It’s the Congress, Stupid!

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A few points to make about John Micek’s article about how much you can really credit or blame the President for the state of the economy:

This is by far the most important paragraph in the article:

And while the president can propose budgets and make recommendations on fiscal policy, bringing tremendous pressure to bear to accomplish his goals, the executive branch is still at the mercy of an independently elected Congress that can choose to pass his agenda or not.

The way our federal government is organized, the President can do a number of things unilaterally – starting wars for example – but making economic policy is not one of them.

The Constitution gives Congress enormous power over the budget, and that’s where the most important economic policy decisions are made. Like John says, the President can make recommendations, he can threaten to veto stuff, but he can’t make Congress do anything they don’t want to do. Specifically, the President cannot make the Congress create more Treasury bills, which is the single most effective thing Congress could do to bring down unemployment.

It would really be more appropriate to put the “are you better off” question to Congress than the President. The real question should be “Were things getting better faster under the Pelosi Congress or the Boehner Congress?”

And if you look at the payroll numbers, you see that things were indeed getting better a lot faster in the first half of the Obama term when Democrats controlled Congress, than in the second half, when Republicans took over.

As soon as we pivoted to deficit reduction, like the Republicans wanted, the pace of improvement petered out. When we were creating more Treasury bills, things were getting better faster. When we started creating fewer Treasury bills, the recovery slowed down.

The implication is clear – we should go back to doing what we were doing in 2009 and 2010 when the Democrats controlled Congress.

Unfortunately, John Micek was unable to find any economists to make this point – not even Stephen Herzenberg. What we get is a pretty one-sided view that Congress should cut spending and reduce regulations – an agenda that would be appropriate if we were facing a structural unemployment problem, which we fortunately are not. The structural unemployment diagnosis is a minority position among economists, so it’s unfortunate that John’s article will have the effect of misleading readers to believe that regulations and future taxes – not weak sales – are the primary cause of our economic woes.

One more point about the article is that one thing you can blame the President for is tight monetary policy. I really appreciate that John included a quote from Chris Borick about the President appointing the head of the Federal Reserve Board, since most political reporters just ignore monetary policy altogether, but it would’ve been appropriate to point out that the President also appoints members to the Federal Reserve Open Markets Committee, which actually sets monetary policy.

FOMC appointments really ought to be treated by the press with Supreme Court-like importance. The Fed has a truly awesome amount of power over the unemployment rate. And as Ben Bernanke has been saying, they are not at all out of ammo to fix the recovery, there are just not enough votes for doing more on the FOMC.

Barack Obama screwed this up in two ways, maybe three. The first way is that he waited until just last year to name his appointments to the FOMC, even though the spots were open for two years. Can you imagine a President waiting two years to appoint two Supreme Court justices? The second way is that the people he finally got appointed are not necessarily wanting to vote for more monetary stimulus. That should’ve been a precondition for appointment.

The third way, which I’m not so sure I believe, is that he even reappointed Ben Bernanke in the first place. Bernanke, as you may recall, is a conservative Republican appointed by conservative Republican President George W Bush. Maybe it would’ve been better to appoint a heavyweight Democratic-affiliated economist. However, the thing about Ben Bernanke is that he’s an academic expert on non-traditional monetary policy in recessions, and was an aggressive advocate for more monetary stimulus when Japan’s economy was in a position much like ours in the 90’s. Everything we knew about Bernanke pre-crisis would have led Obama to expect him to be more aggressive about fulfilling the full employment part of the Fed’s mandate than he actually has been.

This entry was posted in Budget, Economy.

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