In keeping with its policy of releasing transcripts with a five-year lag, the Federal Reserve Board just released the transcripts from its 2006 Open Market Committee (FOMC) meetings. There is much there to cause pain and amusement.

In the latter category, there is probably nothing that can beat Treasury Secretary Timothy Geithner (then the president of the New York Federal Reserve Bank) telling outgoing Fed Chairman Alan Greenspan:

“I’d like the record to show that I think you’re pretty terrific, too. And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.”

But there is more than obsequiousness on display here. There is also profound ignorance of the economy among the nation’s top economic policymakers.

Keep in mind 2006 is the year that the $8 trillion housing bubble hit its peak and began to deflate. In other words, this covers the period in which the Titanic hit the iceberg and began to take on water. But no one on this sinking ship is even thinking about the lifeboats.

There is no one in the eight FOMC meetings who suggests that the economy faces any serious turbulence ahead. There is not even discussion that a mild recession could be in sight.

In fact at the last meeting of 2006, we hear Janet Yellen, who was then the President of the San Francisco Bank and is now vice-chair of the Board of governors, comment that:

“there are some encouraging signs that the demand for housing may be stabilizing. … After a precipitous fall, home sales appear to have leveled off. …  Finally, the gap between ...

In the last month, people from around the country and around the world have picked up on the Occupy Wall Street theme of retaking the country from the wealthy. Insofar as this sentiment gathers force in Europe, there is probably no place better for people to plant themselves than on the steps of the European Central Bank (ECB).

More than any other institution the ECB is responsible for the economic wreckage that has overtaken the European economy. In the years when housing bubbles were building across the much of the eurozone and the United States, the ECB looked the other way. Its position at the time was that these bubbles and the huge imbalances they created were not its concern. Its concern was keeping the inflation rate at 2.0 percent.

This single-minded obsession with the inflation rate at a time when the economies of the eurozone and the world were on the edge of disaster is akin to Kodak insisting that its business line was photographic film at a time when digital photography was exploding. Competent business people adjust their business plans when the world changes. In the same vein, competent central bankers reorder their priorities when the economic situation requires changes.

But the ECB ignored the housing bubbles and the economy came crashing down around them. This may have been due to incompetence or it may have something to do with the fact that many of their friends in the banking industry were making lots of money financing the bubbles. Either way the consequences for ...

If anyone still questioned who owns Washington, the congressional supercommittee charged with reducing projected deficits by $1.2 trillion seems determined to end any doubts. According to press accounts, both the Republicans and Democrats on the committee support a plan to reduce average Social Security benefits by 3 percent.

While whacking our parents and grandparents with a big cut in Social Security benefits apparently draws bipartisan support, the supercommittee will not even score a plan to tax Wall Street financial speculation.  No committee member from either party is prepared to make a simple request to the Joint Tax Committee of Congress that would allow a speculation tax to be one of the items considered in the mix.

It’s hard to know which part of this picture is worse. The plan to cut Social Security benefits at a time when seniors are more dependent than ever on them is incredibly pernicious. The people who would see their benefits cuts under this proposal paid for their benefits contributing to Social Security over their entire working career.

Most retirees have little other than Social Security to support them in their retirement. In large part, this is due to the economic mismanagement of the supercommittee types. If they or their friends, like former Federal Reserve Board Chairman Alan Greenspan, actually had been doing their jobs, we would not have had the huge housing bubble that wrecked the economy. The collapse of this bubble caused most of the wealth that retirees and near-retirees had accumulated in their home to disappear, leaving them with nothing other than Social Security to sustain them in retirement. Now, they want to cut Social Security as well.

This particular cut is especially ...

Jean Claude Trichet will be retiring as head of the European Central Bank at the end of the month. He will step into retirement having wreaked the sort of destruction on the European economy that hostile powers can only dream about. Tens of millions of people across the eurozone countries are unemployed or underemployed because of his mismanagement of Europe’s economy. Meanwhile the world teeters on the brink of another financial crisis because of the ECB’s failure, along with the IMF, to effectively address the sovereign debt crisis. Most incredible of all, Trichet probably thinks he has done a good job.

