Congress, Not the Fed, Needs to ‘Get to Work’
By John Carney
July 17 (CNBC) — The Senate Banking Committee’s grilling of Federal Reserve Chairman Ben Bernanke just got weird.
Senator Charles Schumer, the New York Democrat, proposed a novel theory of political management of the economy shortly before 11 am Tuesday morning.
The gist of the theory: If the elected branches of government cannot agree to act, the responsibility for the economy falls to the Fed.
Schumer’s argument amounted to the idea that that because disagreements between Republican and Democrats (and, of course, the political ambitions of members of both parties in a presidential election year) are blocking any agreement to provide fiscal relief to the economy, the Fed should “get to work.”
It’s tempting to say that this is the drunk’s theory of the bar tab.
The drunk has been drinking so much he can’t work—and therefore can’t afford to pay his tab. So it’s up to the bartender to pour another cocktail and extend the tab a bit longer.
But this would be insulting to drunks everywhere. The drunk actually understands the economics of the bar better than Schumer understands the difference between monetary and fiscal policy.
The economy right now suffers because the private sector is attempting to save more than it spends, mostly by paying down its enormous debt burden. Because everyone’s income comes from someone else’s spending, reduced overall spending results in income reduction. In our economy, that means higher unemployment.
If the economy is going to grow while households and businesses pay down their debts instead of spending, someone else must take the opposite side of the trade by growing spending more than its income.
With the rest of the world heading toward recession, the only plausible source of this added income is the government. In other words, the government must cut taxes relative to spending (or grow spending relative to taxes) to replace the lost income in the private sector.
What the economy certainly isn’t suffering from right now is a shortage of liquidity or a meager money supply. Which is to say, we’ve reached the limits of what the Fed can do to spur growth. (Although perhaps not the limits of what the Fed can do to fend off a sharp turn downward in the economy.)
To hear a member of the shirker branch of our government blame the Fed for not doing enough would be laughable if we weren’t living with the consequences of the shirking.
Sen. Schumer—and his fellow lawmakers—are the ones who should “get to work.”
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Get to work. Sort of implies they can really reach an agreement. Ever hear of a death grip?
Excellent point by John, but “Sen. Schumer—and his fellow lawmakers—are the ones who should “get to work’ sort of overlooks that we are in the midst of general election campaign and politicians of both sides are not going to do anything at all controversial before the election is over. As long as the US can keep spending through the election, we’ll continue to muddle through. Then comes the “fiscal cliff” if there is more dithering and failure to move forward and address real problems instead of manufactured ones that serve ideology and politics. Without matching the deficit with non-govt saving, the US is headed for another recession (technically defined) in 2013-2014, exacerbating an already poor situation. Barring a political miracle, we are screwed.
Indeed, and the populace needs to get to work voting politicians into office who agree. Congress is merely reflective of the disjointed public. We’re all over the map in terms of economic prescriptions. A few months from now seems like a good opportunity to fix the mess we created.
For the populace to achieve that unified end, as much as reasonably possible, we all need to reach out and persuade, rebut–with passionate conviction, we can argue our case. We have the answers.
No, congress is not reflective of the public. Congress is populated by people who aim to be petty potentates and resent the populace trying to govern them.
The Constitution assigned the management of the currency to Congress, but almost a hundred years ago, Congress figured out that indirection, management by delegation, is a safer stratagem for them and a more certain avenue to power. The ability to shirk taking care of business is not a partisan issue.
What we need to do is hire stewards, not petty fogging rulers.
Autocrats aim to rule the people; democrats aim to rule on their behalf. Government by the people is still a novel idea.
@Monica Smith, This is a large point of frustration I have with warren mosler, he says the people are in control through congress, I don’t share his optimism, if he continues down this path with much evidence to the contrary, I will have to start to publicly denounce him as either being ignorant or culpable to this corruption. I had a long talk with the guy running GOOOH about how it won’t matter who he sends up to DC, 500 congress people is too few to represent our 350 million citizen republic and will all be corrupted by the lobbyists and money and power.
Why someone as enligthened as mosler thinks 500 congress people is acceptable to represent 350 million makes no sense to me, and he has never done a good job explaining that.
A lot of the problems he points out on this blog I would lay SQUARELY on congress and thier too few representatives being the source of the majority of his problems and his ideas not gaining traction. But Mosler is not willing to talk against the government I guess, he doesn’t want to get on no fly lists and such, and saying that congress has become evil and corrupted and our entire government needs to be reset and the system radically reformed probably would cost him friends.
