Today, Sens. John McCain (R-AZ) and Maria Cantwell (D-WA) introduced legislation reinstating the Glass-Steagall Act, the Depression-era law separating investment and deposit banking that was repealed by 1999′s Gramm-Leach-Bliley Act.

The law would give financial conglomerates like JP Morgan Chase and Bank of America one year to decide if they want to be investment banks or depository institutions, and formally bar investment banks from engaging in insurance activities. Goldman Sachs would officially lose its status as a bank holding company and Citigroup would be forced to ditch its non-bank affiliates.

“Banks need to be lending to small businesses and homeowners, not fueling risky Wall Street investment schemes,” Cantwell said. “The first step is this bill.” McCain — whose inclusion in this effort is interesting given his closeness to Phil Gramm, the man most responsible for removing Glass-Steagall — added that “if big Wall Street institutions want to take part in risky transactions, fine. But we should not allow them to do so with federally insured deposits.”

McCain and Cantwell’s announcement comes one day after House Majority Leader Steny Hoyer (D-MD) said that House Democrats are considering reinstating Glass-Steagall. But as Sam Stein reported, “the idea hasn’t gotten any attention from the Obama administration, which does not attribute the current crisis to the law’s repeal.” In fact, one Treasury official summed things up this way:

Obama administration officials have dismissed the idea that the financial sector should or can be changed in more fundamental ways than they are now proposing. You can’t turn back the clock, they say, and the new requirements they plan to impose on big banks to hold more capital in reserve, put up $150 billion for a rainy-day rescue fund, and disclose more of their risky trades should be enough to keep the financial sector from imploding again…“I think going back to Glass-Steagall would be like going back to the Walkman,” says one senior Treasury official.

But there are plenty of economists who see things differently, among them the administration’s own Paul Volcker. “People say I’m old-fashioned and banks can no longer be separated from non-bank activity,” Volcker has said. “That argument brought us to where we are today.” The former CEO of Citibank who led the lobbying effort to repeal Glass-Steagall acknowledged a few months ago that “some kind of separation…makes sense.”

Now, the repeal of Glass-Steagall was not entirely responsible for the financial crisis. Its retention wouldn’t have saved Lehman Bros., Bear Stearns, or AIG, for instance. And the resolution authority included in the regulatory reform bill passed by the House last week will go a long way toward ensuring that any financial behemoth can be unwound without damaging the wider economy.

That said, the administration’s refusal to treat a policy separating investment and depository banking seriously on the merits is quite maddening. Sure, it wouldn’t have saved Lehman. Does that mean it’s a bad idea? Joe Stiglitz pointed out that, as a result of Glass-Steagall’s repeal, “the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality. That mentality was core to the problem that we’re facing now.” Why shouldn’t we honestly consider whether or not that problem can be addressed?

Today, Time Magazine announced that its 2009 Person of the Year is Federal Reserve Chairman Ben Bernanke. Time justified the decision because Bernanke “is the most important player guiding the world’s most important economy”:

His creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivaled power over our money, our jobs, our savings and our national future. The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world.

Time’s decision makes sense, insofar as Bernanke played a huge role in the worst recession since the Great Depression and will greatly influence the U.S. recovery going forward. And this is a critical time for Bernanke, as his nomination for a second term faces a vote in the Senate Banking committee tomorrow, and his nomination is being held by both Sen. Bernie Sanders (I-VT) and Sen. Jim DeMint (R-SC).

But with so much at stake, Time was too gentle on Bernanke, though it did note that he “was as clueless as Greenspan about the coming storm.” Time gave Bernanke a pass on the sloppiness of the various rescues of financial behemoths, including AIG, by saying “now that the fire is out, it’s easy to attack the firefighters for getting the furniture wet or holding their hoses improperly.”

