Gone fishing
With every new data announcement, it becomes more and more apparent that the economy is not recovering from the worst recession since the 1930s:
At 131,000 the headline payroll loss was worse than expected. In addition, the tally for May and June was revised down by nearly 100,000, further evidence the U.S. economy cooled considerably after its first-quarter spurt.
The markets look with increasing desperation toward the Fed; hoping for more QE, or the elimination of interest on reserves. And how is the Federal government responding? Ben Bernanke once recommended that the Japanese show “Rooseveltian resolve.” Are our leaders in Washington emulating FDR’s first 100 days? Here is Bloomberg:
The Senate sent the nomination of Peter Diamond, one of President Barack Obama‘s three nominees for the Federal Reserve Board, back to the White House because of objections from at least one lawmaker.
. . .
While Diamond, 70, may still win confirmation, it’s a snag for the Massachusetts Institute of Technology economics professor who once taught Fed Chairman Ben S. Bernanke. Alabama Senator Richard Shelby, the senior Republican on the Banking Committee, said last week that Diamond, while a “skilled economist,” may not be qualified to make decisions on monetary policy.
The Senate took no action yesterday on the other two nominees, including San Francisco Fed President Janet Yellen for vice chairman and Sarah Bloom Raskin for a governor slot, leaving them to await confirmation after senators return Sept. 13. That means that if Governor Donald Kohn, whose separate term as vice chairman ended in June, departs as planned on Sept. 1, the Fed may be down to four governors for an unknown time.
‘Hard’ to Operate
“It’s very hard for the Federal Reserve to operate with only five people,” said former Fed Governor H. Robert Heller, who served on the board from 1986 to 1989. “Four is the minimum for a quorum. To have the Fed at full strength with seven persons there is very important.”
No sense of urgency. And the very next paragraph discusses the one Obama advisor who understands the importance of monetary policy in a depression:
Obama separately yesterday lost his chair of the Council of Economic Advisers, as Christina Romer resigned to return to a post at the University of California at Berkeley.
Chris Dodd says he expects a vote on all three in September:
Dodd said last week he “enthusiastically” supported all three picks for the Fed. “Each brings a remarkable combination of skills and experience,” he said before the committee vote. Dodd said he expected a floor vote on the nominees in September.
I couldn’t be any less enthusiastic about these three, none are distinguished monetary economists. But at this point I’m enthusiastic about adding anyone to the board that might shake things up a bit, no matter how long the odds.
Is it just me getting older, or does the US seem to be inexorably moving the wrong way on the banana republic/Nordic scale of governmental competence? We need decisive action, and we have a government that doesn’t know which policies are effective, being blocked by a party that opposes all policies, effective or not.
HT: Liberal Roman, Marcus Nunes
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6. August 2010 at 13:11
Liberals think that more government will turn us into Sweden, but there’s no reason to think it won’t instead turn us into Italy or Greece. And the longer this keeps up, the more government we will get.
6. August 2010 at 13:45
I would nominate Michael Woodford for one of these open seats if I was in President Obama’s position. Unfortunately, I have no reason to think he is being considered by anyone with influence. Thoughts?
6. August 2010 at 14:17
M. (Mish) Shedlock is “nihilistic”.
http://globaleconomicanalysis.blogspot.com/2010/08/will-quantitative-easing-spur-inflation.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAna
6. August 2010 at 14:26
Scott, do you favor getting rid of the Senate filibuster?
6. August 2010 at 14:45
As pointed out by the comment at the top of the this thread, we have to first make people understand that a Nordic style government is something we would want.
For example, it would be a good start for you, Scott, to point out how worrying about overpaid public workers is the least of our problems. As usual, the Republicans have diverted the attention of the populace to insignificant issues. It’s like the mayor of Warsaw worrying about too many stray cats during the summer of 1939.
6. August 2010 at 15:00
Thorfinn, I just spent two days in NYC, which has to be one of the worst governed cities in America. The subway wasn’t air conditioned, it must have been 100 degrees. The taxi I rode in didn’t have AC, and it was in the 90s. It went one block in 10 minutes. I got out and walked. The subway stations look like a third world country. Here’s my question for fans of Krugman. He insists that the cause of bad governance is conservative Republicans who don’t believe in governance. So why are Houston and Dallas far better governed than NYC, which is 80% Democratic? Why can’t all those affluent liberal states in the Northeast Corridor get their act together and build a high speed rail connection? I don’t think we need to speculate, we are much more like Greece than Sweden.
