Two weeks after announcing a record high unemployment rate, Europe’s official economic analysts today revealed another first for the currency union: The Eurozone’s ongoing recession is now the longest in the 14-year history of the euro. The Guardian notes the European economy has now shrunk a full percentage point over the past year:

The eurozone has slumped into its longest recession ever, after economic activity across the region fell for the sixth quarter in a row. […]

France, Spain, Italy and the Netherlands all saw their economies shrink as the economic crisis in the eurozone continued to hit its largest economies.

Eurostat’s figures showed that the eurozone economy has now contracted by 1% over the last year, putting further pressure on leaders as unemployment climbs to new record highs.

The 0.2% contraction in the first quarter of 2012 was an improvement on the 0.6% drop recorded between October and December, but analysts warned that the eurozone’s economic outlook is darkening.

This is the second ugly bit of record-setting in two weeks, after the Eurozone’s unemployment rate hit 12.1 percent at the end of April. It was the 23rd consecutive month of record-breaking unemployment, with 26.5 million people out of work.

These records seem to have created some space for European policymakers to begin at least discussing an end to austerity. For example, French finance minister Pierre Moscovici reacted to the news that France’s economy had contracted for the second straight quarter by calling for pro-growth policies to return across the Eurozone.

So far, however, the damagingly aggressive reduction in deficits is projected to continue in Europe. And American deficits are now projected to dip even more dramatically than those in Euro countries.

The drop in aggregate Eurozone deficits looks alarmingly similar to the rapid decline in U.S. deficits CBO now projects for 2013. According to European Commission projections for 2013, the countries that use the euro will have cut their combined deficits to 2.9 percent of GDP by the end of the fiscal year, down from 6.4 in 2009. The new CBO figures predict U.S. deficits are shrinking even more dramatically, to 4 percent this fiscal year from over 10 percent in 2009.

In other words, as Europe’s deficit-slashing fever produces a record contraction, American policymakers are learning they’ve outdone their Old World colleagues. But where Europe’s outright contraction may be forcing a policy reversal, slow but steady economic growth in the U.S. seems to be obscuring the lessons from bad headlines across the Atlantic.

It hasn’t really made the front pages, but the United States recently began carrying out a massive and nearly unprecedented economic experiment, and 2013 looks to be the year when the results come in. The question is straightforward: When the economy is in a deep slump, and the government makes things worse by cutting spending, how much can monetary policy do to help? The answer could reshape the way we argue about economic policy, with profound implications for progressives’ economic priorities — and big opportunities, if they can seize them.

First, a quick refresher. Just like blood carries nutrients to the cells of the body, enabling them to function, the flow of money through an economy enables people to keep buying, selling, and earning incomes. Keeping the supply of money in line with the economy’s changing needs is the job of the Federal Reserve, and normally it does so by adjusting interest rates. Raising them sucks money out of the economy and reins in inflation. Cutting them pumps money into the economy, boosting wages and job growth. And most of the time, most economists agree this is the primary tool for guiding the economy out of its periodic slumps.

But with the 2008 crash the United States entered largely uncharted economic waters, and that agreement blew apart. That’s because the Great Recession was so deep that cutting interest rates all the way to zero still wasn’t enough to boost the economy into a recovery. Economists call it the “zero lower bound.” And while it’s a wall that modern western economies don’t hit often, 2013 will be the fifth year running the United States has been up against it.

So far, progressives have tended to side with economists like Paul Krugman and bloggers like Mike Konczal. They argue that monetary policy is severely weakened at the zero lower bound, when government must take over the job of pumping money into the economy by borrowing and spending. They point out that economic growth was a measly 2.5 percent for 2013’s first quarter, and market data suggests the Fed has failed to convince anyone it’s willing to let inflation get unusually high before it hits the brakes. This despite multiple rounds of “quantitative easing,” an attempt by the Fed to get around the zero lower bound by purchasing huge numbers of financial instruments, thus injecting money into the economy

But economists like David Beckworth and Scott Sumner countered that the economy’s 2.5 percent growth rate stuck around despite blows from multiple rounds of spending cuts, the European crisis, and worries about China. In fact, as Beckworth pointed out, government spending began shrinking by the start of 2010 — yet the economy just kept puttering along at 2.5 percent.

