The President has reached his decision on Afghanistan, and given his speech. There’s nothing much that can be done about this military escalation issue right now. It may make you feel better to gripe, kvetch, and moan on the tubez about the Afghanistan policy, but there are tow big events coming up in the next 48 hours that perhaps we can still impact.
The confirmation hearing to re-appoint Ben Bernanke as chairman of the Federal Reserve System, before the Senate Banking Committee.
And President Obama’s jobs summit.
Do you want to try and make a difference? Than NOW is the time to raise a mighty shout across the land.
On Bernanke, it is obvious to any person who has had to work for a living and answer to a boss that the man should be fired. He screwed up, and the economy has crashed. That would be enough to get any person shown the door.
But to make matters worse, Bernanke has absolutely refused to answer repeated requests from Congress and from the Congressional Oversight Panel for details on which financial institutions are getting how much and what kind of assistance, and what they are giving their top executives in pay and bonuses. Given this obstructionism, it was a huge mistake for the President to re-appoint Bernanke. Unless one of the only thing you’re worried about is making sure the markets don’t get rattled.
There are a number of people who could do a better job than Helicopter Ben. Especially if you want to send as clear and unmistakable a signal as possible that we are no longer going to tolerate business as usual in lower Manhattan and the City of London, then someone from outside the New York money center should be appointed. Any one of the presidents of the other eleven Federal Reserve banks is a good place to look for a new Fed chairman – the New York Fed president should be automatically out of consideration, just for being too close to Wall Street. The same is true for any of the top Wall Street executives, like James Dimon of J.P. Morgan Chase, who has recently been mentioned as a possible Fed chairman. As one financial blogger wrote when that news broke, "Please, just shoot me now."
I would also be leery of Charles Evans, president of the Chicago Fed, just because Chicago, with its futures markets, is as big and insane a financial center as New York. Remember that Hank Paulson started with Goldman Sachs in its Chicago office.
One good choice would be Janet Yellen, president of the San Francisco Fed. Wall Street harbors a dislike and distrust of Yellen, because she thinks unemployment should receive as much attention from the Fed as the possibility of inflation does. And, she is married to George Akerloff, who shared the 2001 Nobel Prize in Economics with Joseph Stiglitz, for Akerloff’s work in identifying how markets can be distorted and damaged by asymmetrical information. One of the major problems with President Obama’s economics team is that there is no one with a background which suggests an awareness that markets have limits and problems, though of course, by now, this fact is so obvious that no one in the administration dares speak openly about efficient market theory anymore.
Another good choice would be Thomas Hoening, president of the Kansas City Fed, who made a splash with a speech in March 2009, Too Big Has Failed. Hoening was a senior banking supervisor during the banking crisis of the 1980s, so he has hands-on knowledge of how to deal with banksters.
Other good choices would be Stiglitz or Akerloff, or James Galbraith, or Thomas Palley, former Assistant Director of Public Policy at the AFL-CIO, and founder of the Economics for Democratic & Open Societies project. As far back as 2000, Palley wrote Plenty of Nothing: The Downsizing of the American Dream and the Case for Structural Keynesianism, in which he argued that "the interests of working families have gradually been sacrificed to those of corporations."
What about the new "common wisdom" (choose one: Bernanke, Obama, the financial bailout, the TARP, the stimulus) has saved us from a depression? Here’s what Galbraith said a few days ago:
Why didn’t we . . . move directly into [another] Great Depression? The answer is, government. The fall of private spending was offset and in large part automatically by an increase in government spending. What saved us therefore were institutions that were created in the Great Depression, in the New Deal, by Roosevelt: unemployment insurance and social security and disability forms of relief, and in the Great Society by Lyndon Johnson, particularly Medicare.
That’s the main reason the deficit shot up. The stimulus package added to that and is adding to that particularly now, six months after it was enacted. It was, I think, too small, weakened by political compromise, but it was still a constructive step. You add those two things together, you get the deficit, and the deficit is indeed the one thing which has prevented a catastrophic decline, so far, in economic activity.
The point is, it’s time for a change, and change is what Obama campaigned on. So: anyone but Bernanke. And certainly not a Wall Street denizen like Dimon. One of Franklin Roosevelt’s most startling appointments was his Fed chairman, Marriner Eccles, a Mormon banker from Utah who, before his appointment, was giving speeches explaining how Wall Street speculation and a growing inequality of wealth and income had caused the crash and depression of 1929. Other bankers around the country were whispering behind his back that "poor Eccles has lost his mind. The strain of managing his bank in these tough times has gotten to him." Imagine how their shock became indignation when Eccles was appointed Fed chairman, and they were forced to realize that Roosevelt was serious about changing the rules of the game.
And if you don’t think we need a similar sort of radical change now, consider this:
In some influential circles, these questions are now asked: What’s wrong with high levels of inequality in general, and with having very rich bankers in particular. After all, human societies have survived the presence of extremely wealthy individuals in the past – in fact, some now argue, the presence of such a "new aristocracy" can finance growth and spur innovation.
