The debate among liberals over the economy has essentially created two camps. You have economic pessimists/political optimists, who have emphasized the awfulness of the economy, but argue that stronger action (or at least rhetoric) from President Obama could measurably improve things, or at the very least help him avoid the blame. Then you have economic optimists/political pessimists, who insist there's no way to pass better macroeconomic policy, but the economy isn't really as bad as people think.
With a Republican-controlled House demanding large cuts in present and future spending in exchange for an increase in the debt ceiling, the possibility that the federal government will have trouble financing and issuing new debt is becoming more frighteningly likely each day. Treasury Secretary Tim Geithner, CBO chief Doug Elmendorf, and Federal Reserve Chairman Ben Bernanke have all encouraged Congress in strong terms to resolve the debt ceiling stand-off before the creditworthiness of the United States is jeopardized.
Too Big to FailHBO Bobby Fischer Against the World HBO In the last few weeks, America has had the chance to see two disturbing movies about our warping emphasis on heroes. Both of them played on cable, on HBO in fact, and some may think that therefore they fall under the rubric of “television.” But this misunderstanding has not prevented many of the best film directors in America from being driven to cable recently for worthwhile work.
I've seen some bad arguments that we must fear inflation, but possibly nothing as unpersuasive as the one Amity Shlaes mounts today: Is our economy headed back into a recession? A look at a past double-dip, the recessions of 1980 and of 1981-1982, suggests we are due. That double-dip also suggests the Federal Reserve should raise interest rates earlier and faster than you might think. In fact, the 1980s experience points to something horrible: We need a recession to get a true recovery.... Inflation hasn't dominated our headlines yet.
After yet another weak jobs report came out last Friday—the U.S. private sector, it turns out, added just 38,000 jobs in May—economists have been groping for an explanation. One theory is that the economy is still in a deep, deep funk: As the IMF warned back in 2009, it takes a long time for the world to recover from a severe financial crisis.
The Federal Reserve is hesitant to undertake a third round of monetary easing: Federal Reserve officials are in no hurry to respond to recent indications U.S. economic growth has hit another soft patch, despite chatter in financial markets that the Fed might start a new program of U.S. Treasury-bond purchases to boost growth. The central bank has already purchased more than $2 trillion of mortgage and Treasury bonds.
A quick recap of the standoff over the budget: Republicans want to snip off some $60 billion in government spending for the rest of the year. Democrats are arguing that the steep cuts cheered on by conservatives would hit essential programs that people actually need and use—good-bye Pell Grants, good-bye food-safety inspectors, good-bye well-functioning Social Security administration, and so forth. Worse still, economic forecasters—including Ben Bernanke have argued that slashing federal spending right now would drag down the economy.
Just after the Labor Department announced that the national unemployment rate had fallen from 9.8 percent in November to 9.4 percent in December, Federal Reserve Chairman Ben Bernanke recently told the Senate Budget Committee that “[i]t could take four to five more years for the job market to normalize fully.” For the nation as a whole, that seems reasonable. Suppose the labor force grows at the same rate it has over the last decade, an average of 0.07 percent per month.
In the wake of the most productive lame-duck congressional session in years—the crux of which was a grand bargain between Mitch McConnell and Barack Obama, who until recently seemed as if they could cooperate on absolutely nothing—devotees of bipartisanship have renewed their flagging hopes.
My TRB column in the current issue is about the conservative movement's newfound opposition to monetary loosening during an economic crisis, and the charged question of what motivation has brought about this ideological turn: Of all the strange things that Republicans have freaked out over during the last two years—a federal version of Mitt Romney’s health care plan, a continuation of George W. Bush’s bank bailout, a failed attempt to implement John McCain’s climate bill—perhaps the strangest target is Milton Friedman’s monetary policies.