Other points in Beckworth and Sumner’s favor: Before sequestration, the latest round of across-the-board spending cuts, began, the group Macroeconomic Advisors projected growth for the first quarter below 2.5 percent if sequestration didn’t happen. Then the May 3 jobs report, which came out after Konczal’s piece, was so good it was almost shocking. Matt Yglesias and Ryan Avent, two other fans of monetary policy’s salutary effects, pointed to other data sources that suggest the Fed actually has been able to raise long-term inflation expectations.

So this looks like at least a preliminary win for team monetary policy. Granted, the evidence is also very preliminary. Getting economic data in real time is tough, and the full force of sequestration still hasn’t hit. So at a minimum, we won’t have a better idea until at least the second half of this year. But there’s a real possibility monetary policy has put a floor under economic growth — despite the government’s demented insistence on spending cuts and sequestration — and might even be able to do more if the Fed gets more ambitious.

So what if QE3 continues apace, sequestration remains in effect, and economic growth just keeps chugging along around 2.5 percent? What should our take-away be?

Well, Beckworth and Sumner tend to be fans of austerity and small government, for obvious reasons: if fiscal drag can always be offset by monetary policy, why not cut away? But this logic can be turned on its head, because recessions drive up spending and drive down revenues, even when policy itself remains unchanged. Far more than the real-but-modest imbalance between tax and spending left by the Bush presidency, the 2008 crash is what drove the federal government deep into the red. Employment and incomes dropped, so tax receipts dried up. But more people became impoverished and unemployed, thus qualifying for safety net programs, meaning spending automatically increased. Conversely, nothing balances a budget like economic growth. If monetary policy really has the power to guide us back out of even the steepest recession, then that is the way to reduce deficits, not austerity.

Progressives need to make monetary policy something politicians have to answer for. The Fed’s policy is set by the 12 voting members of the Federal Open Market Committee (FOMC), seven of whom are appointed by the president and confirmed by the Senate. This process, and the views on monetary policy of the people who are appointed by it, deserves every bit as much scrutiny from activists, organizations, and politicians as Supreme Court nominations. Republicans and Tea Partiers have relentlessly warn of runaway inflation and denounced quantitative easing, even in the midst of the slump. But outside a rarified group of bloggers, there’s been no serious pushback from the left, or even any real sense that monetary policy is understood as a specific issue worth getting mad about.

Unfortunately, the other five voting members are not vetted by democratically elected officials, and are instead drawn from the Fed’s district banks. That means they come from a social and professional milieu likely to bias them in favor of the worldview of the financial industry, business owners, and the wealthy. Those groups all have vested interests in minimizing inflation while ignoring job growth.

Still, the Fed’s recent announcement — that quantitative easing will be open-ended, with an eye to getting unemployment below 6.5 percent, and allowing inflation to go as high as 2.5 percent — was step in the right direction. But the inflation threshold is too low. Arguably, 4 percent would better balance stable prices with the need for job growth. The Fed is also limiting its purchases to the same amount every month: $85 billion. It’s hinted it might start varying that based on how it reads the economy’s needs, and progressives should pressure it to do so. As Beckworth put it, buying the same amount every month is like putting the same amount of pressure on the gas pedal, no matter what sort of terrain you’re driving over.

Finally, we need a wholesale reform of the way the Fed does business, making the institution more accountable to the needs of everyday working Americans. The simplest way, as Matt Yglesias recommended, would be to cut the five un-appointed members out of the FOMC’s decision-making process. That, or find some other way to bring the entire board under direct accountability to elected officials.

The Fed’s mandate could use a touch up as well. Right now, it merely instructs that inflation be kept down, and employment be kept up. All the Fed’s actual targets are of its own devising, and it can change them as it sees fit. It’s not obvious when economic trends are above or below where the Fed wants them to be, or how it intends to move in response. So Fed watchers pour over its pronouncements in a recurring act of glorified tea leaf reading, parsing the statements for clues of intent or disagreement amongst the FOMC members.

