By Dan Kervick
Brad Delong, after taking appropriate and honest notice of the badness of today’s job report, then goes on to muse despondently about the way future historians will assess the performance of our present leaders:
Twenty years from now, young whippersnapper economic historians will come to interview me.
They will ask: “Why don’t you think Ben Bernanke was the worst Fed Chair since the Great Depression–worse even than the hapless G. William Miller–because of his failure to understand even one of (a) the implications of the pre-2008 growth of leverage, derivatives, and shadow banking; that his job in the summer and fall of 2008 was not to curb moral hazard but to prevent depression; (c) the goals of his dual mandate; the structure of the economy he was managing; and (e) how to mark his beliefs to market when the economy did not evolve as he had predicted?”
What answer am I going to be able to give?
What was Barack Obama thinking? What was Tim Geithner thinking? What was Ben Bernanke thinking?
What is Barack Obama thinking? What is Jack Lew thinking? What is Ben Bernanke thinking?
Characteristically for contemporary professional economists who are deeply embedded in the Democratic Party, DeLong pins the largest share of blame for ongoing economic failure on Ben Bernanke. But I have a different take on the kinds of questions the whippersnappers of the future will be asking about the economic policies – and economists – of the early 21st century.
The young whippersnapper will first note that Ben Bernanke engineered a staggering expansion of the Fed’s role, maintained near-zero interest rate policies despite significant pressure to reverse them, returned tens of billions of dollars to the US Treasury in an attempt to give the political branches the political space to conduct aggressive fiscal expansion, and carried out an extremely aggressive policy of unprecedented asset purchases – to little avail.
So our curious whippersnapper will then wonder why so many liberal economists invested so much intellectual effort in an obsessive campaign on behalf of a failed neo-monetarist paradigm, despite years of mounting evidence on the limited efficacy of central bank tools. They will wonder why these liberal economists continued to deflect attention away from the massive political failure of elected leaders and toward a futile “push harder on the string!” campaign aimed at the conveniently unelected scapegoat Ben Bernanke. They will wonder why liberal economists were not out front-and-center calling for a return to fiscal activism, and for the deployment of the vast, untapped potential of the national government to hire up the desperate and struggling masses of the unemployed, underemployed and working poor, and to put them to work restoring prosperity, building our future and saving our planet – and achieving more personal prosperity, self-respect and security in the process.
And then the persevering whippersnapper will entertain some uncomfortable questions about the retired generation of liberal economists. Could it be that these liberal economists were compromised party hacks who placed subservience to the plutocratic political aims of their corrupt and incompetent party leaders above any real commitment to social justice, human liberation and broad prosperity? Could it be that these liberal economists were just as deeply committed to preserving established hierarchies of wealth, private power and institutionalized inequality as their conservative colleagues? Could it be that they disdained democracy just as much as conservative economists, which is why they were so committed to placing macroeconomic policy responsibility with the operators of the blunt and undemocratic tools of a central bank and the parasitical financial sector it superintends? Could it be that they were firmly committed to helping their party’s leaders work with the opposition party to dismantle the few remaining parts of the economy that were socially organized? Could it be that they were just as firmly committed to helping the bipartisan political and corporate establishment reduce the once-vibrant social achievements of the past – universal social insurance and support programs that had helped create a prosperous, optimistic and expanding middle class – to a smattering of charity programs for poor people that can’t get in the way of the globalized and ungoverned titans of private capital and their relentless campaign of privatization?
And could it be that even well-meaning liberal economists of the early 21st century, themselves the architects of the inhumane and regressive neoliberalism that went critical in the crisis years following 2008, were too stewed in pride and dogma to reverse course, admit failure and re-imagine a future of human progress based on equality and democratic empowerment?
Of course, the coherence of this thought experiment depends on indulging the fantasy that the whippersnappers of the future will still be interested in, or have the resources to study, obscure fields such as History – which 20 years from now will probably have been reclassified by the banks and corporations that own everything as one of the intellectual luxuries of a decadent past, things that people did with their minds in the dark old days when they ran their own societies, went to schools run by their fellow-citizens and didn’t all work for hierarchically structured and democratically unaccountable corporations. It assumes they will still be interested in asking their elders historical questions rather than skinning those elders alive for squandering the county’s democratic and economic patrimony and then handing its children over to the leviathan of private capital. It assumes those whippersnappers will still be free people rather than just the property of the plutocrats who first broke the world, and then inherited it.
