What’s To Be Done?

June 1st, 2012 at 2:38 pm

OK.  In my last post I vented about how political gridlock got us here and threatens to keep us here, but remember, this is America!  We don’t lie down, throw up our hands, point our fingers, and give up!  We roll up our sleeves and try to fix stuff.

So, what should we do right now?  Here are some thoughts, in order of political plausibility.

The Fed needs to step up.  I know…I’ve argued there’s not a lot monetary policy can do on its own right now.  My point is that interest rates are already low, investors are pretty flush with cash, and anyway, investment is the one part of GDP that’s been pretty reliably growing.  Still, all that said, another round of quantitative easing is called for.  After all, the FOMC themselves have been saying that if things get worse, they’ll pull that trigger.  Well, things are worse. 

Do no harm.  Readers of OTE know that I do not blithely play the uncertainty card.  What’s held back growth and hiring in this economy is not clause #572/7 from the Affordable Care Act or the EPA or the 75 year fiscal outlook.  It’s the near term demand contraction.  But I’ve started citing the problem of uncertainty regarding upcoming fiscal issues and this is something Congress could quickly fix if enough of them grasped the urgency of the situation.

And it’s not just market uncertainty I’m thinking of here.  There are millions of people working for government contractors who could get stung if automatic cuts hit all at once.  Tax increases, along with the loss of the payroll tax break will bite paychecks that are already, on average, falling behind inflation.

That doesn’t mean we should extend all the expiring provisions—that would be worse than doing nothing at all.  But if the deceleration of job growth we’ve just seen doesn’t convince these folks to put aside their differences and compromise on behalf of working Americans, then they’ve got no business being here.

Keep extended UI going: Extended Unemployment Insurance benefits are just about as necessary as ever, yet the extended benefits program is actively winding down across the nation, as my CBPP colleague Hannah Shaw shows here.  Yet, 5.4 million jobless folks—43% of the unemployed–have been out of work for at least half a year, and, as shown in the figure, that share hasn’t come down much at all.

And since the unemployed…um…don’t have jobs, they tend to spend these benefits generating useful multiplier effects.

–Enact fiscal stimulus: Finally, and almost certainly leaving the realm of political reality, measures like state/local fiscal relief and FAST! would help a lot right now.

Now, let’s say the Fed acts, which as I said, would be good but not enough.  And let’s say UI and more stimulus are off the table.

That leaves “do no harm” and that strikes me as perhaps, maybe, I-doubt-it-but-who-knows possible.  I suspect it would actually help the economy in no small way if Congress said to America:

“We disagree on many fundamental points about the role and size of government.  But one thing on which we stand shoulder-to-shoulder is that the American people should not have to suffer because of our disagreements.

We face today a number of fiscal issues that must be resolved in coming months and given what we just learned today about the job market, we’ve decided to take one big set of worries off the table.

By working together and compromising, we’ve come to an agreement that avoids the fiscal cliff and lifts the debt ceiling today.  We didn’t fix everything forever—we’ll need to revisit these tough issues in coming months.  But despite our inherent differences, there’s no way we’re going to inflict any more wounds on this economy at a time like this.”

I can dream, can’t I?

Print Friendly, PDF & Email

19 comments in reply to "What’s To Be Done?"

  1. save_the_rustbelt says:

    Nothing much good will happen until the day after the election, if then.

    Besides demand being in the tank, business has no confidence in the Obama administration, no confidence in Congress, no confidence in Europe and generally no confidence in anything. That breeds uncertainty.

    And PPACA is causing uncertainty for employers, even if liberals will not admit it.

  2. rjs says:

    short of dropping money from helicopters, what more can the Fed do? 10 year treasury rates are under 1.6%, which i believe are the lowest on record…

    • Jared Bernstein says:

      Agree–the only thing they can do is increase inflationary expectations, which a) isn’t as easy as it might sound right now, and b) they’ve said they don’t want to do!

  3. The Raven says:

    Dr. Bernstein, I think you know that structural political reforms must take place before there will be more than minor economic reforms enacted. So we must turn to those.

