What Would Be Required For Full Employment
A friend of mine noted that the Fed is supposed to try and achieve both price stability and employment, and thus seems to believe that leaving interest rates low is something the Fed should do.
But monetary policy alone isn’t going to get the US to full employment. It requires properly done fiscal policy combined with proper financial regulation to encourage lending to the real economy and real investment.
Right now what is happening is that banks have cheap money, but consumers and most businesses have expensive money. They risk creating another financial bubble, minus the part where some ordinary people manage to get rich off flipping houses because banks aren’t lending their cheap money to companies or people who create any significan numbers of jobs, they’re using that money for leveraged plays, buyouts and so on.
As usual, this was predicted by a number of people this time last year when TARP was formalized.
The Fed, Treasury, FDIC and federal regulators, under the direction of the President (and yes, the Fed does do what the President wants right now, if Bernanke wants to keep his job, which he does) could do a number of things to fix this, but doing so would require telling bankers who they’re going to lend to and what interest rates they’re going to charge, and /that/ would require being willing to threaten them with (and if necessary follow through with) withdrawal of special facilities, real audits, and having the FDIC take over banks who absolutely refuse to play ball. Which means a willingness to risk having those sweet sweet donation from the financial sector flip back to the Republicans.
The rest of what needs to be done rests in the combined hands of the President and Congress. For a pittance compared to the full so-called stimulus bill, cash for clunkers produced noticeable growth. If the government wants to pass a real stimulus bill, actually designed to create large numbers of jobs, it could get a lot of bang for only a few hundred billion dollars.
No one, not the Fed, nor Congress, nor the President, is serious about full employment. If they were they would have done, would be doing, and would be planning on doing different things than they have done.
Employment will probably start picking up again in the spring, but employment as a percentage of America’s population will not recover this economic cycle. My suspicion is that it won’t recover within 20 years.
That is a policy choice, either deliberately, or through stupidity (I suspect both.) Fixing it requires all three of the Fed, President and Congress to decide to do the right things for the population as a whole, rather than for their friends, donors and cronies in the financial industry.
I leave it to others to decide how likely that is to occur.