Here are the latest US Bureau of labor Statistics for March 2013
Number of jobs March 2013 = 142.698 million
Official unemployment rate 7.6% (The BLS no longer considers as “unemployed” those workers without jobs who have not looked for work in the past year because they feel no jobs are available.)
The actual unemployment rate is 14.57%
Analysing the US government figures:
Total US population = 315.618 million
Number of Men over 16 yrs old employed = 75.521 million
Number of Women over 16 years old employed = 67.176 million
Total =142.698 million jobs
Therefore number of stay at home women = 8.34 million
Calculating size of potential workforce:
42 million over age 65, but 18.5 % are still working = 34.2 million retired
74.8 million under 18 yrs
21.6 million attend college
8.34 million stay at home wives/Moms
8 million are on SSI disability
Total 146.94 million not in the workforce
(1.4 million are in the military and are technically employed, but not counted by BLS, but I will add them to the number of employed)
Therefore potential workforce = 315.618 – 146.94 = 168.68 million
Number of jobs = 142.698 + 1.4 military = 144.098 million
Therefore number unemployed = 168.68 -144.098 = 24.58 million
% unemployed = 24.58 /168.68*100 = 14.57 %
This also underestimates unemployment in that about 10 million people are involuntarily working part time.
Bureau of Labor Statistics
When Ben Bernanke was first nominated to be chairman of the Board of Governors of the Federal Reserve, he was touted as the foremost expert on the causes of and responses to the Great Depression. So much for the good old days of independent historical analysis and enlightened policy setting. There certainly is enough blame to lather everyone from the President on down, although some whippersnappers did point out the correct path and policies. Failure to read the figures and generate the appropriate policies must lie at the feet of Obama, Geithner, and Bernanke, but they were not pulling the strings. The corporate plutocrats hold them.
I think the chief objects of our blame should be (i) the US Congress and (ii) Obama. The first – under the radical Republicans in the House particularly – is evil and reactionary. Obama is corrupt, compromised and incompetent. Bernanke is only the Fed chair, and it is one of the most dangerous myths of our time that the Fed can do macroeconomic stabilization and aggregate demand management by itself.
The Fed has done everything any reasonable person could ask for in the way of central bank stimulus: thrown interest rates down to zero and left them there. The ball was then in the court of the political branches to expand the deficit and do aggressive fiscal policy. They started off OK in 2009, and then went in exactly the opposite direction dooming us to perpetual high unemployment and building the power of the plutocracy.
Instead of calling out political branches directly on this madness, which would require calling out the Democratic president that they slavishly support, many mainstream liberal economists have run every possible kind of interference for the White House and its conservative, regressive, recession-prolonging backwardness. The main kind of interference is to continually call on the Fed to perform various kinds mysteriously undefined magic tricks to produce effects the Fed cannot actually produce.
I think you nailed it accurately there, Dan
I don’t think we disagree here. My point about Bernanke is simply that he should have known better and allied himself with those economist in the administration that knew a larger and sustained stimulus was needed. The Republican Congresspeople are puppets of the plutocrats as much as Obama is. They cast the votes their masters call for and reap the benefits.
Many Democratic Congresspeople do likewise.
Not sure who first described Bernake as a specialist in the neo-classical “analyses” of the 20th century Great Depression, and it was clear early on that he had groomed himself to be acceptable to the Uber-wealthy early as a wanna be courtier. Based upon this point he is merely a tool for sale to the plutocratic royality. It also speaks volumes about the corrupt nature of highly ranked for “success” universities well endowed by the same constitutency.
The only additional thing Bernanke might have done, if he understood it, was to point out forcefully that he had done all he could, but it was unlikely to be enough and that a fiscal deficit was essential. I think he did in fact do this in a half-hearted way. Unlike you, I would put Obama at the head of the list, not the Congress. What we are missing is wise leadership, and that starts with the President.
