Some deep thinkers have been coming up with some potentially useful “coulds” based on this recent post. It’s a list worth keeping up and expanding on, at least until the unemployment rates hits…oh, I don’t know…5%.
Again, let me stress that it’s once again walk-and-chew-gum time. It’s just as important to keep the “shoulds” going, but that’s a challenge with fewer constraints.
From the department of stuff that could really help and doesn’t have budget costs, both Paul and Brad DeLong mentioned recess appointments to the Fed.
Over to Brad:
“…the most obvious thing to do would be to recess-appoint Ken “6% inflation” Rogoff and Peter “I have a Nobel Prize in understanding structural unemployment” Diamond to the Board of Governors of the Federal Reserve.
…Of the twelve bank presidents, I trust Rosengren, Dudley, Pianalto, and Williams to understand both the Fed’s dual mandate and have a reality-based view of monetary policy. That’s not very many.
And two powerful, smart, eloquent, reality-based voices to the Board of Governors and to the FOMC, and we would have a Federal Reserve much more likely to do the right thing.”
Brad and Rortybomb also had some ideas to get Fannie and Freddie doing more to get this housing market anvil off the neck of the rest of the economy. These two institutions are financing the vast majority of mortgage originations right now, and their reluctance to get deeper into the modification biz is not helping. The ideas Brad and Mike espouse look good and bold to me—they’re worth pursuing (and even if ideas like these don’t get you all the way there, I think they would nudge banks holding private-label mortgages to do less extending-and-pretending, i.e., mark down non-performing home loans).
A few other coulds worthy of mention:
Currency Management: this would be a very bad time to let up on countries who subsidize their exports by suppressing their currency values in foreign exchange markets, most notably China. I’d push the Levin bill on this. And it’s bipartisan: the darn thing got 99 R votes in the last Congress! (Paul agrees, btw.)
Don’t Create Airpockets: We need fiscal impulse, i.e., another boost from fiscal policy, but absent that, it’s important not to take away fiscal boosters that are currently active, like the payroll tax holiday and, with long-term unemployment still a big problem, extended unemployment benefits. The latter in particular has a big multiplier—unemployed people tend to spend their checks—which we can’t afford to lose right now (oh, and it’s also the right thing to do when unemployment’s 9%).
Similarly, I get that there’s a budget deal to be made and totally support getting the budget on a sustainable path. But a) revenues have to be part of the deal or the spending cuts will have to be far too draconian–there’s neither reason nor excuse for a budget deal to increase poverty, and b) don’t start with any of this until the economic recovery has a lot more momentum. Please, let’s not make a 1937 mistake.