Ram, It’s too late, Obama’s already picked three far less qualified people. “Heck of a job, Larry.”
Marcus, They are speaking some language I don’t understand.
Mike. Yes. In fact I’d get rid of the entire Senate, and the President. The House is enough. Let the Speaker be Prime Minister, and live in a Georgetown townhouse. Turn the White House into a fancy hotel.
Even better, break up the US into 50 separate countries. I once did a post called The American Union.
6. August 2010 at 15:02
I have never heard of Sarah Bloom Raskin before, so I had to look her up on Wikipedia. According to Wikipedia, she is an “American jurist and politician” who holds a J.D. from Harvard and a B.A. in economics from Amherst. I always assumed (wrongly, as it turns out) that you needed a Ph.D. in economics to be on the Board of Governors. Instead, Obama is nominating a lawyer??? At least she wrote her undergraduate thesis on monetary economics *rolleyes*
6. August 2010 at 15:03
Liberal Roman, I agree that that isn’t the most important issue. But the only way we’ll get Nordic-style governance is to create a Nordic-style population. And that doesn’t seem too likely. That’s why I’m shooting for Singapore-style fiscal policy.
6. August 2010 at 15:21
sumner why do you think it is that such under-qualified candidates are being selected for such important positions? Institutionally this seems odd as the supreme court nominees(which has much less discretion and ability to set agenda’s) always seem to be very competent and qualified individuals (you may quibble with the quality of their legal scholarship but they never seem to be as totally under-qualified as those candidates that obama nominated). To me this reinforces the view that congress is determined to quash any notions of competence.
6. August 2010 at 15:55
Chris, I agree. Normally I am not an elitist about these things, but monetary policy is one of the most difficult fields in all of economics. Even many economists get confused, mistaking low interest rates for easy money, for instance.
honeyoak, I don’t blame Congress, it was Obama who nominated them. Of course the views of Congress on monetary policy are fairly primitive, but I don’t think they would oppose people just because they were competent.
6. August 2010 at 16:23
The ruling party has been distracted by ten years of claiming that government works great. It’s just that the other guys don’t believe in it, and so ran it into the ground.
The past few years is enough to settle the arguement: belief isn’t the problem.
6. August 2010 at 18:12
Scott-
I am getting older too. No only do I find liberal excesses, the “conservatives” have their faces in the lard buckets too, usually while waving a flag. I won’t even mention the USDA.
Imagine this change:
In WWII Germany invaded Poland, then Denmark, then Norway, then Romania, North Africa and even France, and still Midwestern Republican Senators refused to declare war on Germany, and stood athwart FDR efforts to enter the war. It was obvious that FDR could not budge the Tafts of the world into entering the”European War.” GM was doing business in Germany through early 1941 (I happen to research this for a book on Harley Earl I probably won’t write).
Then Japan bombed Pearl Harbor, Dec. 1941.
FDR still could not declare war on Germany, only Japan. FDR worried the Republicans would call the Pacific “America’s war,” and the European theater, “Europe’s War.”
Then Germany declared war on us three days after Pearl Harbor, and only after a shambling, nearly incoherent Hitler delivered a puzzling speech full of personal invective against FDR. Hitler was not bound by treaty obligations to Japan to do so; he declared war on us because Hitler was a mentally ill lunatic.
Finally, finally, FDR could declare war on Germany, and he did. Republicans had also been very satisfied with a nearly demobilized America almost up through 1941. We had no foreign military bases.
Were the Republicans too conservative? I think so–but what about today?
Today we have a global military archipelago, some say 1000 installations globally. More than 70 years after WWII we have a huge bases in Germany, and 60 years after the Korean War we have huge bases there. We occupy two whole nations (iraqistan), the total bill will run to $3 trillion. A few punk terrorists, and one successful terrorist attack (easily avoided by locking jet airliner cabins), and we establish a $100 billion a year civilian defense homeland security blob.
Soon, we will spend $1 trillion total a year on the Department of Defense ($650 bil), the VA ($100 bil), Homeland “Security” ($100 billion) and don’t forget debt on wars we financed by borrowing.