    Save_the_rustbelt, what, the evil no-confidence fairy? I don’t think business cares that much about confidence. If there’s business to be done, business will do it, but there is little business to be done, and there will be be little business to be done until demand recovers. Seriously, as a business creature, I respond more to actual orders than anything else. I think you know this: stop kicking up political dust to obscure the reality.

  4. speedbll says:

    Options for the President are pretty limited. He could declare war on Iran, the favorite stimulus program of all Republicans is afterall a war stimulus, but other than that the Congress won’t let anything that might create jobs thru. He could always take credit for the reduction in gas prices in the last month. If he gets the blame for them going up then he should get the credit for them going down. Maybe he could allow construction of the Keystone XL pipeline to proceed. God knows the oil from Alberta costs more to extract from the muskeg oil sands than practically any other oil source and it won’t reduce oil prices one damn cent but if the wingnuts are going to use it as propaganda why shouldn’t the Democrats. Looks like were heading for free and unfettered markets La La Land. God help us all.

  5. Joe Marinaro says:

    Set up infrastructure bank but pay for it! Create a payroll tax that, combined with the gas tax would provide the required amount. Pay for the payroll tax by reducing the lowest marginal income tax rate (currently 10%) in a corresponding amount. If this is important (and I think it is) then let’s dedicate a funding source for it that everyone contributes to.

    Oh and to know it would be bipartisan, note that Repubs will not like it since it formalizes a government program with permanent funding and Dems will hate it because it would be paid for out of current revenues and require spending cuts elsewhere. Buy off the Dems by making the payroll tax more progressive. Buy off Repubs by limiting union interference an pay demands.

  6. perplexed says:

    -Challenge the Constitutionality of excluding labor from anti-trust protections and force a choice between open markets or compensation of those excluded. If everyone was sharing the costs of the output gap and fully compensating the victims, congressional representatives that refuse to do what’s needed to support the economy would soon be the ones looking for jobs. Not even Grover Norquist could coerce representatives that had no possibility of being elected.

    • Michael says:

      You’re charming. At this point, politicians work exclusively for post-employment hiring.

      cf: Cory Booker

      • perplexed says:

        Apparently you’re too easily charmed.

        Who is ultimately responsible for this outcome? These people are elected to office and laws allowing (or lack of laws penalizing) these revolving door policies are made by elected “representatives.”

        “Americans go around saying how sorry politicians are,” he said to Brokaw, “but they voted them in.  We listen to the rhetoric of politicians, but we don’t really listen to their specific proposals.  The Tea Party Caucus in the House has an 18 percent approval rating, but they’ve only done what they promised to do in 2010.  So the American people need to take more ownership.”  -Bill Clinton

  7. Mike R. says:

    I think I’m the problem. When I lost my job 3 years ago at age 59 I thought I could actually retire, as it turns out that was way optimistic and so I started looking for a job, pretty much any job to supplement a small pension and fleshing things out with disbursements from my 401k. Not only was there no market for a 60+ year old manufacturing supervisor but there were no jobs at all.
    So now I live off a fraction of what I made 4 years ago; but I spend nothing except for absolute necessities…..no Best Buy, no Home Depot, no travel, no movies, no new cars. I buy groceries, I pay my taxes, insurances and utilities, I pay my mortgage (for now). I add nothing to consumer demand and none of the fine retailers near me get the benefit of my spending so they close (I’m not alone) and more people are out of work and stop spending.
    I believe the President has tried to find a way out of this mess but Congressional Republicans will have none of it and so I and my family and millions of other families will continue to be the problem.

    • Michael says:

      I believe that the President is wrong AND that Congressional Republicans are evil. I obviously am way more okay with Obama’s wrongness than the GOP’s evil, but the practical result is, sadly, the same.

  8. Tom in MN says:

    Along with your do no harm idea you should also consider the risks of the choices (DeLong is big on this point).

    Do nothing and the economy might go back into recession or at least turn temporary into structural unemployment and prolong all the suffering involved.

    Enact stimulus and what’s the worry? Inflation some will say, but the Fed has a very large hammer to knock down inflation any time they want. Even if stimulus does nothing but give us new roads and schools (FAST!) what’s the harm?

    So the risks are all on the side of doing nothing.

