Federal Reserve Chairman Ben Bernanke held a press conference today, and my friend Pete is holding a Super Bowl party this Sunday. This is the second year in a row that the Big Game will feature two pre-expansion teams, franchises with names that would’ve been familiar to people back in the 1950’s when I was a little kid in Utica, NY. If you had tried to tell the old Italian and Irish and Polish guys in our neighborhood that someday we’d have football teams with names like the “Dolphins,” the “Buccaneers,” and the “Jaguars,” know what they would’ve said?
They would’ve said, “Get outta here!”
What if Pete managed his party the same way Bernanke’s running the Fed? Well, we’d have a lot of unhappy people watching the game, along with a couple of very happy ones.
Since the presence of a large-screen TV is a given, Pete has two obligations as host: to provide a pleasing gustatory experience (aka “good eats”), and to ensure that overall refreshment costs don’t get out of control. Pete’s two goals can be tracked using two simple measurements: the “did it cost more than a meal at Red Lobster?” budgetary indicator, and the “where my nachos at?” food availability rate (also expressed positively as the “got my nacho on” index). These indicators track Pete’s two areas of responsibility, and his performance should be measured against them.
Word to Florida fans: Don’t get me wrong. I’m not knocking your franchises, so please don’t flame me. I’m just explaining how unusual those names would have sounded back when I was a little kid. Any new team names would’ve looked odd and unfamiliar back then.
Things are terrible and that’s okay.
Know what else would’ve looked wildly unfamiliar to Americans in the fifties? Today’s unemployment figures. The official unemployment rate is 9.0%, and figures for discouraged workers and long-term unemployed are at record highs. Unemployment in the 1950’s ranged from a low of 2.5% to a high of 5.4%. Even allowing for changes in the way the number is calculated, that’s a staggering change. The fact that joblessness isn’t considered a national emergency shows how differently politicians view their responsibilities today. Leaders of both parties had a common vision of our country’s best interests during the period of our greatest prosperity. Where has it gone?
Bernanke’s remarks came less than a week after Treasury Secretary Tim Geithner said that the economic surge currently being enjoyed on Wall Street is “not a boom. It’s not an expansion that’s going to offer a rapid decline in unemployment.” And he didn’t say it as in, “and so we’ve got to do something about this horrible situation.” He said it as in, “Hey, it’s too bad, but sh*t happens.”
Geithner made his remarks at Davos, where the bankers responsible for these staggering unemployment numbers — through incompetence, dishonesty, and often through out-and-out crime — met to celebrate their renewed wealth and figure out how to get more of it.
They’ve got a lot to celebrate. The overall economy has expanded for six quarters. Banks are enjoying record revenues and surging profits, and bonuses are soaring. Put it this way: Nobody’s sweating about the cost of their first-class ticket to Switzerland, or the price of that chartered helicopter to fly them from the Zurich Airport straight to their mountain resort. (Limos are for nobodies. Who wants to spend two hours in the back of a stretch when you can be luxuriating among evergreen-carpeted peaks in less than 30 minutes?)
The administration keeps echoing the right’s cost-cutting rhetoric, despite the ongoing pain of millions of Americans. And Republicans are in full-tilt crazy mode, pushing radical budget cuts that could mean another million lost jobs. Yet Bernanke offered only empty rhetoric about unemployment. You know what the old guys back in Utica would’ve said to that, don’t you? They’d have said, “Get outta here!”
(Actually there would’ve been a couple of other words in there too — one of which starts with an “f” – but this is a family publication.)
The State of the Nacho Economy at Pete’s House, February 2011
Bernanke’s remarks reflected the one-dimensionality behind much of today’s macroeconomic thinking, which tends to deals only in averages and can therefore overlook fundamental problems. Here’s where the party analogy comes in:
Let’s say there weren’t enough nachos at last year’s Super Bowl, and everybody went home bitching about it. Pete promises to fix it — that’s half the host’s job, after all — so he buys more nachos this year. But he doesn’t pay any attention to how they’re distributed. So the first couple of guys show up, pack all the nachos into shopping bags, and throw them in the back of their vans to take home. That’s great for them — they’ll be snacking for days. The other eight guys show up starving, but there’s nothing for them to eat. And I mean nothing — no nachos, no Doritos, no buffalo wings, not even a freakin’ Pringle they can divide eight ways.
(Yes, it will be all guys on Sunday, but that doesn’t we’re “no girls in the treehouse” men. My wife’s a basketball fanatic, for example, but she has no interest in football. The party’s gender uniformity was a market-driven outcome, the product of demand rather than regulation.)
Back to the nacho problem: Pete, understandably, gets some heavy criticism from the eight hungry guys. If he were Bernanke, he’d … well, let’s use Bernanke’s actual statement, merely changing a word here and there to fit the party situation:
“Guys,” Pete says, “we have seen increased evidence that a self-sustaining recovery in nacho consumption may be taking hold. Notably, we learned that attendees increased their nacho consumption in real terms at a rate of more than 4 percent.”
Pete goes on, acutely aware of the guys who are pissed about the snack situation:
While indicators of overall chowing-down have, on balance, been encouraging, the “got-my-nacho-on” rate overall has improved only slowly … It will be several years before the “got-my-nacho-on” rate returns to a more normal level. In sum, although snack growth will probably increase this year, we expect the “where-my-nachos-at” rate to remain stubbornly above the levels that Big Game party planners have judged to be consistent over the longer term with our mandate to foster both full “got-my-nacho-on” satisfaction and “didn’t-cost-more-than-a-meal-at-Red-Lobster” overall stability.