Recall Diogenes. There is an element of class based ideology in which the actual middle level schmos such as Greenspan and Bernake have the full faith in their uber masters. It is how the underlings and sycophants advance themselves. It is as simple as it is very difficult to convince someone of criminal activity or other falsehoods, when their own position and income is dependent upon believing that they achieved their positions of esteem solely through brains and personality (think: Waist Deep In The Big Muddy… and the big fool says to push on…).
It is a cultural narcissism, which responds to their apparent leadership expectations as being legitimate or the threat that they will be replaced in an instant by someone who has a less critical understanding of control fraud works. It also helps to have well dressed and credentialed toadies planted and flourishing in academia. There is control fraud and then there is the cultural perks which lubricate control fraud as a culture. Having bank examiners for instance who feel recognized and flattered by being held in esteem and upward mobility to ignore the tells is another dimension. And then there are their spouses and partners who also benefit by the same system of class ideology and perks along the way. Politicians are actually cheap and having Reaganite Democrats who capture the leadership of their party turns their actual civic duty into a career of supposed adulation for hire. To turn the culture around is going to require a degree of cultural convulsion that must be greater than assigning blame to a few conspicuous well paid scapegoats will only divert attention for the cultural issues. This sort of logic was used as selling points along the descent under the supposition that “We know better” that those dimly remembered shills, and thereby the narcissism returns.
It is how history is forgotten, so that it can repeat itself. a parallel process in the morphing over centuries of the intent and context of the Magna Carta and how Supreme Court Justices and their apologists will gradually turn the original intent into its opposite to justify executive powers incrementally to assassinate citizens and permit the abrogation of due process. It is also another reason to privatize public education, in order to speed the descent. So the question should at least consider how did an authentic scientific discourse get dispersed in favor of “normal” sciencism? The “big sleep” of neo-classical economics has been reproduced as neo-liberal economics. Only at the margins was a sense of reality sustained and remembered. As well as how quickly was a commoning and democratic culture get reproduced as an oligarchy. In the US it took about 16 years from 1776 to 1792 and the hallmark of political “compromise.”
I remember watching some of Obama’s earlier SOTUs and other joint session speeches. I noticed he constantly looked to the Republican side of the isle as though checking for their approval. I read Obama as a guy who thinks of conservatives as some kind of authority figures that he is always trying to please.
That’s an interesting observation, but what would fit more with Obama’s political actions and political rhetoric would be that if he looked at the Republicans during such a speech, it would be a look of challenge, not obsequiousness. Were those moments followed by unanimous applause, or by standing, cheering Democrats and sitting, stone-faced Republicans? During those looks, were his words mostly conciliatory toward the Republicans, or mostly defiant? He does often say he wants compromise, but as a negotiator, he won’t take yes for an answer. He seems to want not to just win, but to annihilate and humiliate the opposition.
I believe that at one point he stated his admiration of Ronnie Reagan. Attorneys in the majority tend to have a twisted sense of ethics, as in what ever can be argued and receive acceptance by a judge it must be effectively true, despite any evidence to the contrary. It is all about winning and being a winner in the income sweepstakes, never mind the collateral damage along the way. The same seems to hold true for people who own media corporations, from Murdoch onto to the rest. A local plutocratic family basically committed conspiracy and fraud here and made out big time. A casino was going be established as a result of a statewide referendum where the majority would not have to deal with the resulting mayhem and degradation wherever the casinos are located. The same family financed a faux citizen’s protest group to object to placing the casino where the current homeowners would have sell out by way of eminent domain. This forced the relocation of the casino to the very far west side where the plutocratic family bank and local/regional bank had bought up lots of former farm land for cheap. The only news source which call ed attention to the scam was a weekly which was soon bought up by the same corporate conglomerate, and then closed down less than a year later. No RICO prosecution to date. There is no difference at all between this and Holder et al’s refusal to prosecute.