  9. Bob Walling says:


    Great Ideas and you always have some good common sense ideas, but …… I have decided to turn you in to the conservative thought police. You are not allowed to dream and especially dream about common sense ideas. Now let me assure you that I do not do this out of spite, but cash is cash! They offered me a reward …… $10,000 (from Romney) and dinner with Donald the duck man!!! Sorry Dog!

  10. The Raven says:

    perplexed: “Challenge the Constitutionality of excluding labor from anti-trust protections”

    Oh, right, weaken the negotiating position of employees some more. Lower wages–that will really get people buying.


    Mike R: sympathies to you.

    What’s needed is a political change. Obama can’t even speak critically of Mitt Romney’s job destruction without being undercut by his own party. Except some of the party has to do that, if Obama is going to have the billion dollar war chest needed to win the election.

    • perplexed says:

      “Oh, right, weaken the negotiating position of employees some more. Lower wages–that will really get people buying.”

      Voters won’t stand for that outcome. Instead, those excluded from the market will be adequately compensated until the problem they had nothing to do with causing gets resolved(which would also act as an automatic stimulus as they have a high MPC). The political (and economic) pressure to do everything possible to avoid mass unemployment would be enormous. Those seeking to impose austerity on an economy with less than full employment would be “run out of town” as they should be.

      Not to mention that it would be fair. What we are now doing is nothing but the cruel use of majority power against a powerless minority; just an insidious form of the “tyranny of the majority” of which the Founders so feared would prevent democracy from working if not adequately prevented.

  11. Michael says:

    I’m sorry, but this is all irrelevant. Conservatives hate America and want it to fail. We need to persuade conservatives that even if gay people get married and black people can get ahead, it’s still worth loving their own children.

    Everything is on hold until that conversation takes place. OFA looked like it was going to be a vehicle for it, but Obama killed that.

  12. Rima Regas says:

    In a normal political set-up, even with a divided House and Senate, something like what you’re proposing would be very doable. These are hardly normal times. It would behoove the administration to go all out, just like the President did this winter, and run against a do-nothing Congress. His ratings went up and people were visibly engaged. This time, both he and your ex-boss need to do it. It would also behoove them to go on a media blitz about the economy, with a blend of Econ 101 spots, interspersed with political ads. The public’s misconceptions about how an economy runs, versus a household, need to be addressed. People instinctively understand that what the GOP wants to do is inherently slanted toward the top .001%. They need to know why and how. That’s the only way to get the independent voter and some of the less conservative Republicans.

    Sure we need more stimulus. It’s not going to happen. We need to help the states so they stop their austerity programs. That won’t happen, either. The Fed? Mr. Bernanke is not a courageous man. I don’t think he’ll do much. It’s all politics from here on out. Good hearing you on PoliticsNation today. Keep up the good fight. Thanks.

  13. Chris G says:

    >There are millions of people working for government contractors who could get stung if automatic cuts hit all at once.

    I resemble that remark. There’s actually been a slow motion sting over the past year plus. From all appearances Gov’t agencies – well, DoD, at least – have been holding back on funding new R&D because they don’t know what’s going to happen with their budgets and don’t want to get caught having promised funding that ends up getting cut from their budget. (Ongoing R&D programs have expiration dates and, with no (or, more accurately, far fewer) new opportunities in the pipeline, people like myself see the edge of the cliff coming up fairly fast.) If agencies commit money to work planned for a year, two years, three years down the line and then their budget cuts slashed then the shortfall would likely come out of their hides, i.e., Gov’t employees getting laid off. From a self-preservation standpoint, better to cut the contractors loose than put your own neck on the line – at least that’s my interpretation of the facts on the ground.

  14. Eric Titus says:

    But despite our inherent differences, there’s no way we’re going to inflict any more wounds on this economy at a time like this.

    I agreed with most of what was said, but I think we need to start treating current economic conditions as a baseline rather than a crisis. The thing is, for the past three years we’ve been acting as though getting policy to create jobs over the next several months should be out highest priority, and we’ve lost focus on the long term or issues that are more complex than joblessness.

    We need to stop acting as though increasing the employment rate .1% will save out economy, and start acting as thought the decisions we make will have an impact 5 or 10 years down the line.