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May 31, 2011 12:30 PM Not-so-innocent bystanders

By Steve Benen

This Wall Street Journal piece has generated a fair amount of discussion this morning, and though it doesn’t exactly break new ground, the news is consistently discouraging.

The world’s largest economy may be facing a growth problem.

After a disappointing first quarter, economists largely predicted the U.S. recovery would ramp back up as short-term disruptions such as higher gas prices, bad weather and supply problems in Japan subsided.

But there’s little indication that’s happening. Manufacturing is cooling, the housing market is struggling and consumers are keeping a close eye on spending, meaning the U.S. economy might be on a slower path to full health than expected.

“It’s very hard to generate a rapid recovery when rapid recoveries are historically driven by housing and the consumer,” said Nigel Gault, an economist at IHS Global Insight. He expects an annualized, inflation-adjusted growth rate of less than 3% in coming quarters — better than the first-quarter’s 1.8% rate, but too slow to make a meaningful dent in unemployment.

The WSJ report was published before a new report showed home prices reaching five-year lows, “driven down by foreclosures, a glut of unsold homes and the reluctance or inability of many to buy.” It also comes on the heels of new forecasts showing weak growth economy-wide this quarter.

Under sane circumstances, policymakers would see all of this and respond with a renewed focus on improving the economy, giving it a much-needed boost. But that’s not going to happen. Policymakers are content to simply watch the economy stall, playing the role of not-so-innocent bystanders unwilling to act when action is necessary.

Indeed, we instead see one top Federal Reserve official — Thomas Hoenig, president of the Federal Reserve Bank of Kansas City — calling for an increase in interest rates so that the economy will grow even slower. To be sure, Hoenig has an uninterrupted track record of being spectacularly wrong, and his call for higher rates will likely be ignored, but this is the mentality that we’re dealing with. The Fed could act to improve economic conditions, but instead we’re left to hope that it declines calls to make things worse on purpose.

And then there’s Capitol Hill, where Republicans are convinced we’ll all be better off after they’ve taken money out of the economy, made unemployment worse, and pursued a monetary policy that makes it harder for the world to buy American products.

Best of all, conservatives will no doubt see the weak recovery as irrefutable proof that Democrats have the wrong economic policy.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

Comments

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  • Alan Greedscam on May 31, 2011 12:40 PM:

    The Fed could act to improve economic conditions

    By doing what? Interest rates are already at zero, and quantitative easing has been a failure.

    What more can they do?

  • c u n d gulag on May 31, 2011 12:43 PM:

    Where some see disaster, others see disaster capitalism and political opportunism.

    Why hire people when your worried workers productivity continues to rise, and when you can sit on the money you'd spend hiring and training people, and put it in the bank?

    And Republicans are 'all-in' on keeping the economy in the shitter.
    And even though they're the ones who flushed the economy down, they figure it'll help them in the coming elections.

    And with the number of morons in this country, that's a pretty safe bet.

    CAPTCHA finally got something I like:
    1967, thecure

    Yes, it is.

    Now if there was only a cure for CAPTCHA!

    NEVER MIND!
    I must have imagined 1967, thecure, because CAPTCHA said no.
    RASSA FRASSA!!!!!!!!!!!!!!!!!!
    What's is the cure then, CAPTCHA?
    And don't tell me Reagan.

  • the_dan on May 31, 2011 12:52 PM:

    The worst thing of all is that the Democrats will be punished for the GOP's economic malfeasance. Of course, this is a failure of will as well a systemic one.

  • Ron Byers on May 31, 2011 12:52 PM:

    All the Villagers and politicians have jobs. Washington is a full employment city. The asshats are a group think kind of crowd. They are focused on cutting the deficit. That is what they are going to talk about. What is happening out here in reality just isn't registering.

  • slappy magoo on May 31, 2011 12:55 PM:

    If only we had a President who saw the bully pulpit as an opportunity to fight for policies and agenda items that benefit all of us, instead of as a reminder that we like him way more than any of the guys on the other side of the aisle. Heck, if he did that, we may wind up liking him even more.

