"The Jobs Summit We Need"
Brad DeLong says that instead of a PR gimmick jobs summit, we need a meeting at which key players get together and decide what they think is going on. Is more fiscal expansion a bad idea because it will lead to a spike in interest rates, or is more monetary expansion a bad idea because the economy is too awash in liquidity? As he points out, it can’t be both:
Both of these arguments are comprehensible; each might well be true. But they cannot both be true at the same time. Either the economy is so awash in liquidity that the Federal Reserve cannot do much to boost spending—in which case additional spending by the government won’t generate any substantial rise in interest rates. Or additional government spending will crowd out investment as businesses scramble for liquidity and interest rates rise—in which case the economy is not awash in liquidity, and quantitative easing by the Federal Reserve could do a lot right now to boost spending and employment. [...]
Thus we need a jobs summit right now. We need the White House’s National Economic Council and key congressional “centrists” on one side and the Federal Reserve Open Market Committee on the other to meet. Those two groups seem to have very inconsistent views of the economic situation. They seem to be working at cross-purposes. Something has to give. If they could reach agreement on whose view of the economy is likely correct, then a rescue plan—entailing either more government spending or greater liquidity—would become obvious.
I think this view of the problem is, if anything, too optimistic. Last week in addition to the White House jobs meeting we also had Senate hearings featuring Ben Bernanke. Bernanke indicated that he thought further fiscal expansion is unwise, and also indicated that the FOMC is not considering additional monetary easing. He appears to have reached the conclusion that as long as GDP growth is positive and equity prices are rising, years of high unemployment is an acceptable outcome and public officials ought to focus on cutting Social Security benefits.