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Robert Reich
NationofChange / Op-Ed
Published: Sunday 16 December 2012
So two cheers for Ben Bernanke and the Fed. They’re doing what they can.

Why the Fed’s Jobs Program Will Fail

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For the first time, the Federal Reserve has explicitly linked interest rates to unemployment.

Rates will remain near zero “at least as long” as unemployment remains above 6.5 percent and if inflation is projected to be no more than 2.5 percent, said the Federal Open Market Committee in a statement Wednesday.

Put to one side the question now obsessing stock and bond traders — whether the new standard means higher interest rates will kick in sooner than the middle of 2015, which had been the Fed’s previous position.

By linking interest rates directly to the rate of unemployment, Bernanke is explicitly acknowledging that the Federal Reserve Board has two mandates — not just price but also employment. “The conditions now prevailing in the job market represent an enormous waste of human and economic potential,” said Fed Chairman Ben S. Bernanke.

These are refreshing words at a time when Congress and the White House seem more concerned about reducing the federal budget deficit than generating more jobs.

But the sad fact is near-zero interest rates won’t do much for jobs because banks aren’t allowing many people to take advantage of them. If you’ve tried lately to refinance your home or get a home equity loan you know what I mean.

Banks don’t need to lend to homeowners. They can get a higher return on the almost-free money they borrow from the Fed by betting on derivatives in the vast casino called the global capital market.

Besides, they’ve still got a lot of junk mortgage loans on their books and don’t want to risk adding more.

Low interest rates also lower the cost of capital, which in theory should encourage companies to borrow for expansion and more hiring. But companies won’t expand or hire until they have more customers. And they won’t have more customers as long as most people don’t have additional money to spend.

And here we come to the crux of the problem. Consumers don’t have additional money. The median wage keeps dropping, adjusted for inflation. Most of the new jobs in the economy pay less than the jobs they replaced.

Corporate profits are taking a higher share of the total economy than they have since World War II, but wages are taking the smallest share since then (see graph).

(Business Insider, St. Louis Federal Reserve Board)

(Business Insider, St. Louis Federal Reserve Board)

Globalization and technological changes continue to eat away at the American middle class. Yet we’ve done nothing to stop the erosion.

To the contrary, as in Michigan, we continue to undercut labor unions — which for three decades after World War II had been the principal bargaining agents for the working middle class.

Moreover, instead of creating easy paths for people to gain the skills they need for higher wages, we’re doing the opposite. We’re firing teachers and squeezing 30 kids into K-12 classrooms, defunding job training programs and reducing support for public higher education.

Instead of encouraging profit-sharing, we’re facilitating the Walmartization of America — the lowest possible wages along with the fattest possible corporate profits. (Walmart, which directly employs almost one percent of the entire workforce at near-poverty wages, made $27 billion in operating profits last year.)

Republicans want to make corporations and the wealthy even richer — demanding tax cuts and roll-backs of regulations on the pretense that companies and the wealthy are the “job creators.”

But the real job creators are America’s middle class and all those aspiring to join it, whose purchases propel the economy forward. And whose declining earnings are holding the economy back.

So two cheers for Ben Bernanke and the Fed. They’re doing what they can. The failure is in the rest of the government — at both the federal and state levels — still dominated by deficit hawks, supply-siders, and witting and unwitting lackeys of big corporations and the wealthy.

This article was originally posted on Robert Reich's blog.

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ABOUT Robert Reich


ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at Robert Reich's new film, "Inequality for All" is available on DVD
and blu-ray, and on Netflix in February.

We will never be able to put

We will never be able to put our manufacturing people back to work on jobs that pay enough to raise a family in a decent home and afford to send their children to colleges and universities while maintaining medical insurance and a pension plan that makes respectable retirement possible. What I just described is a healthy and strong middle class which is the worst nightmare of our current plutocratic corporations and billionaires. It is the only possible threat that could take away their control of our U.S. Congress. The only way to take away their control is not to take away their money. The way to take away their control of our government is to take money out of politics. Join hundreds of Americans all across our nation that already signed the petition that is required to make this happen. Click on or copy and paste into your browser

estrayer's picture

This is a perfect arrangement

This is a perfect arrangement for whomeveverthehelltheyare to further benefit from high unemployment. First labor is desperate enough to accept horrible wages and no benefits/entitlements, and at the same time "they" get cheap money. It is a disincentive for corporations to keep production onshore. Once again we are screwed.

First, US Congress should

First, US Congress should take back the power to create money from the Fed.

Second, US Congress should invest in the real economy - paying for health care, education, but most of all transitioning to green post-climate change infrastructure - instead of just throwing money at the banks like the Fed has been doing.

Thus we solve unemployment, adjust to the inevitable climate change and keep it from getting worse, improve the health and education of the US population, and stop adding to the deficit.

Pretty simple really. All it takes is political will.

Let's give a big raspberry to

Let's give a big raspberry to Ben Bernanke and the Fed for failing to see the necessity of uncoupling the money supply from deficit financing and debt limit bondage and creating the jobs and public infrastructure needed to get the economy moving toward full employment.

All of this is predicated on

All of this is predicated on believing the economic growth will save the day. Between the loss of forests, soils, fisheries, clean water, and biodiversity and the changing climate and sea level our job is to create more jobs while using LESS. Heal ecosystems, practice economic justice and democracy, and our communities just might have a chance.

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