    What am I saying? That would be just partisan politics. It must be, that's what the Republicans keep telling us it would be if he did that, and what reason would they have to make crap up? No. Can't have that during a time of economic crisis.

  • howard on May 31, 2011 12:56 PM:

    alan greedspan, whatever makes you say quantitative easing was a "failure?" no one claimed that it would all by itself lead to dynamic growth; it's a desperate action when few others are available, and at the margin, it has almost certainly been a positive.

    as for the original post, here's where obama's unwillingness long ago to make the case for more stimulus and a more effective policy response comes back to bite him in the ass: there is no one making the growth case, and so by default, the austerians are winning.

    p.s. steve, that would be an "uninterrupted" pattern by hoenig, not "interrupted," and hoenig, of course, doesn't understand that the fed has a dual mandate. why no democratic senators have thought that is worth hearings to grill the sob is beyond me...

  • Vince on May 31, 2011 12:57 PM:

    Amazing that in a blog post about how policy makers are standing by doing nothing, no mention of the Obama Administration (while Obama can nominate Fed members, once on the Fed he has little control over their actions). But, that would go counter to SB's long story line of how poor Obama can't do anything about the economy because of the recalcitrant Republicans. But here are a couple of suggestions:

    1.) Modify the HAMP program that, as far as I know is still around, to actually help home owners. I know moral hazard is apparently only for the little people (Wall Street bankers who got bailed out big time are clearly immune to such unseemly behavior), but may be we should tolerate a bit of that if it will help end or at least ameliorate the housing crisis, which would, in turn, greatly help the larger economy. And, no, I'm not a home owner, but my business is just starting to recover from the recession and I am extremely afraid we are headed for a double dip, which will completely derail that recovery.

    2.) Actually crack down on oil speculation. I know there are some investigations, but there is still a lot more the Administration could do if it wanted to. It could pressure the CFTC, for example, to actually implement some of the provisions of the Wall Street reform that they have, inexplicably, decided to delay by a year.

    I'm not an expert on these mattes, but I believe that both of these things are largely if not completely under the control of the executive branch and, therefore, doesn't require Obama to "stick his neck out" in a losing cause requiring Congressional action. And of course, we wouldn't want Obama to stick his neck out. It's only millions of peoples lives and the global economy at stake after all.

  • Brownell on May 31, 2011 12:59 PM:

    First, the Fed could end the interest-free borrowing that permits the banks to sit on their money indefinitely and still make a profit. Second, I cannot believe that there is no money stashed somewhere that the Obama Administration cannot tap without Congressional consent to jumpstart a jobs program. Couldn't he trim back defense contracting and use the funds to hire civilian aides in various occupations on military bases? Or Medicare funds to directly hire health-care workers? Even if the statistical results are modest-to-miniscule, if Obama does something concrete to show that he really cares about jobs instead of kicking it over to Congress, I believe the electoral results will be significantly in his favor.

  • Vince on May 31, 2011 1:02 PM:

    Oh, and one more thing...

    By largely adopting Republican lite economic policies and talking points, the Democrats *do* have the wrong economic policy.

    Democrats can't claim the high ground if they aren't willing to fight for it.

  • martin on May 31, 2011 1:10 PM:

    Best of all, conservatives will no doubt see the weak recovery as irrefutable proof that Democrats have the wrong economic policy.

    And the Dems will rise up on their hind legs and full throatedly agree and demand a compromise wherein they do everything the Republicans have been demanding.

  • bigtuna on May 31, 2011 1:12 PM:

    related to the O man and the action, or inaction, is the lack of permanent folks at important positions to push the policies. Yeah yeah meanie head repubs won't approve, tough shit - nominate them, and make a stink out of the asshat repubs rather then leave the positions open; probably more of a concern - which if these positions are not filled becuase no one wants the job?

    And - has the fed really done verything? Doesn't Krugman think they can do more ?

