Joe Gagnon for Fed Chair...
This, from Ben Bernanke yesterday, was unprofessional:
Silla Brush: Federal Reserve Chairman Ben Bernanke on Thursday threw cold water on efforts to push a major new fiscal stimulus package. At his confirmation hearing for a second term as chairman, Bernanke emphasized that the government has spent less than half of the money in the $787-billion package passed earlier this year and that analysts are still determining its impact. "Only about 30 percent of the funds have been disbursed," Bernanke said. "It's a little bit early to make a strong judgment, a little bit early to decide whether or not to do additional fiscal actions..."
I call bullshit.
30% of the funds have been spent, but 100% of the increase in the pace at which the government is spending money has already occurred.
The ARRA has already had its full impact on the growth rate of GDP.
It has had or is about to have had its full impact on the level of GDP. After the end of this year, the effects of the ARRA on the economy die away and it delivers not an addition to but a subtraction from the GDP growth rate.
You can say many things about the ARRA.
You cannot say that it is too soon to assess its impact because only 30% of the funds have been disbursed.
Bernanke could say that additional fiscal stimulus is unwarranted because of the long-term deficit situation and the limited debt capacity of the U.S. government. (I think that is a hard argument to make, but he could make it.) But he doesn't. He says that it is too soon to judge because we don't yet know the effect of the ARRA.
That is, at best, incoherent.
Joe Gagnon, by striking contrast, has a coherent and informed view of the macroeconomic situation.
Joe, via Tim Duy, via Mark Thoma:
Joe Gagnon: The Case for $6 Trillion More Monetary Stimulus: A lively debate is under way between those who want more fiscal stimulus to create jobs and those who worry that our national debt is already too high. Both sides are ignoring the obvious alternative... easier monetary policy in all the main developed economies....
[T]he United States, the euro area, Japan, and the United Kingdom are suffering from historically high rates of unemployment... forecasters see weak economic growth and lackluster job creation over the next two to three years.... Clearly, we need more macroeconomic stimulus to reduce the suffering and allay the long-term damage caused by persistent unemployment as well as to ward off the risk of harmful deflation. But record peacetime fiscal deficits and rapidly rising public debt point to monetary policy, rather than fiscal policy, as the way to go.
Short-term interest rates already have been reduced to near zero. But the Federal Reserve and its counterparts have other tools to use for monetary stimulus... large-scale purchases of long-term bonds. There is considerable scope for additional purchases... combined purchases of an additional $6 trillion in long-term bonds designed to push 10-year bond yields down another 75 basis points. At a time of concern about fiscal deficits, it is important to note that reducing yields on government debt actually reduces the federal deficit. Reducing yields on private debt will also speed the repair of private sector balance sheets and encourage businesses to invest and expand employment. A more rapid recovery further reduces fiscal deficits by raising revenues.
It is time to stop arguing about tradeoffs. Monetary policy can create jobs and reduce the deficit at the same time.
I would prefer a different word than "monetary policy" to describe Joe Gagnon's proposed policy: it affects the economy not by changing the monetary base but rather by changing the riskiness and duration of the asset pool held by the private sector, and thus seems to me to be more banking than monetary policy. But it is a coherent plan based on a coherent, and in my view likely to be accurate, view of the world.
I can't say that about the policies Bernanke set forth yesterday.
UPDATE: Matthew Yglesias:
Matthew Yglesias: Bernanke’s Plan for Unemployment: Do Nothing: I’ve been holding out some kind of vague hope that Ben Bernanke’s confirmation hearings might provide a way out of our political impasse on the jobs front. After all, Bernanke’s job is to try to achieve as close to full employment as is possible consistent with the goal of price stability. The Federal Reserve, not the elected officials in Congress and the White House, is the public institution with the largest influence over employment levels. And right now employment levels are very low indeed. So at his hearings either Bernanke might publicly discuss his determination to do more to lower the unemployment rate, or else he might confess his lack of confidence in the ability of monetary policy to do more to lower the unemployment rate and call for more fiscal measures.
But he didn’t do either. Instead, as David Dayen recounts, he just said we should cut Social Security benefits to reduce the long-term deficit even though this clearly had nothing one way or another to do with the current labor market situation:
No second stimulus, no jobs bill, no public investment to deal with the worst hiring crisis since the Depression, no relief for a jobless recovery, but yes to cutting people’s meager Social Security benefit and their health care in their old age. And this is what he’s saying when he WANTS his job back. What will it be if he gets it?
And there’s the rub. It’s good that we don’t have congress driving monetary policy from the backseat. That’s why the Fed Chairman serves a fixed term. But this is still a democracy, which is why the terms have ends. And we need a Fed Chairman who’s not willing to accept a years-long period of high unemployment.