More importantly, Time didn’t address Bernanke’s current refusal to address unemployment. As Paul Krugman wrote, “both the Fed’s actions, as measured by its expansion of credit, and Mr. Bernanke’s words suggest that the urgency of late 2008 and early 2009 has given way to a curious mix of complacency and fatalism.” Indeed, the Fed has a legal mandate to maximize employment and estimates that unemployment will be high for several years, but as Time reported, Bernanke “implicitly makes a case for doing nothing” more and won’t advocate for more fiscal stimulus.

The common retort is that the Fed now needs to worry about inflation, with all the money it has pumped into the economy, but Bernanke admitted in a letter made public yesterday that inflation is unlikely to become a problem. He also said during his confirmation hearing two weeks ago that unemployment is “the most difficult problem that we face right now.”

So to do nothing more to fight unemployment, while not pushing for more stimulus, would be unacceptable. Peterson Institute economist and former Federal Reserve staffer Joe Gagnon has released a plan calling for $2 trillion more in Fed easing, which would “boost GDP 3 percent or more over the next eight quarters and to reduce unemployment rates by between 1 and 3 percentage points.” U.C. Berkeley economist Brad DeLong wrote that Gagnon has “a coherent plan based on a coherent, and in my view likely to be accurate, view of the world,” which can’t be said for Bernanke.

A new poll by the Progressive Change Campaign Committee found that 47 percent of Americans think Bernanke cares more about Wall Street than Main Street, compared to just 20 percent holding the opposite view. Bernanke has the tools available to change that perception, and really earn himself the title of Person of the Year.

Yesterday, the House of Representatives discussed a resolution recognizing the 70th anniversary of the retirement of U.S. Supreme Court Justice Louis Brandeis. Talk eventually wound its way to Brandeis’ famed characterization of states as the laboratories of democracy, and Rep. Steve Cohen (D-TN) pointed to California’s legalization of medical marijuana, which has since spread to 13 states, as a prime example of that approach.

Rep. Dan Lungren (R-CA), however, wanted to choose another example, and said that California’s Proposition 13 should be a guiding light for the nation:

Yes, [Brandeis] did believe in states being the laboratories of democracy. And I enjoy the gentleman’s comments, reference to my state of California and I might say, rather than choose the subject he chose, as an example of California being one of those laboratories, I would suggest Proposition 13 or perhaps “three strikes and you’re out” as guiding lights to the rest of the nation as to how we ought to organize ourselves.

Watch it:

Back in reality, 1978′s Prop. 13 — which requires that a two-thirds majority of the state legislature approve any tax increase — lies “at the root of California’s misery” and its complete budget dysfunction. It has rendered California completely incapable of doing anything to bring its budget into balance that doesn’t involve slashing social services, closing prisons, and laying off record numbers of public employees. Even though they make up just one-third of the state legislature, Prop. 13 has enabled conservatives to block even moderate tax increases, including rejecting an increase in the tobacco tax 14 times.

But Lungren’s idealizing of Prop. 13 fits into the wider GOP mantra of the moment, which is to promise never to raise taxes at any time, for any reason, ever. Rep. Eric Cantor (R-VA), for instance, thinks a simple point of bipartisan agreement should be that no taxes on anybody will increase until unemployment falls below 5 percent. So even if unemployment fell by half, clearly signaling that the economy had recovered from its 2008 shock, that still would not be enough for Cantor to approve a tax increase for even the wealthiest Americans.

But it’s a simple fact that the country’s long-term budget can’t be balanced on spending cuts alone. As Michael Linden and Michael Ettlinger pointed out, exempting interest on the debt, Social Security, Medicare, and defense spending (which Republicans never agree to cut), “the rest of the budget needs to be cut by 51 percent to have a balanced budget in 2014.” That’s half of everything — Food Stamps, Pell Grants, Title I education funding, Medicaid, low-income energy assistance, etc. Even if defense spending is thrown into the mix, it takes a 35 percent cut to achieve balance.

As Paul Krugman told me, reducing long-term deficits is not hard economically, but is “politically impossible right now.” Indeed, by reveling in the “guiding light” of Prop. 13 Lungren reveals that he — like the rest of the GOP — is simply not serious about addressing America’s long-term fiscal position.