Former Fed Chair Janet Yellen: Far from retired, nowhere near done

The Fed is very close to having satisfied its maximum employment and price stability mandates and you can see that most people feel good about the economy and the Fed.

But it would concern me — President Trump’s comments about Chair Powell and about the Fed do concern me, because if that becomes concerted, I think it does have the impact, especially if conditions in the U.S. for any reason were to deteriorate, it could undermine confidence in the Fed. And I think that that would be a bad thing.

Ryssdal: Do you think the president has a grasp of macroeconomic policy?

Yellen: No, I do not.

Ryssdal: Tell me more.

Yellen: Well, I doubt that he would even be able to say that the Fed’s goals are maximum employment and price stability, which is the goals that Congress have assigned to the Fed. He’s made comments about the Fed having an exchange rate objective in order to support his trade plans, or possibly targeting the U.S. balance of trade. And, you know, I think comments like that shows a lack of understanding of the impact of the Fed on the economy, and appropriate policy goals.

Worry About Debt? Not So Fast, Some Economists Say

U.S. deficits may not matter so much after all—and it might not hurt to expand them for the right reasons

Now, some prominent economists say U.S. deficits don’t matter so much after all, and it might not hurt to expand them in return for beneficial programs such as an infrastructure project.

“The levels of debt we have in the U.S. are not catastrophic,” said Olivier Blanchard, an economist at the Peterson Institute for International Economics. “We clearly can afford more debt if there is a good reason to do it. There’s no reason to panic.”

Mr. Blanchard, also a former IMF chief economist, delivered a lecture at last month’s meeting of the American Economic Association where he called on economists and policymakers to reconsider their views on debt.

The crux of Mr. Blanchard’s argument is that when the interest rate on government borrowing is below the growth rate of the economy, financing the debt should be sustainable.

.. Interest rates will likely remain low in the coming years as the population ages. An aging population borrows and spends less and limits how much firms invest, holding down borrowing costs. That suggests the government will not be faced with an urgent need to shrink the debt.

Mr. Blanchard stops short of arguing that the government should run up its debt indiscriminately. The need to finance higher government debt loads could soak up capital from investors that might otherwise be invested in promising private ventures.

Mr. Rogoff himself is sympathetic. “The U.S. position is very strong at the moment,” he said. “There’s room.”

.. Some left-wing economists go even further by arguing for a new way of thinking about fiscal policy, known as Modern Monetary Theory.

MMT argues that fiscal policy makers are not constrained by their ability to find investors to buy bonds that finance deficits—because the U.S. government can, if necessary, print its own currency to finance deficits or repay bondholders—but by the economy’s ability to support all the additional spending and jobs without shortages and inflation cropping up.

Rather than looking at whether a new policy will add to the deficit, lawmakers should instead consider whether new spending could lead to higher inflation or create dislocation in the economy, said economist Stephanie Kelton, a Stony Brook University professor and former chief economist for Democrats on the Senate Budget Committee.

If the economy has the ability to absorb that spending without boosting price pressures, there’s no need for policy makers to “offset” that spending elsewhere, she said. If price pressures do crop up, policy makers can raise taxes or the Federal Reserve can raise interest rates.

“All we’re saying, the MMT approach, is just to point out that there’s more space,” she said. “We could be richer as a nation if we weren’t so timid in the use of fiscal policy.”

 .. By continuing to run large deficits, says Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, the U.S. is slowing wage growth by crowding out private investment, increasing the amount of the budget dedicated to financing the past and putting the country at a small but increased risk of a future fiscal crisis.

Market interest rate signals can be misleading and dangerous. By blessing the U.S. with such low rates now, he says, financial markets just might be “giving us the rope with which to hang ourselves.”

Tucker Carlson Versus Conservatism

The Fox News host amplifies a debate the right needs to have.

The most interesting thing in conservative politics right now is not the government shutdown and Donald Trump’s flailing attempt to claim victory while being defeated on all fronts. Instead it’s an ideological battle over Tucker Carlson’s recent Fox News soliloquy, in which he accused his fellow Republicans of building an anti-family, finance-dominated economic system that might be “the enemy of a healthy society.”

Carlson’s monologue was an expansion of themes that have dominated his reinvention as a Trump-era populist — the general folly of elites, the unwisdom of the bipartisan consensus on immigration and foreign policy, the failure of Republican leaders to defend the national interest.

But in expanding on those themes he went somewhere that Fox hosts rarely go — from culture into economics, from a critique of liberal cosmopolitanism into a critique of libertarianism, from a lament for the decline of the family to an argument that this decline can be laid at the feet of consumer capitalism as well as social liberalism.

Just about every conservative worth reading was provoked into responding.

If there is to be a healthy American right, after Donald Trump or ever, this is the argument that conservatives should be having. And it is especially an argument that Fox News should be highlighting, since Fox is frequently responsible for stoking populism but keeping it vacuous or racialized, evading the debates the right really needs.

