse to believe that they can get ito a situation that they can not get out of, they seem to want to prove it. The results of Europe’s experiment in fiscal shock therapy are in: austerity has failed, and failed miserably.
The eurozone club of 17 countries is now plagued by mass unemployment –- 26 percent and rising in Spain and Greece –- and a prolonged drought in demand. Recession-torn Italy is in the grips of a political crisis; neo-Nazis have actually been elected to parliament in depression-hit Greece.
Outside the eurozone, the UK economy last week lost its prized triple-A credit rating, and has been battered and humiliated by a double-dip recession after making strong inroads to recovery; in much the same way that America had done so…until the insanity of sequestration and the 84 billion, across-the-board spending cuts were welcomed by a stubborn and beyond crazy GOP who has been allowed to change the very process of the Democracy it pushes onto other countries.
Why then is the United States Congress committed to repeating Europe’s economic mistakes? Some analysts in England are in disbelief as their American cousins seemingly undermine themselves with a succession of politically-inspired yet macroeconomically-illiterate bonehead maneuvers — from the “supercommittee,” to the “fiscal cliff,” to the latest legislative Americanism, the “sequester.”
The repercussions of an austerity-induced double-dip recession in the U.S. –- still the world’s biggest and most important economy, by some distance –- could be global. “We were just beginning to feel that the Americans were pulling Europe out of austerity and now they’re going to plunge us all back in it,” says a gloomy Ann Pettifor, director of PRIME Economics and one of the few British economists to have predicted the 2008 financial crash. “The fact is that further [U.S.] contraction is going to crash the global economy.”
The Fed Has Done Its Job, Why Won’t Congress?
The answer always reverts to abject ignorance, a political civil war, and a media that fuels it. Bernanke, appearing before Congress, recently repeated his warning that the Fed was powerless to offset the hit to the economy from the combined effects of tax increases and spending cuts, which he said could well reduce economic growth this year by about one and a half per cent of G.D.P. “There is a sense in which monetary and fiscal policy are operating at cross purposes,” he said. “The (deficit) problem is a long-term problem and should be addressed over a longer time frame.” [I suppose “Economist Joe Scarborough will want to debate Chairman Bernanke as he did Paul Krugman—word of warning to self-declared Mr. Know-it-All Joe Scarborough, Ben Bernanke won’t let you shout and verbally abuse like mild-manned Paul Krugman did].
While the Fed chairman’s warning about the futility of Republican policy appears unlikely to be heeded, it augments his reputation as a straight shooter. With just eleven months to go before his second term is up, and with reports saying he doesn’t want to be renominated, he has evidently decided to say what he thinks and be damned. Not only did he put pressure on G.O.P. leaders to compromise in the dispute over the sequester; he also called on European countries to ease up on their austerity policies, saying that they could adopt a “more judicious balance” of short-term and long-term fiscal policy consolidation.
Of course, being lectured by George W. Bush’s former chief economic adviser didn’t sit well with some Senators. Tennessean Corker, a former builder who is a long-time critic of Bernanke’s expansionary policies, called him “the biggest dove since World War Two.” Toomey, a former head of the conservative lobbying group Club for Growth, questioned whether the sequester would have any real impact on the economy. Bernanke shrugged off the criticisms, the same way he always has; by laying out the actuality of the situation.
He tried to point out some of the significant advances that have already been made in stabilizing public finances. Backing him up was the Congressional Budget Office which recently forecast that by 2015 the budget deficit will be just two and one-half percent of GDP, while in 2009, it was ten percent. A fact Republicans are determined to bury.
While the Fed’s monetary policies gave the economy some support—in an effort to bring down interest rates, it is purchasing tens of billions of bonds every month—“I don’t think they can offset the one-and-a-half per cent of fiscal restraint we are seeing this year,” Bernanke explained. Therefore, much depends on Congress. As I’ve explained before, monetary policy can only get you so far…the real cure has to come from fiscal policy and monetary policy working in tandem.
If most of this was merely what any adequate macroeconomics textbook will tell you—tax and spending policies have a big impact on the economy; monetary and fiscal policies work best in concert—it was a message that needed restating loudly and clearly. Bernanke did that, as well as stressing the urgent need to bring down unemployment, particularly long-term unemployment, which is the main rationalization for the Fed’s expansionary policies:
High unemployment has substantial costs, including not only the hardship faced by the unemployed and their families, but also the harm done to the strength and productive potential of our economy as a whole. Tax cuts to the wealthy literally accomplish nothing.
Lengthy periods of unemployment and underemployment eat away at :
- Workers’ skills and attachment to the labor force
- Prevent young people from gaining skills and experience in the first place—developments that drastically diminish their productivity and earnings in the longer term
- The loss of output and earnings associated with high unemployment also reduces government revenues and increases spending, thereby leading to larger deficits and higher levels of debt
- And worst of all it destroys demand for goods and services…the ACTUAL fuel of capitalism and a thriving economy
This isn’t a new argument to economists, [Except Joe Scarborough of course].
Going back to the nineteen-thirties and nineteen-forties, Keynes and many of his followers were fully aware of how high unemployment, in addition to being a human disaster, ruined an economy’s long-term productive potential.
During the nineteen-eighties, this caustic process was given a fancy name—“hysteresis”—and applied to Europe. Now it is threatening the U.S.—a fact Bernanke that has been busy pointing out. He has stuck with the message despite the fact that many people on the ultra-right are accusing him of debasing the currency, confiscating the savings of the elderly, and generally being engaged in some quasi-socialist plot to undermine the Republic.
For any Fed chairman deserving of the position, such criticisms are part of the job[Unless you are Andrea Mitchell’s husband, EX-Chairman Alan Greenspan].
We could have done SO much worse than Ben Bernanke. It’s a shame he’s been wasted on such an ignorant, lazy, and arrogant group of Republican obstructionists in Congress..
Harvey A. Gold