$1 trillion a year–and yet anyone can cross the border. Ola, Mexicanos.
Korea has an economy something like 80 times that of N Korea. They can’t defend themselves? Germany is very wealthy. The Soviet Union has collapsed.
We are maintaining the $1 trillion a year tax-eating monster to fight a few punk terrorists, as we have no nation states that are enemies. Oh, you can say Iran, but they have no military. N KOrea, another nut state. We spend $1 trillion a year on the strength of enemies such as this?
Yes, I have lost faith in the USA. For some reason, no one points out the huge sums of federal money that flow into rural states, or the egregious military outlays.
Our cities do look Third World, and anywhere First World has nicer airports, faster Internet downloads speeds, better health care, better public education. The Far East is passing us by. It is obvious.
6. August 2010 at 18:21
“Our cities do look Third World, and anywhere First World has nicer airports, faster Internet downloads speeds, better health care, better public education. The Far East is passing us by. It is obvious.”
This is a joke right?
6. August 2010 at 18:43
Benjamin Cole he declared war on us because Hitler was a mentally ill lunatic.
No, actually, he did it to try and win the Battle of the Atlantic and he came very close to doing exactly that, largely because Chief of Naval Operations Admiral King was an Anglophobe who refused to adopt the British convoy tactics until the US had so many sunk merchant ships and dead sailors that even he had to change his mind.
Scott, you asked Is it just me getting older, or does the US seem to be inexorably moving the wrong way on the banana republic/Nordic scale of governmental competence?
Well, according to Angelo Codevilla, professor emeritus of international relations at Boston University, the answer is yes, remembering that the fundamental institutional structure of actual “banana republics” is social mercantilism (the imposition of high transaction costs by regulatory interventions to advantage social “insiders”).
And yes, I completely agree, the Nordic model requires a “Nordic” population–i.e. an appropriate monoculture. (If the Nordics keep importing culturally very different migrants at their current rate, they won’t be able to make the Nordic model work all that much longer: it is already under considerable strain.)
6. August 2010 at 18:51
Try some travel Morgan.
Or try coming to East Los Angeles. Let me show you around. Most of Los Angeles could pass for, say, Bangkok, except I do not see homeless people in Bangkok (my wife is Thai).
Thai’s main BKK airport is a thousand times nicer than LAX. Thai nationals have national health insurance for $1 a month, though it does not cover some illnesses. (In general, Thai hospitals are better and cleaner than US hospitals, and the number of nurses that attend you is unbelievable. I have used Thai hospitals for three minor surgeries).
Thai public education is good–I choose Thailand for my kids, rather than LAUSD (public schools here).
What is the joke? We are falling behind. Twenty years ago there was no comparison. Today is closing up. Tomorrow?
6. August 2010 at 18:57
Lorenzo from Oz:
Well, this is not the forum, but Hitler as mentally ill and evil lunatic seems pretty dead on. Why did he take on Russia and the US if he sought extra living room for Germans? The odd rambling speech he gave in declaring war in the US is a matter of historical record.
Anyway, my point is how much the Republican Party has changed–from strict noninterventionists, to wide-open occupationistas. We “fight” enemies who don’t even have militaries, at a cost of hundreds upon hundreds of billions of dollars a year. And, as the DoD is a federal bureaucracy, this newest war will only get bigger and more expensive forever.
6. August 2010 at 19:19
Pathologising Hitler is a way of avoiding the rather more confronting nature of his evil. I earnestly recommend reading Adam Tooze’s The Wages of Destruction for an excellent economic history of Nazism and the logic of Hitler’s policy.
As for US strategic policy, without endorsing every bit of it, I would point out that the US gets the biggest advantage from a stable global order, so it is not surprising that it invests more in that than other nations. In particular, the US Navy provides the same guarantor to the flow of trade that the Royal Navy did 1815-1914. That we are in another period of globalisation comparable to the C19th is not an accident.
The US’s failure to invest in global order in the 1920-1940 period was not a happy experiment. American hegemony has performed rather better than what immediately preceded it. And is more indirect than the British version which preceded that.
