Many of us are big fans of Paul Krugman. Since Obama's election, his writings have given words to our frustrations about the state of the economy, executive and congressional missteps, and the acrid political climate that has time after time limited or thwarted what likely would have turned things around quite a bit more by now.
His latest NYT's piece is a masterpiece of analysis about what the Fed could have done and still could do to help more, why it hasn't, and why Ben Bernanke, who in his writings prior to becoming the Fed chair about Japan's 1990s missteps, hasn't followed through with the kinds of stronger prescriptions he advocated then.
As Mr. Krugman has pointed out a number of times, a little more inflation than the current target helps the middle class a lot more than the monied class because it lessens that segment's debt burden and frees up more spending to fuel more growth. This is the major theme of the article.
I hope Mr. Bernanke reads the piece. If he does, it could get him thinking, reconsidering, maybe even willing to take more bold action.
As Mr. Krugman has pointed out a number of times and does as the main theme of this article, a little more inflation than the Fed's target would lessen the debt burden of the middle and lower class by gradually eroding it and freeing up more consumer spending, the fuel for the economy that isn't in strong enough supply.
Here's some excerpts to whet your appetite. It is well worth your time to read the entire 4-page article here:
Bernanke may have pulled back from his earlier activism years ago, but given the scale of our economic catastrophe, he might well have returned to his earlier views if the political climate hadn’t been so hostile. So I wouldn’t fully discount the importance of right-wing bullying. As for his insistence that it’s not about politics — could he really get away with saying, or even hinting, that pressure from the likes of Paul Ryan is keeping him from pursuing full employment?
My best guess is that the disappointing response of the Bernanke Fed represents the effects of both bullies and the Borg, a combination of political intimidation and the desire to make life easy for the Fed as an institution. Whatever the mix of these motives, the result is clear: faced with an economy still in desperate need of help, the Fed is unwilling to provide that help. And that, unfortunately, makes the Fed part of a broader problem.
The Fed under Bernanke is by no means the worst sinner in this failure of intellect and will, and you can argue that Ben Bernanke has done a better job than anyone else who might have held his position. Yet the fact is, he has not done remotely enough. The Fed, under its eminent chairman, was supposed to be an important part of the solution to mass unemployment. That isn’t happening.