The process is so absurdly vague that, as Konczal noted, the bursts of news from the FOMC’s internal divisions undermine the Fed’s ability to credibly promise sustained monetary stimulus. In the vacuum of certainty, economic players often assume the Fed will put the brakes on the economy as soon as inflation begins to tick up. (There’s that bias in favor of the wealthy again.) The Fed’s targets and its obligation to hit them should be explicitly given to it by law. That could be an explicit inflation target, or a nominal gross domestic product target — which combines the level of inflation and GDP growth — as Sumner and Beckworth have suggested.

Zooming back out to the big picture, the fact is that the political forces pushing for fiscal austerity are the same ones pushing for monetary austerity. Movement in progressives’ favor on one issue is likely to bleed into the other. So while Krugman was wrong to dismiss the case for monetary policy as quickly as he did, his final conclusion was right: we should be throwing every policy tool we’ve got at the economic slump.

It’s just that up until now, progressives haven’t been giving monetary policy the respect it deserves. 2013 is the year they should start.

The United States was already home to a persistent wealth gap between white and minority families before the Great Recession, but the downturn made that gap even worse, according to a new study from the Urban Institute. Before the recession, white families held about four times more wealth than the average nonwhite family. By the end of the recession in 2010, though, white families were six times as wealthy, as the New York Times reports:

The Urban Institute study found that the racial wealth gap yawned during the recession, even as the income gap between white Americans and nonwhite Americans remained stable. As of 2010, white families, on average, earned about $2 for every $1 that black and Hispanic families earned, a ratio that has remained roughly constant for the last 30 years. But when it comes to wealth — as measured by assets, like cash savings, homes and retirement accounts, minus debts, like mortgages and credit card balances — white families have far outpaced black and Hispanic ones. Before the recession, non-Hispanic white families, on average, were about four times as wealthy as nonwhite families, according to the Urban Institute’s analysis of Federal Reserve data. By 2010, whites were about six times as wealthy.

The gap between white and minority families increased for several reasons, mainly because the housing bust that sparked the recession was more pernicious for nonwhite families than it was for whites. Black and Latinos were twice as likely to have been affected by the housing crisis, thanks in part to predatory lending and foreclosure policies, and the loss of housing value and homes demolished accumulated wealth for those families.

Minority families were also more likely to lose jobs during the recession and have been slower to return to the workforce. That was only exacerbated by crunched budgets at the state and local level and federal spending cuts that led to a massive decline in public sector jobs, where blacks and Latinos are more likely to work. That left many families unable to weather the recession as well as white families, and, as the Urban report notes, led them to tap into retirement accounts and other long-term savings that further drained the amount of wealth they held. That blacks and Latinos were already more likely to be unemployed — and are still facing unemployment rates nearly double that of whites four years later — has only made it worse.

Previous studies have found similar results — an analysis of Census Data in 2012 found that the recession doubled the wealth gap between whites and blacks, and it has tripled in the last 25 years. And with the federal government continuing to turn its eye away from the people hurt worst by the recession, pursuing further spending cuts and largely letting banks off the hook for their role in the crisis, increasing the odds that the gap between white and minority families will only continue to grow larger.

Fears that the United Kingdom would fall into a triple-dip recession eased today, as the country avoided another quarter of economic contraction. GDP data confirmed that the country’s economy did in fact grow, if very slowly, at the beginning of this year:

During the first quarter of this year the country recorded an increase of three-tenths of a percent in gross domestic product, compared with the previous three-month period when it contracted by a similar amount, the Office for National Statistics said. Gross domestic product had been broadly flat over the last 18 months, the agency added.

The growth was driven in large part by an increase in output form the service sector, which grew by 0.6 percent, and from mining and quarrying, which increased by 3.2 percent. These increases were offset by a 2.5 percent decline in construction.

But the jump in growth was also aided by a slight change in policy focus away from deficit reduction. As the country’s leaders have slowed the drive toward austerity, the public sector began to grow instead of shrink. In the first quarter of the year, that sector grew by 0.5 percent, compared to a 0.9 contraction the quarter before, adding 0.1 percent to overall GDP growth.

This news contrasts sharply with figures out of Spain today, a country still struggling with the demand for austerity. The country continues to experience a recession, now for seven consecutive quarters. Its unemployment figure has climbed above 27 percent, a number it hasn’t experienced since 1976, the year its dictator Francisco Franco died. The public sector in Spain has increased firings in education and health to reduce deficits, causing employment in those sectors to fall to 2.85 million from 2.92 million at the end of last year. Private sector employment also fell from 13.9 million to 13.6 million.

