Our guest bloggers are Will Straw, Associate Director for Economic Growth, and Heather Boushey, senior economist, at the Center for American Progress Action Fund.

With the announcement today that the overnight federal funds rate will be cut close to zero, the Federal Reserve has effectively joined the Looney Tunes chorus: “That’s all folks.” There is now no effective room to maneuver through monetary policy — short of printing money.

The Fed’s release states that, “Since the Committee’s last meeting [on October 29], labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined.” Job losses are accelerating, which will only make the consumption picture worse in the months to come.

Employment has fallen for 10 months in a row and we’ve lost 1.3 million jobs in the past three months alone. The most recent GDP figures show that consumer spending dropped by an annualized rate of 3.1 percent — the largest decrease since the second quarter of 1980. And we’ve known about the atrocious business investment figures since the release of second quarter data in September.

Policy makers have two sets of tools to stimulate the economy: monetary and fiscal policy. Although the markets responded positively, today’s news is proof once again that the Bush administration has put all its eggs in one basket. The need for an economic recovery package aimed at creating jobs has been evident for months, but both President Bush and Senate Republicans have repeatedly blocked attempts to pass a package.

While the House passed a $60 billion package in September, Bush threatened a veto and the Senate never voted on the issue. Now, $60 billion seems paltry compared to the problems at hand, and economists are suggesting something closer to $600 billion will be necessary to get the economy back on track. Read more

Today, President-elect Barack Obama introduced Chicago schools chief Arne Duncan as the next Secretary of Education. Across the board, Duncan is being described as someone “known for taking tough steps to improve schools while maintaining respectful relations with teachers and their unions.”

As the Washington Post put it, Duncan will have to “try and bridge the deep divides among education advocates, teachers unions and civil rights groups”:

Duncan’s résumé appeals to those identify themselves as reformers and tend to support tough accountability, charter schools, performance-pay plans and other steps that shake up the status quo. But his calls for increased funding and willingness to partner with teachers also wins the approval of unions and school officials who think the federal government imposes too many sanctions without offering enough support.

Duncan’s signature program in Chicago is Renaissance 2010, the goal of which was “to increase the number of high quality educational options in communities across Chicago.” The plan is an ambitious one for turning around Chicago’s education system by closing low-performing schools and replacing them with “smaller, entrepreneurial schools.” Under his watch, “high school graduation rates improved…(up to 55 percent from 47 percent), as did college-going rates (up to 50 percent from 44 percent).”

Like Obama, Duncan is a supporter of the accountability standards laid out in the often controversial No Child Left Behind program. And as the Chicago Tribune notes, he “isn’t afraid to rankle the teachers union.”

However, he also “helped craft a five-year teacher contract that promised significant raises each year in exchange for long-term stability.” Furthermore, he worked with the unions “to introduce a pay for performance program that offers bonuses for great teachers” through a federal Teacher Incentive Fund grant.

A report by the Center for American Progress shows that “consistent assignment to high-quality teachers can substantially lower the barriers to realizing academic success imposed by poverty.” While the true efficacy of teacher incentive programs is still unknown, “The only way we will learn more is by experimenting with incentives — financial and otherwise — and then carefully evaluating the results.” Duncan’s record shows that he is willing to try new approaches in order to reform the education system.