Now let me attempt my own quick contribution. A key issue in the Carlson contretemps is distilled in this line from David French of National Review, one of the monologue’s critics: “There are wounds that public policy can’t heal.”

This is a crucial conservative insight, a caution for policymakers everywhere — but it can also become a trap, a cul-de-sac, an excuse for doing nothing. And that has happened too often for conservatives in recent decades: They’ve leaped to despair without even trying policy.

But in hindsight this was wrong, the feared inflation never came, and the economic recovery was slowed because of the Republican fixation on tight money. Of course, in the Trump era some Republicans have conveniently become dovish on inflation. But in the preceding eight years, wage-earning Americans suffered unnecessarily because of a wrongheaded right-wing counsel of despair.

A second example: While it’s true that family breakdown has deep and tangled roots, it’s also true that in the 1940s and 1950s, a mix of government policy, union strength and conservative gender norms established a “family wage” — an income level that enabled a single breadwinner to support a family.

Maybe it isn’t possible to recreate a family wage for a less unionized and more feminist age — but are we sure? Is there really nothing conservatives can do to address

  • the costs of child care,
  • the unfulfilled parental desire to shift to part-time work,
  • the problem that a slightly more reactionary iteration of Elizabeth Warren once dubbed “the two-income trap”?

If marriages and intact families and birthrates declined as the family wage crumbled, perhaps we should try rebuilding that economic foundation before we declare the crisis of the family a wound that policy can’t heal.

A final example: Historically conservatism has been proudly paternalist, favorable to forms of censorship and prohibition for the sake of protecting precisely the private virtues that Carlson’s critics think government can’t cultivate. But in recent decades, the right’s elites have despaired of

  • censoring pornography, acquiesced to the spread of
  • casino gambling, made peace with the
  • creeping commercialization of marijuana, and accepted the
  • internet’s conquest of childhood and adolescence.

Yet none of these trends actually seem entirely beyond the influence of regulation. It’s just that conservatism has given up — once again, in unwarranted despair — on earlier assumptions about how public paternalism can encourage private virtue.

The deeper point here is that public policy is rarely a cure-all, but it can often be a corrective. And the part of Carlson’s monologue his critics should especially ponder is the end, when he suggests that absent a corrective that “protects normal families,” even the normal will eventually turn to socialism — choosing a left-wing overcorrection over a right that just says, Well, you see, we already cut corporate taxes, so there’s nothing we can do.

Bad Faith, Pathos and G.O.P. Economics

On professionals who sold their integrity, and got nothing in return.

As 2018 draws to an end, we’re seeing many articles about the state of the economy. What I’d like to do, however, is talk about something different — the state of economics, at least as it relates to the political situation. And that state is not good: The bad faith that dominates conservative politics at every level is infecting right-leaning economists, too.

This is sad, but it’s also pathetic. For even as once-respected economists abase themselves in the face of Trumpism, the G.O.P. is making it ever clearer that their services aren’t wanted, that only hacks need apply.

.. Professional conservative economists are something quite different. They’re people who even center-right professionals consider charlatans and cranks; they make a living by pretending to do actual economics — often incompetently — but are actually just propagandists. And no, there isn’t really a corresponding category on the other side, in part because the billionaires who finance such propaganda are much more likely to be on the right than on the left.

.. Even during the Obama years, it was striking how many well-known Republican-leaning economists followed the party line on economic policy, even when that party line was in conflict with the nonpolitical professional consensus.

Thus, when a Democrat was in the White House, G.O.P. politicians opposed anything that might mitigate the costs of the 2008 financial crisis and its aftermath; so did many economists. Most famously, in 2010 a who’s who of Republican economists denounced the efforts of the Federal Reserve to fight unemployment, warning that they risked “currency debasement and inflation.”

Were these economists arguing in good faith? Even at the time, there were good reasons to suspect otherwise. For one thing, those terrible, irresponsible Fed actions were pretty much exactly what Milton Friedman prescribed for depressed economies. For another, some of those Fed critics engaged in Donald Trump-like conspiracy theorizing, accusing the Fed of printing money, not to help the economy, but to “bail out fiscal policy,” i.e., to help Barack Obama.

It was also telling that none of the economists who warned, wrongly, about looming inflation were willing to admit their error after the fact.

But the real test came after 2016. A complete cynic might have expected economists who denounced budget deficits and easy money under a Democrat to suddenly reverse position under a Republican president.

And that total cynic would have been exactly right. After years of hysteria about the evils of debt, establishment Republican economists enthusiastically endorsed a budget-busting tax cut. After denouncing easy-money policies when unemployment was sky-high, some echoed Trump’s demands for low interest rates with unemployment under 4 percent — and the rest remained conspicuously silent.

What explains this epidemic of bad faith? Some of it is clearly ambition on the part of conservative economists still hoping for high-profile appointments. Some of it, I suspect, may be just the desire to stay on the inside with powerful people.