Spain’s prime minister is looking to convince investors and other European Union countries to ease its deficit targets next month. He may find a friendly ear, as a top EU official recently indicated that he’s in favor of shifting the focus away from austerity and giving countries more time to reduce their deficits, and the EU’s economic and monetary affairs commissioner has voiced a similar opinion.

The Great Recession fueled an explosion in income inequality and the economic recovery has carried on the trend. The numbers themselves are staggering, but the causes are also important. A new report from the Pew Research Center finds that not only did the wealth gap between the bottom and the top of the income ladder expand during the first two years of the recovery, but we can chalk most of it up to the improvement in the stock market during that time:

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data. [...]

These wide variances were driven by the fact that the stock and bond market rallied during the 2009 to 2011 period while the housing market remained flat.

Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.

From the end of the recession in 2009 through 2011 (the last year for which Census Bureau wealth data are available), the 8 million households in the U.S. with a net worth above $836,033 saw their aggregate wealth rise by an estimated $5.6 trillion, while the 111 million households with a net worth at or below that level saw their aggregate wealth decline by an estimated $0.6 trillion.

This astronomical rise in wealth at the top coincides with a frothy stock market. During the same two years, the S&P 500 rose by 34 percent. Meanwhile, home prices kept falling: The S&P/Case-Shiller home price index fell by 5 percent during that time.

The report notes, “The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period.” That’s because the wealthy hold more stocks and bonds and less of their wealth is tied to home price. Households with a net worth above $500,000 have 65 percent of their wealth in financial holdings. Lower income households, on the other hand, have half of their wealth in their home and just a third of comes from the stock market.

This trend isn’t unique to the recession, however. Income inequality has been growing over the past 30 years thanks to skyrocketing executive pay, stagnating pay for workers, the growth in low-wage jobs, and a tax code that often benefits the well off.

Republicans often tout the 1996 welfare reform law as one of the great bipartisan victories Congress has achieved. Welfare reform, however, has a checkered past, as it has resulted in a failure to get aid to the families and children who need it most.

According to a new analysis from the Center on Budget and Policy Priorities, Temporary Assistance for Needy Families (TANF) didn’t come close to keeping up with the substantial rise in unemployment that occurred during the Great Recession. In fact, according to CBPP, it took TANF seven months after the recession began to show any growth in caseloads.

When its growth peaked in December 2010, the program had grown by just 16 percent even as unemployment swelled by 88 percent in the same time period:

The rate of families with children in poverty that received TANF benefits fell in 35 states from 2007 to 2011. It rose in just five. The block granting of benefits to states, a change made in the 1996 reform at the request of Republicans, largely caused the negative change, since crunched budgets led many states to make their programs stingier than they were before the recession.

Social safety net programs should swell during economic downturns as they work to mitigate the effects of high unemployment and keep millions of Americans out of poverty. Indeed, several of America’s safety net programs, like the Supplemental Nutrition Assistance Program, did just that. But TANF failed to keep up, making the recession worse for millions of families it could and should have kept out of poverty.

The European economy, beset by high unemployment and austerity measures aimed at reducing debts and deficits, will contract again in 2013, according to the continent’s official economic body. That would make 2013 the second consecutive year, and third in the past five, in which the 17-nation Eurozone’s economy will have shrunk, adding to its already record-high unemployment rate and further complicating the deficit reduction efforts it has pursued without fail since the end of the global recession.

Another contraction would especially hit the countries that have already been hurt the most by the recession and resulting austerity, the European Commission said. The Wall Street Journal reports:

The European Commission, the EU’s executive arm, forecasts a 0.3% contraction for 2013 and sees falling spending by businesses, consumers and national governments pushing euro-zone unemployment to a new high. Mass joblessness is expected to increase in the countries hardest hit by the crisis, with the average unemployment rate expected to reach 27% in Greece, 26.9% in Spain and 17.3% in Portugal.

Slow growth, and in some cases the lack of growth at all, has already hampered deficit reduction efforts, causing Spain, Greece, and France to miss deficit targets. French president Francois Hollande announced this week that he would not pursue further austerity to hit this year’s deficit target. The Eurozone officially fell back into recession in November.