  • Crissa on May 31, 2011 1:29 PM:

    Anyone here who doesn't have an idea that isn't already being used?

    Obama is out speaking. You want him to force the networks to listen to him? Should he march Democrats onto the Sunday talk shows, flanked with federal marshals?

    To change HAMP or other regulations you need to pass the House and Senate. Who controls the House?

    Excuse me, but the comments here are mostly whining.

  • boffo on May 31, 2011 1:48 PM:

    I think the current "bystander" approach long ago became somewhat of a foregone conclusion when many economic interventionists (i.e., Keynesian adherents) joined the Republicans in routinely and savagely bashing the Recovery Act. Some Keynesians even ridiculed the Obama administration for attempting to highlight the act's successes, or belittled the act's successes because those successes were inconsistent with their message that the stimulus was ineffectual because it was too small.

    Sure, those Keynesians had a fair argument that the stimulus could have been more effective, but that message was largely lost in the whirlwind of their "stimulus was a failure (because it was too small)" message that commingled with the Republican "stimulus was a failure (because it was too expansive for government)" message. After being bombarded with the "stimulus was a failure message" from the left and right, with virtually only the Obama administration touting successes, is it any surprise that the public shifted against the stimulus? That shift in public sentiment has had the effect of making politicians wary of additional governmental intervention. Like it or not, politicians will always be skittish of pursuing approaches that fall out of favor with the public and/or are easily subject to demagoguery.

    The messaging failure and regrettable demagoguery of some prominent Keynesians aside, I also think the current "bystander" position underscores just how detrimental the Bush presidency was to this nation. Had his administration not run up the red ink, the Republicans would not have the deficit to wield against economic intervention today. This relates to the issue of perceived stimulus effectiveness; no one wants to spend money -- going further into debt -- to pursue an aim that appears (or at least that what they've been told by many) fruitless.

    Ultimately, it's worth keeping in mind that this discussion would play out quite differently under a government surplus or even a small deficit, or perhaps more importantly, it would not even be occurring right now.

    A surplus would've allowed a larger initial government intervention that may have been more effective in getting us back on track for more robust economic growth.

  • Big River Bandido on May 31, 2011 1:58 PM:

    Vince on May 31, 2011 1:02 PM:

    By largely adopting Republican lite economic policies and talking points, the Democrats *do* have the wrong economic policy. Democrats can't claim the high ground if they aren't willing to fight for it.

    Damn right. The party of nihilists wouldn't be able to run the government into the ground if the supposedly "sane" ones didn't just desert the field of battle.

  • Texas Aggie on May 31, 2011 4:24 PM:

    After Bush, I thought surely the American public will wake up and see the direction these policies are taking us. Then when they elected the present idiots in charge and the situation went from bad to worse, I thought that now the American public will wake up and see the direction these idiots are taking us.

    But now I have the horrible feeling that we arenīt low enough yet. The republcans will be able to convince people that policies that they never allowed to take place are responsible for the disaster that is coming and things will get even worse.

    I am beginning to seriously doubt that anything can wake up the American public to what is happening to them, even if we sink into third world status.

  • Bernard on May 31, 2011 10:13 PM:

    just wait for Obama and the Democrats to help the Republicans do whatever the Republicans want or deem best for the Village.

    boy how dumb to think Democrats care about the rest of America or do things to stop Republican theft. Democrats only want their share of the loot! if you think Democrats care about standing up the Republicans, i have some wetlands in West Texas.

    abetting and helping the Republicans is what Democrats do, Tweedledee and Tweedledum. Democrats consistently proved they know how to do. over and over and over and over ad infinitum.

    Just listen to the Democrats like Hoyer, Biden, Clinton talk about how being nice to the Republicans when the subject of Medicare and the shredding of the Social safety nets arises. Democrats can never be harsh or serious when it comes their "better" half/Republicans.

    don't tell me there is something to be gained by helping the Republicans loot Medicare and Social Security. but the Democrats are doing just that.

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