Bernanke’s Unfinished Mission (Paul Krugman)

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saxplayer00o1's picture
saxplayer00o1
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Bernanke’s Unfinished Mission (Paul Krugman)

Anyone seen this one from Krugman?

 

The guy does ok in the first 4 paragraphs and mentions that we need to create at least 100,000 jobs a month "to keep up with a growing population ". Then all of  this nonsense (notice the paragraph I put in bold type):

 

"So if we’re going to have any real good news, someone has to take responsibility for creating a lot of additional jobs. And at this point, that someone almost has to be the Federal Reserve.

I don’t mean to absolve the Obama administration of all responsibility. Clearly, the administration proposed a stimulus package that was too small to begin with and was whittled down further by “centrists” in the Senate. And the measures President Obama proposed earlier this week, while they would create a significant number of additional jobs, fall far short of what the economy needs.

But while economic analysis says that we should have a large second stimulus, the political reality is that the president — faced with total obstruction from Republicans, while receiving only lukewarm support from some in his own party — probably can’t get enough votes in Congress to do more than tinker at the edges of the employment problem.

The Fed, however, can do more.

Mr. Bernanke has received a great deal of credit, and rightly so, for his use of unorthodox strategies to contain the damage after Lehman Brothers failed. But both the Fed’s actions, as measured by its expansion of credit, and Mr. Bernanke’s words suggest that the urgency of late 2008 and early 2009 has given way to a curious mix of complacency and fatalism — a sense that the Fed has done enough now that the financial system has stepped back from the brink, even though its own forecasts predict that unemployment will remain punishingly high for at least the next three years.

The most specific, persuasive case I’ve seen for more Fed action comes from Joseph Gagnon, a former Fed staffer now at the Peterson Institute for International Economics. Basing his analysis on the prior work of none other than Mr. Bernanke himself, in his previous incarnation as an economic researcher, Mr. Gagnon urges the Fed to expand credit by buying a further $2 trillion in assets. Such a program could do a lot to promote faster growth, while having hardly any downside.

So why isn’t the Fed doing it? Part of the answer may be political: Ideological opponents of government activism tend to be as critical of the Fed’s credit expansion as they are of the Obama administration’s fiscal stimulus. And this has probably made the Fed reluctant to use its powers to their fullest extent. Meanwhile, a significant number of Fed officials, especially at the regional banks, are obsessed with the fear of 1970s-style inflation, which they see lurking just around the bend even though there’s not a hint of it in the actual data.

But there’s also, I believe, a question of priorities. The Fed sprang into action when faced with the prospect of wrecked banks; it doesn’t seem equally concerned about the prospect of wrecked lives.

And that is what we’re talking about here. The kind of sustained high unemployment envisaged in the Fed’s own forecasts is a recipe for immense human suffering — millions of families losing their savings and their homes, millions of young Americans never getting their working lives properly started because there are no jobs available when they graduate. If we don’t get unemployment down soon, we’ll be paying the price for a generation.

So it’s time for the Fed to lose that complacency, shrug off that fatalism and start lending a hand to job creation."

earthwise's picture
earthwise
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Re: Bernanke’s Unfinished Mission (PAUL KRUGMAN)

 

So, if I understand Krugman correctly, the answer is to create jobs by printing money. Great idea! Wonder why they didn't think of that sooner. Oh wait, they did. Trillions of dollars ago, and counting.

DavidC's picture
DavidC
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Re: Bernanke’s Unfinished Mission (Paul Krugman)

"Mr. Bernanke has received a great deal of credit, and rightly so, for his use of unorthodox strategies".

Errm, no, all he's done is to apply strategies based on the Fed's orthodoxies. An UNorthodax straegy would have been to LET the 'too big to fails' fail, sell the assets at MARKET value to other, more responsible, banks - many of whom are suffering as a result of the bailing out of the big boys and the ridiculous flat FDIC permiums, which have increased the moral hazard practiced by the big boys.

For an economic Nobel prize winner, Krugman displays an astounding naiviety.

Steve Keen, on the other hand, would deserve one.

DavidC

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