Ditching Bernanke and sticking it to Wall Street would not only be good for the country, it would be very good for the political prospects of President Obama and the Democrats. Paul Krugman wrote this insightful piece a few days ago, which I think is spot on:
What we’re in right now is the aftermath of a giant financial crisis, which typically leads to a prolonged period of economic weakness — and this time isn’t different. A bolder economic policy early this year might have led to a turnaround, but what we actually got were half-measures. As a result, unemployment is likely to stay near its current level for a year or more. And politically it’s hard to do anything about that. Those economic half-measures have landed the Obama administration in a trap: much of the political establishment now sees stimulus as having been discredited by events, so that it’s very hard to come back and scale the policy up to where it should have been in the first place. Also, with the apocalypse on hold, the deficit scolds have come back into their own, decrying any policy that actually involves spending money.
The result, then, will be high unemployment leading into the 2010 elections, and corresponding Democratic losses. These losses will be worse because Obama, by pursuing a uniformly pro-banker policy without even a gesture to popular anger over the bailouts, has ceded populist energy to the right and demoralized the movement that brought him to power.
The next thing, of course, is the jobs summit. And I think we should consider what Galbraith said after the quote above. In fact, I’ll repeat some, so you get the full gist of what he says.
What saved us therefore were institutions that were created in the Great Depression, in the New Deal, by Roosevelt: unemployment insurance and social security and disability forms of relief, and in the Great Society by Lyndon Johnson, particularly Medicare. That’s the main reason the deficit shot up. The stimulus package added to that and is adding to that particularly now, six months after it was enacted. It was, I think, too small, weakened by political compromise, but it was still a constructive step. You add those two things together, you get the deficit, and the deficit is indeed the one thing which has prevented a catastrophic decline, so far, in economic activity.
I stress this, because it’s very important to recognize that all of this talk about how bad deficits are, is aimed at persuading people to accept a cutback of the only medicine which is keeping the system alive at the present time. It’s very important to recognize this.
The language is stacked against us: "deficits are bad, surpluses are good." But in fact, the deficit is the antibiotic, and if you cut out the antibiotic before the patient is ready to recover from the disease, the infection simply comes back.
Up until these past few months, when I witnessed the mounting furor by conservatives, fiscal hawks, libertarians, gold bugs, day traders, over deficit spending, I never understood why it was Roosevelt tried to cut spending in 1937 and ended up with a prolongation of the Depression. With all the squawking and screeching about deficits, now I understand.
So, in these few hours before for the jobs summit, we need to be screaming,
jobs, JOBS, JOBS!
Two days ago, I posted a diary 19 million new jobs. Since I posted it, I have revised the job numbers, based on what I believe are much more accurate "employment multpliers"
I had originally used an employment multiplier of 27,000 jobs created per each one billion dollars of infrastructure spending. I selected this multiplier based on a February 2009 news release by the Democratic Senate Caucus, intended to promote passage of the stimulus package, cited a number of experts and studies, with a range of 27,000 to 37,000 jobs created for every one billion in transportation infrastructure; about 10,000 jobs for every one billion dollars in new energy infrastructure; and 22,500 jobs for every one billion dollars in new information technology infrastructure.
However, a news release from The Alliance for American Manufacturing gave a figure 18,000 direct and indirect jobs created by every one billion dollars in infrastructure spending. The AAM number was taken from a January 2008 study by a team of researchers at the Political Economy Research Institute (PERI) of the University of Massachusetts-Amherst, How Infrastructure Investments Support the U.S. Economy: Employment, Productivity and Growth. The PERI researchers used and infrastructure spending model based on the national input-output tables, to calculate three types of job creation:
- Direct effects: the jobs created by the production of the infrastructure itself (e.g. road
construction jobs);
- Indirect effects: the new jobs associated with increased demand for materials, goods, and
services used in the construction of infrastructure (e.g. steel production and fabrication);
- Induced effects: the expansion of employment that results when people who get jobs generated
by the direct and indirect effects spend their incomes on goods and services (e.g. retail).
The resulting employment multipliers are presented on page 25, in "Table 3.1. Estimated employment effects of increased infrastructure spending," shown in the picture below. Note that the PERI researchers found there are different multipliers for different types of infrastructure. (The methodology and input-output models used to calculate the multipliers are discussed in detail in two technical appendices at the end of the PERI report.)
The new numbers are 4.605 million direct and indirect jobs created by an infrastructure repair program of $1.134 trillion over five years. Another 9.644 million direct and indirect jobs can be created by a ten-year program of building new infrastructure, costing $4.686 trillion.
"Whoaaa!" I hear you saying. "You’re crazy, expecting anyone to approve another five or six trillion dollars in deficit spending!"
Jeesh, have you already forgotten what Galbraith said? Now is not the time to worry about deficits. Let’s not make the same mistake Roosevelt made in 1937. If we concentrate on creating jobs, the deficit problem will be fixed, because the real economy will have been fixed, also.