Paul Krugman Rightfully Calls The Fed Out for Bowing to Political Pressure (June 24, 2013)


New York Times columnist and Nobel Prize-winning economist Paul Krugman published an early week column entitled, “Et Tu, Bernanke?” The Latin allusion references the literary accusation of traitorousness, uttered by fallen Roman dictator Julius Caesar to his friend and fellow statesman Marcus Brutus at the moment of his assassination. A piece of dialogue from the pen of legendary dramatist William Shakespeare, the quote lives on because of its pain and simplicity. There are few wounds that rival the discovery of betrayal from people and institutions that we have taken for granted as acting in our best interests.

Krugman, a longtime opponent of the failed austerity plans implemented across Europe and the United States, has been a powerful, if lonely voice speaking against fiscal pain that only increases the torment of those who most need a lifeline. As Krugman has written many times in a variety of ways, the Great Recession, in large degree, is not the result of profligate financial behavior from ordinary citizens. It is instead a unique challenge presented by the runaway malfeasance of “too big to fail” banks, mortgage brokers and lenders and a host of other big businesses that have bounced back in while those they fleeced bore a double penalty: the taxpayer burden of resuscitating these institutions even as jobs, homes and retirement accounts went the way of the Edsel.

Krugman makes clear that these setbacks at the individual household level are still a long way from resolved. In fact, “The first thing you need to understand is how far we remain from full employment four years after the official end of the 2007-9 recession. It’s true that measured unemployment is down — but that mainly reflects a decline in the number of people actively seeking jobs, rather than an increase in job availability.” Simply put, almost five full years after the late-2008 market crash that sent the U.S. economy into a tailspin, many former members of the vibrant middle and working classes that made this country the envy of the world, have thrown in the towel.

The average American’s stoic ability to endure great suffering without the benefit of lobbyist dollars and infrastructure is not a reason to letup on policy making that could and should restore middle class dignity and security. Unfortunately, the very same folks who are all for corporate welfare stand firmly against “freedom killing” efforts to relieve the common man’s burden. Any talk of a jobs bill, an extension of unemployment benefits or Medicaid coverage is greeted with right wing howls against the “nanny state,” the threat of longterm deficits, etc.

But as Krugman points out, the Federal Reserve, should be immune to the disingenuous pressure of this chatter. A supposedly independent body with a three-prong mission (maximum employment, stable prices, and moderate long-term interest rates), the Fed suddenly seems as willing as the bulk of the GOP to abandon the first charge of its raison d’etre. And the columnist further suggests that the Fed never went far enough to aid the unemployed American in the first place: “You can argue — and I would — that the Fed’s activism, while welcome, isn’t enough, and that it should be doing even more. But at least it didn’t lose sight of what’s really important. Until now.”

Krugman is referring to Fed Chairman Ben Bernanke’s highly anticipated speech late last week in which, disappointingly, the leader indicated an imminent reduction in “stimulus” measures in favor of a return to normal monetary policy. The problem with this plan, as I have already highlighted, is that the nation remains dreadfully far away from that vaunted “maximum employment” goal. And the suggested reason for the Fed’s exhausted disinterest is more than slightly troubling.

“In any case, my guess is that what’s really happening is a bit different: Fed officials are, consciously or not, responding to political pressure. After all, ever since the Fed began its policy of aggressive monetary stimulus, it has faced angry accusations from the right that it is ‘debasing’ the dollar and setting the stage for high inflation — accusations that haven’t been retracted even though the dollar has remained strong and inflation has remained low. It’s hard to avoid the suspicion that Fed officials, worn down by the constant attacks, have been looking for a reason to slacken their efforts, and have seized on slightly better economic news as an excuse.”

We all know from experience that the squeakiest wheel tends to get the grease but that trope implies that the wheels all need attention in the first place. Why would a group that has been proven so wrong for so long – the conservative economists and think tanks – continue to have such an influence on supposedly nonpartisan policy making? It is more than frustrating and disheartening. It’s dangerous. It’s disloyal, even.


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