That’s exactly what Bernanke said, adjusted for our analogy. Picture how a roomful of hungry football fans will react if Pete gives that speech on Sunday. Now ask yourself why Bernanke’s comments are any more acceptable.
If you had a friend like Ben …
The fact that Bernanke held a press conference at all shows how unusual things have become. The Fed Chair typically keeps contact with the press to an absolute minimum, because any offhand or misinterpreted comments can move billions of dollars in the market. The Chairman’s remarks are studied with the same obsessive fascination courtiers once directed toward their Emperor: When he taps his foot slightly, it’s a bad sign. Did he raise an eyebrow slightly while he nodded, indicating that this offer has truly pleased him?
We need to reevaluate any economic system that places so much power in one person. But given that the Fed chair does have that power, Bernanke’s caution is understandable. It makes his public appearance that much more significant.
The Fed’s two missions are to ensure “price stability” and maintain “full employment” (roughly equivalent to our “Red Lobster budget” and “nacho” party goals). There was a time when Bernanke didn’t even acknowledge the “employment” aspect of his mandate, so presumably it’s a sign of progress (or, more likely, of political pressure) that he even mentioned it today. But he didn’t say the situation was unacceptable. He merely said that “we expect the unemployment rate to remain stubbornly above, and inflation to remain persistently below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate from the Congress to foster maximum employment and price stability.”
In other words, he’s saying he knows its in his job description, but that it’s not going to happen and he’s not going to do anything else to make it happen. How would your boss react if you said something like that?
Feeding the Python
Let’s use a complete different analogy for a second. Let’s say you’ve got a python and some hungry leopards in a cage. If you feed a rat to the python there will be a big bulge in the python, but the leopards will still be hungry.
Bernanke’s approach “creates” money. But banks aren’t lending enough money to job-creating businesses with the money they’ve got already. If the Fed plans to do more of the same, banks will become more profitable. Will it create more jobs? Maybe a few. But there are much more efficient ways to reduce unemployment, and government spending is the best short-term approach.
Unfortunately, instead of supporting investment in jobs and growth , Bernanke made a point of praising the destructive austerity economics of the Simpson/Bowles Deficit Commission plan. The commission chairs’ proposal (the commission itself failed to deliver a report) included cuts to government spending and Social Security, along with budget-busting reductions in the top taxation rates. Their plan, which Bernanke cited as one of several like-minded “useful starting points for a much-needed national conversation,” would kill millions of jobs and spread further hardship while further enriching the already asset-glutted well-to-do.
The bottom line? Bernanke says he’ll keep pursuing monetary policies that do little to reduce unemployment, and he undermined public support for urgently-needed government investment with a premature and excessive emphasis on deficit reduction in a time of crisis.
In other words: In a cage full of starving leopards, he’s going to feed another rat to the python.
Whaddya gonna do?
Why does Bernanke say that the unemployment rate is “stubborn”? The unemployment rate is a thing, after all, not a living creature. It’s the product of human decisions and human behavior, endowed with neither emotions nor a will of its own.
Consciously or not, Bernanke performed some misdirection by anthropomorphizing the joblessness rate. He’s drawing our attention away from the effect of his own actions. He’s saying that unemployment doesn’t “want” to come down, instead of saying that he can’t or won’t do more to bring it down.
What do you think will happen this Sunday if Pete says that the nachos don’t “want” to be available to everybody? Let’s get real: It’s Bernanke and Geithner et al. who are being “stubborn,” not the unemployment rate. If the stock market had fallen as catastrophically as employment and had stayed down as long, don’t you think they’d be in full “Defcon 4” mode? Of course they would. They’d use every tool at their disposal to fix it — and if that didn’t work they’d invent new tools.
But when it comes to unemployment, they’re all shrugging their shoulders and saying “whaddya gonna do?” They’re saying nothing else can be done. That’s not an acceptable answer — and it’s not an honest one, either. Joblessness can be reduced by government investment in jobs and growth. If they’re opposed to that they should explain why, instead of pretending there’s no solution to be found.
It’s crunch time
We can have a little fun with our party nachos analogy, but there’s nothing funny about the economic pain of millions of people. Institutions like the Fed and the Treasury Department are charged with managing unemployment and sustaining economic growth, and they’re failing miserably.
But hey: Enjoy the game. I’ve been planning to root for Pittsburgh this year, because I love the people there and because Pittsburgh reminds me of my home town. But then again, I’m being interviewed on Madison radio tomorrow, and a statement like that could be hazardous to that interview’s health. Just don’t ask me who I think will win. That’s a deeply personal matter, to be discussed only in the strictest confidence with my
bookie spiritual advisor.
I doubt that anybody watching Sunday’s game would want to hear our leaders say that this sluggish and jobless economy represents the “new normal.” How would the sportscasters put it? The people expect their officials to give 110 percent. They better march it down the field, because it’s crunch time for the economy. We need some come-from-behind job creation, along with a whole lot of smash-mouth economic growth. It ain’t over ’til it’s over, but if they don’t get their act together it’s gonna be over.
Now pass the nachos, wouldya?