On a related note, except for Bill Black and his sources, I’ve yet to see any comment on the nonsense posted on the w3 to define Gresham’s dynamic as Bad money chasing out Good money, as if it was a seigniorage issue, rather than an issue of fraud and criminality taking over markets and the economic culture.
I’m curious. Maybe the historians can help me.
I was taught, as Bernanke apparently was, that the Great Depression lingered on because of “tight” monetary policy, despite the New Deal spending. That seems to be the lesson he is determined not to repeat, and he has not.
Deficits were large both then and now, although now they are apparently not close to the value of the assets vaporized. Were they also not large enough in 1930-35 or so, and monetary policy of those days had nothing to do with it? Or is a large enough deficit only necessary, and not sufficient in itself? The recovery of the 1980’s would seem to indicate that the deficit is the key, as monetary policy then , at least in the first few years when the growth of GDP was fastest, was also tight (though slowly easing).
I would love to hear more on the money policy. I have heard it mentioned often that high interest rates were the cause of the slip in 1937. But I had thought the Peter Temin and John Galbraith had addressed this issue and pointed out that the rise in interest rates were similar to previous recessions and recessions after WWII and these recessions were shallow, I want to say 1921 and 1949. Does any of this sound familiar, it’s something I’d be curious to hear talked about more.
With regards to deficits during the Great Depression decade…..
To begin, no Govt action effectively ended the Great Depression until WWII….at least through the eyes of the unemployment rate:
The Govt deficits were relatively mild with respect to the economic crisis (looks like they maxed out around 5% of GDP):
The Great depression only ended when the war deficit exploded to almost 35% of GDP, maybe a indicator of the only type of action that could effectively end this Great Recession….5 more years of deficits above 20% of GDP.
However, we need to keep in mind that during the Great Depression decade, even through Govt deficits never went much above 5% of GDP…..we also can add the positive cash flow impact of having a significant trade surplus throughout the decade….as in sectoral balances Govt deficit + trade surplus adds to private sector balance.
Of course now, we have the economic headwinds of a huge trade deficit, so our Govt deficit can only be considered helpful to the domestic private economy when it is in excess of the trade deficit.
So yes, the Govt deficit is the key to puzzle, as it is the only one we are in direct control over.
Thanks. One comment only: it didn’t take 5 years of such deficits, did it? Weren’t there price controls and rationing during the war, and doesn’t that mean demand was above the full employment level? Whatever year those became necessary would be the end of the Great Depression, not 1945.
ISTM that one good burst, enough to get employment rising faster than population, would get it started and after that the pro-cyclical nature of most all economic activity would keep it going. Maybe $2T deficits for 2 years instead of $1T for 4 years would have started a more robust recovery. It wouldn’t wipe out $16T of asset losses, but it might have gotten the cycle turned.
You’re right that it didn’t take five years of deficits to end the GD. The economy started picking up steam with the outbreak of hostilities in 1939, which was followed by Lend-lease in 1940. When the US entered the war in 1941 production was really ramped up, plus millions of (mostly) men were drafted into uniform out of a population of what, 140 million. I for one hope we don’t need North Korea to help us get out of the Second Great Depression.
North Korea couldn’t do it. There will never be wars like WWI and WWII again, that take years of all-out effort to win.
Maybe that’s too US-centric. I can imagine wars and revolutions breaking out all over Europe, and not going nuclear, if depression-level unemployment continues there.
There’s a small fact here that it would be impossible to use the gearing upon for a world war as a basis for economic recovery, for the simple fact that the US has been on a war footing ever since about 1939 when it was serving as the manufacturer and arsenal to the Allies in Europe prior to 1941.
It would be extremely difficult to use warfare as a basis for economic recovery at this point, for two reasons. One is that the US has not been off of a war footing since about 1939. Second is that that it would be a quick path to a “game over” situation. Thereafter the possibility to extract wealth from a large radioactive cinder is unlikely. In effect we have been living under “bastard” Keynesianism for 70 years. Given the deterioration of our infra-structure. The period of high consumerism has also been sacrificed, for corporate profits. Even the next bigger bubble collapse the .01% has it effectively all is another game over scenario. As such it is a demonstration of civilization scale collapse, the ultimate limitation of Gresham’s dynamic. Perhaps the Decline and Fall of the Roman Empire might be re-interpreted from this view. The Gracchi brothers would nod approvingly.