Of course, as a citizen of small democracy of about 21m people on a large island off the coast of Asia, I have more reason than most to appreciate a stable global order. (Go on, guess what my view of US support for Taiwan is …)
7. August 2010 at 10:18
Lorenzo-
My guess is you think US military might will allow Taiwan to remain free of mainland China. It may. But at tremendous costs to the the USA–perhaps crippling costs. Long ago Taiwan surpassed the USA in terms of quality of life–have you visited the USA, and seen our rundown airports, crappy infrastructure, Third-World public schools, etc?
And, in the end, if China develops a fleet of hunter-killer submarines, then the US Seventh Fleet will be sunk quickly in a naval confrontation. And would the USA go to nuclear war to defend Taiwan? And have our cities turned into smoking cinders?
Probably Taiwan is better off forming an alliance with Japan, and both nations developing their own small nuclear arsenals, and submarine fleets.
I would advise Taiwan not to rely on the United States anymore. What the USA is doing is not sustainable.
7. August 2010 at 12:13
Benjamin, been there done that. Lived 12 years in LA, now in Austin. LA’s got some squalor, but not like Bangkok, India, China, hell even Amsterdam and London. Three years ago, the worst thing you’d see in LA was a couple blocks of 6th-7th street tent cities (I lived there), and it’s nothing like 20% of Thailand’s population living in slums.
I was mostly laughing about airports, but you were wrong in all your comparisons, save education – and thats because it is run by government.
You had Minor Surgery in Thailand? Very Smart. You miss the point. Healthcare in Bangkok has two deep discounts: technology and labor.
First technology:
In all basic pricing systems, you gain the first 80% functionality for the 20% cost comparable. The next 20% – the edge of tech – adds the other 80%.
Cheap car: $14K Slick ride: $70K
Cheap phone: $80 Newest gadget: $400
This works for most everything. Food, Electronics, Computers, Bandwidth, Clothes, whatever.
Also: cheap labor.
A good friend just did modeling for TOT 3g roll out in Thailand… they are being provisioned all-you-can-eat by TOT for 200 baht.
They are using all the same equipment we use now (but remember, 3G radios are no longer cutting edge, they have fallen to that 20% mark), but even still $6 a month is super cheap! – the rest of the savings is people making $5k-10K a year – climbing towers, installing radios…. that’s why you get all those nurses swarming around you.
—-
I personally think we should send people who can’t afford it to Thailand (Mexico) for minor surgery.
Ultimately, even here, we can easily provide $3K a year a man healthcare (just like UK and France) to people who can’t afford it… it isn’t rocket science: salary doctors, out of patent medicine, lots of XRAYS, global budget.
But most of our paying customers/taxpayers, they want the MRIs, the CT Scans, the lasers, the 20% that’s probably overkill, but what the hell, its their money, right? Who wants to buy another car?
Needless to say, we are not becoming a third world country.. we’ve got some Obama malaise, and even now, we’re ready for some serious pro-market reforms.
7. August 2010 at 18:09
I’ve been visiting your blog for a while and this is my first comment as I still have plenty to learn about monetary economics.
I grew up an hour from Houston, and so am amazed to find out it is better governed than New York City! As for the government sending too much money to rural areas I agree, people could not live in rural areas were it not for being on disability, or in one’s retirement years. It is a shame that no true economy even exists in most rural areas, even almost all the retail shops for tourists and the like, closed their doors years ago. The national forests look sicker all the time and the government needs to give them back to people who will actually tend to them and take care of them.
22. August 2010 at 13:58
Jon, I agree.
Benjamin, I agree with much of what you have to say.
Morgan, Fly from Beijing or Shanghai into one on NYC’s three airports.
Lorenzo, That sounds right. But I am not a cultural determinist. Cultures can and do change for the better. But it is difficult to accomplish.
Benjamin, In fairness to Morgan, Bangkok has lots of people who are much poorer than the average poor American.
Lorenzo, Nato and Seato-type alliances are fine, but they don’t require the US to spend more on defense than the rest of the world combined. A broad alliance of “good guys” can easily prevent a Saddam-like war of aggression. In any case, those sorts of wars are probably mostly a thing of the past–especially in the rich world. Taiwan may be a special case.
Rebecca, I suppose all cities have inefficiencies, but Houston seems much better governed to me. I am no expert on National Forests, but generally favor privatization.