The jobs numbers for August are out, and at +169k jobs and 7.4% unemployment they’re weak at best. It’s yet another tepid, slight improvement that makes no progress whatsoever in the economy’s sucking chest wound that is the long-term unemployed.
Matt Yglesias is in despair:
One would hope that this will remind members of the Federal Reserve’s Open Market Committee that their months-long dance around the idea of reducing the pace of Quantitative Easing is nuts, was always nuts, and continues to be totally nuts. Real output is weak, has been weak, and shows every sign of continuing to be weak. The labor market recovery is weak, has been weak, and shows every sign of continuing to be weak. Declining labor force participation, stubborn long-term unemployment, and chronic underinvestment by corporate America do permanent and irreparable harm to America’s potential for long-term growth. By all means implement tighter monetary policy if that’s necessary to prevent inflation from spiraling out of control. But there is no sign whatsoever of any such inflationary spiral.
Consider the last few years of debate among the monetary policy community—the Federal Reserve Board, economists, and pundits. First the tight money faction (let’s call them the skinflints) was terrified of inflation, and it was Zimbabwe around the corner, any day now. This was ridiculous at the time, but it kept not happening to such a degree (in fact, inflation is even lower now than it was back in 2009-10 when this all started) that the skinflints dropped that one. Briefly it seemed like the pro-employment faction had conclusively won when the Fed announced an indefinite program of quantitative easing.
But now the skinflints have regrouped, found a new excuse for hard money, and seem to be winning once again despite being wrong about everything for the past five years. This time the panic is that all this easy money is bidding up a new bubble somewhere, so we must abandon monetary stimulus as soon as possible.
Set aside the fundamental incoherence of this kind of thinking (the logic here, more-or-less, is that in order to prevent a job-destroying bubble we must create a job-destroying recession deliberately). What these ever-shifting rationales demonstrate is that there is a broad coalition of people who just hate the idea of monetary stimulus and use whatever argument is to hand to attack it. And furthermore there is little chance of hashing the argument out logically—it took about four years of failed predictions for the skinflints to give up the inflation bugaboo, and you just know the second it creeps over 4 percent they’d bring it right back again.
But the content of arguments do matter. Having a respectable-sounding position provides a coordination point and gives force to people’s conviction. You can’t go on CNBC and say “tighten money because I really like high unemployment,” you have to have some plausible cover. (And as it turns out the Fed’s easing programs, combined with the nationalization of Fannie and Freddie, have almost completely socialized the housing finance sector. That’s objectionable in and of itself, though again it’s no reason to stop monetary stimulus without some replacement.)
This is why we need more tools in the Fed toolkit aside from buying government debt and other assets. Personally, I favor Quantitative Easing for the People which would have many other salutary effects, but an underappreciated benefit would be spreading out the pro-employment policy base so the skinflints won’t be able to unite around one thing in particular.
UPDATE: Ryan Avent makes an excellent related point—that in a sense we’re saving the skinflints from themselves:
It is painfully obvious that the Fed dislikes having to deploy unconventional policy and wants to stop using it as soon as possible. One of these days it will realise that the best way to get off and stay off unconventional policy is to push forward with it until the economy is back to full employment and inflation pressures are firm enough to justify interest-rate rises. If you don’t kick the ball past the crest of the hill, it just rolls back down and you have to kick it again. Sadly, it may fall to Mr Bernanke’s successor, and early 2014, to give the economy the boot it really needs.
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