He is willing to call bernanke a fool, but not willing to call the core of our government, the legislative house, a total faillure that needs a complete rework, even though his blog here is just more PROOF in the pudding that congress aint working for the people.
I commend you Monica for speaking out and pray you don’t have to take any airplane trips – LOL!
Please refrain from the straw man approach.
hopefully you know the difference.
I do not say people are in control through Congress, in the context you are stating, for just one example.
@WARREN MOSLER, Many times you have posted that the fed is under congresses control, and therefore the “money” is under the control of the people through congress to the fed. Or that is what I thought you posted many times over the years. Mosler, just do it already, start agreeing with the bill blacks and monica smiths and others, congress no longer functions in its current form, and before your MMT memes can start working for the people, we need a leglislative body RESET that can work, not the garbage system we have now.
Knowledge is one thing, the application of knowledge another, until Congress is fixed, all your ideas are going to wither and never be used, hickey has made me believe the entrenchment of the “status quo” of congress is too great and the elites will have to blow themselves up before we can reform our government so fundamentally. Erickson recognizes we have some serious problems relating to government too, but I still think he is optimistic that it can be fixed before a hickey elite blowup, that is where erickson and I differ.
You’re saying I’ve not been a vocal critic of Congress?
With no proposals in that regard?
If you’re just looking for attention go somewhere else.
@WARREN MOSLER, You have been very Vocal, one of the most vocal on the internet! You have one of the best blogs on the internet for showing shenanigans, I encourage many to come here and read and contribute.
Your inability to get your ideas implemented only goes further to prove mine and monicas point that all of congress needs far more reforms than you are advocating. Hickey has summed up some of the govt corruption nicely in recent posts too.
What gives is that we have a Genius guy named Mosler giving out great wisdom, and fools in government who either through ignorance or corruption failing to implement it, and I see no way short of a total restructure of our leglislative system to get any of your ideas to work for the people. Even if we vote out all 500 and send new people to DC, it doesn’t fix the core problems.
As john says to congress, get to WORK, it is simply not possible, congress is broken, and until radical steps are taken to fix it, all your genius ideas can’t help the people, doesn’t this frustrate the fugg out of you? It must or you wouldn’t come here day after day and keep the blog alive. But it aint working, and I don’t see how it is ever going to work under our current government broken system.
I know people dying and suiciding because the government is failing them, veterans, widows, children, and your ideas can’t save them because congress doesn’t work anymore, and what you propose that I have read doesn’t go far enough to fix it.
You tried to run for congress, you were going to part of the system that has only 500 people representing 350 million, you have a long way to go to get to the point where you say stuff like Kling, that we need 250 states, 5000 congressional representatives that will make it too expensive for hickeys MIC to corrupt them all, maybe several currency blocs in the USA, all the proposals I have read of yours still falls under the LARGER MACRO system that is broken, 500 congress people still in charge over 350 million and that is just too few too easily bought off.
@Save America, Have never flown on a plane larger than a two-seater and then only for a half hour. However, delivering travelers to the airport to be groped is an embarrassment and I hope that, like all those highway weigh stations, airport inspections of persons will be discontinued. For that matter, that whole Homeland Security apparatus needs to be disassembled. That was a consolidation that didn’t work. What we need is redundancy in both the private and public sectors.
One thing is clear, CNBC keeps coming back. When you appeared first time, it sounded abracadabra to Becky Quick. By now we see that John’s got it.
A few contrarian MMT forecasts that turned out to be terribly accurate (such as your call for the EUR turnaround in June 2010; last year’s falling US interest rates; EZ increasing deficits etc ) do miracles of course. It’s all a matter of time. Patience.
From CNBC point of view it is probably a balance act. Too heterodox views might cost viewers, but to miss a revolution in monetary economics would be an unforgivable media blunder.
In the meantime we saw Garth Friesen yesterday again on CNBC being interviewed.
As with regards to Schumer-Bernanke I think that Bernanke’s look and ‘smile’ said a lot.
@walter, Yeah that Euro call he made was an all timer. Didn’t hear anyone else say much about it and he made the call at around 1.20 and it ran to 1.40.
Seems that Carney missed the point Schumer was making.