This last point really is central because the ECB, like much of the economics profession, continues to be controlled by a bizarre clique that believes that the most important, and possibly only, goal that a central bank should pursue is a 2 percent inflation target. By this measure, the ECB has done reasonably well, even the as the euzo zone economy has crumbled around it. After all, inflation in the eurozone economies rarely exceeded 3 percent and averaged well under the 2 percent target over the last decade.

However, the low and stable eurozone inflation rate is not going to provide much help to the 21.2 percent of the Spanish work force that is unemployed or the 14.6 percent of the Irish workforce, nor the millions more elsewhere in the eurozone who have lost their jobs as a result of the collapsed of the housing bubbles that the ECB let grow unchecked.

If Trichet and his colleagues at the ECB had been awake, they would have noticed that real house prices in Spain had more than doubled between 1998 and 2006. The same was true in Ireland. There was no remotely comparable increase in rents, strongly indicating that this run-up was not being driven by the fundamentals of the housing market.

And in both countries, the massive run-up in house prices was having the predictable effect on the economy. Both countries had huge ...

Virtually all forecasters are now projecting the unemployment rate to remain high for years into the future. This is the result of the political deadlock in Washington, where the Republican leadership has made it clear that it will oppose any further measures to create jobs.

If nothing happens in Washington, then state and local governments are left to fend for themselves. Unfortunately state and local governments have two serious disadvantages in the job creation effort relative to Washington. They can’t run deficits, since most are required to balance their budgets. And, they can’t just print money like the Federal Reserve Board.

As a result, the range of action for state and local policymakers is limited to what they can pay for. With the recession sharply curtailing revenue, that doesn’t leave much money for inventive job-creating agendas. These governments can raise taxes, but there is a limit to how much taxes can be increased without sending business into neighboring states, even if the political will exists.

However, there is one tax that state and local governments can raise without fear of losing businesses or people. They can tax vacant properties.

This is an especially desirable tax in the current economic situation since the real estate bubble created a glut of both residential and non-residential property in much of the country. Having housing units or commercial properties sit idle does no one any good. People could be living in the housing units and the commercial properties could offer new jobs in stores and offices.

The problem is that property owners often have difficulty coming to grips with the new market environment. They saw the run-up in prices of the bubble years and they expect that these prices will soon return. Rather than accept a lower price to sell or rent their vacant properties, they are waiting for prices to return to their bubble peak.

As a result, these pie-in-the-sky ...

Last month the Federal Reserve Board’s Open Market Committee (FOMC) voted 7 to 3 to commit itself to keep its short-term interest rate at near zero for the next two years. Given the persistence and severity of the downturn, this was a modest step for the Fed to take to boost the economy.

There were several more aggressive actions that the Fed could have taken. For example, the Fed could have targeted a longer-term interest rate. This could mean something like setting a 1.0 percent interest rate target for five-year Treasury bonds over the next year. Such a policy could be expected to drive down borrowing costs throughout the economy. That would lead to more mortgage refinancing and some additional investment.

Lower interest rates would likely also lead to a somewhat lower value of the dollar. This would make imports more expensive and make our exports cheaper to people living in other countries. That should help to reduce our trade deficit, the most important imbalance facing the economy.

The Fed could have also been even more aggressive and followed a path suggested by Ben Bernanke for Japan’s central bank back when he was still a professor at Princeton. Bernanke recommended that Japan’s central bank deliberately target a higher inflation rate in the range of 3-4 percent. This would have the effect of reducing real interest rates when short-term nominal rates are already at zero. It would also reduce the burden of debtors.

Alternatively, the Fed could have just done more of the same. It could have followed up ...

Of all the nonsense Texas Governor Rick Perry spews about states’ rights and the tenth amendment, his dumbest is the notion that states should go it alone. “We’ve got a great Union,” he said at a Tea Party rally in Austin in April 2009. “There’s absolutely no reason to dissolve it. But if Washington continues to thumb their nose at the American people, you know, who knows what might come out of that.”

The core of his message isn’t outright secession, though. It’s that the locus of governmental action ought to be at the state rather than the federal level. “It is essential to our liberty,” he writes in his book, Fed Up! Our Fight to Save America from Washington,“that we be allowed to live as we see fit through the democratic process at the ...