Eight years ago Ben Bernanke, already a governor at the Federal Reserve although not yet chairman, spoke at a conference honoring Milton Friedman. He closed his talk by addressing Friedman’s famous claim that the Fed was responsible for the Great Depression, because it failed to do what was necessary to save the economy.Sadly, the efforts to revive the economy have been pathetic. I foolishly thought that economics had made advances over the last 80 years and that a serious depression would never happen again. But I'm shocked to find that I now understand how the 1930s became so bad: you had the same self-interested, narrow-minded people in charge then as now. Their only interest was to protect the "coupon clippers" and they had no concern for widespread unemployment and the suffering of the working class and the middle class. They would trumpet false theories to protect their self interst. They would rather keep a monster share of a declining economy than a smaller share of a growing economy, despite the fact that the declining share would be larger in absolute terms. It is pure thick-headed greed with an unwillingness to give the downtrodden a fair break. Ridiculous.
“You’re right,” said Mr. Bernanke, “we did it. We’re very sorry. But thanks to you, we won’t do it again.”
Famous last words. For we are, in fact, doing it again.
It’s true that things aren’t as bad as they were during the worst of the Depression. But that’s not saying much. And as in the 1930s, every proposal to do something to improve the situation is met with a firestorm of opposition and criticism. As a result, by the time the actual policy emerges, it’s watered down to such an extent that it’s almost guaranteed to fail.
We’ve already seen this happen with fiscal policy: fearing opposition in Congress, the Obama administration offered an inadequate plan, only to see the plan weakened further in the Senate. In the end, the small rise in federal spending was effectively offset by cuts at the state and local level, so that there was no real stimulus to the economy.
Now the same thing is happening to monetary policy.
The case for a more expansionary policy by the Fed is overwhelming. Unemployment is disastrously high, while U.S. inflation data over the past few years almost perfectly match the early stages of Japan’s relentless slide into corrosive deflation.
Unfortunately, conventional monetary policy is no longer available: the short-term interest rates the Fed normally targets are already close to zero. So the Fed is shifting from its usual policy of buying only short-term debt, and is now buying long-term debt — a policy generally referred to as “quantitative easing.” ...
Yet the Pain Caucus — my term for those who have opposed every effort to break out of our economic trap — is going wild.
And it all happening again and I've got a front row seat in the incredible mess. Lives are being ruined and the system is dysfunctional. Meanwhile right wing nuts are running around demanding that the "oppressive state" be dismantled when it is the only tool available to keep tens of millions from starving. I just hope this time around the mess doesn't end in a worldwide conflagration of war. But I'm starting to think that may indeed repeat as well.