It's the Economy Stupid

http://www.nytimes.com/2012/09/01/business/economy/fed-chairman-pushes-hard-for-new-steps-to-spur-growth.html?_r=1&nl=todaysheadlines&emc=edit_th_20120901

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"We tend to think of great thinkers and innovators as soloists, but the truth is that the greatest innovative thinking doesn't occur in a vacuum." (John C. Maxwell)
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The NY Times reports today: "The Federal Reserve chairman ... delivered a detailed and forceful argument on Friday for new steps to stimulate the economy, reinforcing earlier indications that the Fed is on the verge of action." They go on to say that Mr. Bernanke's use of the term "grave concern" about the current rate of U.S. unemployment is "unusually strong."

Well, he's right. The pace of U.S. GDP growth (second quarter 1.7%) isn't enough for job growth. The generally accepted figure for the U.S. economy just to stay even with new people becoming available to get jobs (high school, college graduates, etc.) is 2.5%. And, that says nothing about the 13 million people who are currently unemployed.

I'm all for whatever the Fed wants to do to help (more) but I don't think they can do it alone (because whatever they've done hasn't helped enough). The Fed has "tools." But that hasn't been enough.

There wasn't enough real "stimulus" back when the recession hit. As I've pointed out before here, both Paul Krugman and Warren Buffet said then that the "stimulus" would not be enough. Here's a quote from Krugman's new book ("End This Depression Now"/ W.W. Norton and Company/ 2012): "So what did (President) Obama do? The American Recovery and Reinvestment Act (ARRA), the official name of the stimulus plan, had a headline price tag of $787 billion, although some of that was tax cuts that would have taken place anyway. Indeed, almost 40% of the total consisted of tax cuts, which were probably only half or less as effective in stimulating demand as actual increases in government spending."

(Krugman continued) "Of the rest, a large chunk consisted of funds to extend unemployment benefits, another chunk consisted of aid to help extend Medicaid, and a further chunk was aid to state and local governments to help them avoid spending cuts as their revenues fell. Only a fairly small piece was for the kind of spending - building and fixing roads, and so on - that we normally think of when we talk of stimulus. There was nothing resembling an FDR-style Works progress Administration. (At its peak, the WPA employed three million Americans, or about 10% of the workforce. An equivalent-sized program today would employ 13 million workers.)"

So, Krugman, in talking about why we're where we are now (GDP growth at 1.7%), goes back to the inadequate stimulus that was passed years back. Inadequate demand, inadequate investment, growth at "stall speed" (to use a term from Roubini) all prove that we never spent enough to get the economy going again. Obviously, inadequate job creation follows that.

While I applaud the attitude of the Fed, I'm not sure what it's going to do to help. Evidently, Mitt Romney plans to fire Bernanke if he's elected. Of course, that's a big "if."