Bread and circuses = Food stamps and TV.
Auburn: Those unemployment numbers are garbage. Bill Black touches on this in the very next blog here on this site: Comparing Unemployment During the Great Depression and the Great Recession “U.S. unemployment data during the Great Depression are substantially inflated because people employed in public works programs doing highly productive work were counted as “unemployed” in that era. ”
Marshall Auerback has labored mightily to enlighten the masses and the less enlightened, as usual, intelligentsia. See his Time For a New “New Deal”
See also James Galbraith on this paper: Unemployment During the New Deal Era
From Auerback’s The Real Lesson from the Great Depression: Fiscal Policy Works! .
Also, measuring the size of the New Deal stimulus by the absolute size of deficits, rather than spending and its results is wrong. War is the least efficacious way to stimulate an economy, the one best suited to keeping an oligarchy in charge. New Deal spending is so efficacious at stimulating economic activity that tax receipts rise and thus a small, good deficit goes a long way. Deficits are not entirely under direct government control. Sure, the New Deal should have been bigger – but not enormously bigger. Deficits as large as WWII ones would not have been needed to get out of the Depression. In an alternate universe where there had been no war, or even no 1937-38 Roosevelt Recession, the New Deal measures would have been seen to be enough to end the Depression. And with a major part being the WPA / PWA – basically a JG – I’d bet dollars to mini-donuts we’d have a far more advanced world in all senses by now.
Cristina Romer, for example, makes such mistakes of looking which is why she says silly things like Keynesian policy, fiscal stimulus was not tried during the Depression. I’ve seen a very good paper out there from a Utah guy (I think?, or U of Utah site?) explaining this, countering her, which I can’t find. But of interest also might be Alain Parguez’s very rough draft In defense of the New Deal: Yes we can, therefore I must act; a comparative history revisioning the revisionist economic historians. and for an influential contemporary view, the 1938 Currie Memorandum, Causes of the Recession that Parguez cites It’s tough for me to translate Parguez and Currie’s thought to more familiar terms, but they seem to answer the mainstream revisionist nonsense that the New Deal failed well enough, Currie in 1938 anticipating and refuting the supposedly “modern” revisionists.
Is every great public policy failure alike?
We know what is wrong, we may even (as with our economic woes) know what to do and we can even have the best prepared person to address what ails us (Great Depression scholar Bernanke) and yet time and again we come up short.
And what is the role of popular ignorance — and innumeracy in this case — in contributing to our failure to solve our problems?
First of all, let me say that I have always enjoyed your work immensely
(David) “We know what is wrong”
I would humbly submit to you that “we” definitely don’t know what is wrong….Some people know what is wrong but its only a small segment of people who have no real political power. I have yet to hear one single politician or policy maker put the real problem front and center in their analysis and offer proposals to directly confront the core economic problem….namely private sector debt.
Also, given that (also from Keen):
Change in aggregate demand = Change in income + Change in debt
And that real income has been fairly stagnant for 30 years:
That means almost all the increase in US aggregate demand for over three decades has come from the “Change in debt” portion of the equation.
Now tell me you have heard a politician or policy maker mention any of this? I sure haven’t.
(David) “we may even (as with our economic woes) know what to do”
Again, I must humbly disagree here….balancing the Federal budget is most assuredly the worst possible thing we can do right now….or ever for that matter as long as we have a trade deficit….
Either we need a massive debt forgiveness, or we need to maintain extreme levels of Govt deficit (20% plus probably) until the private debt levels come down to a more manageable % of GDP. And even then, there is no long term answer to the ever increasing share of national income being absorbed by the top 1% (of course, this you know all too well as you are probably the preeminent writer about exactly this phenomenon). I don’t know if full employment alone will result in enough upward wage pressure to reverse this long trend without some fundamental reforms of the tax code etc.
Thanks for your comment. Any different ways is the exact same point provided. Lack of knowledge is not the problem, it is lack of widespread understanding.