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What the Obama administration could actually do about jobs

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My pick for "most important article of the day" is Neil Irwin's piece looking at Barack Obama's opportunity to reshape the Federal Reserve. The resignation of Vice Chairman Bob Kohn opens a third slot on the Federal Reserve Board, not to mention the No. 2 spot behind Ben Bernanke. When people talk about the need for Democrats and the administration to focus on jobs, nothing they could get through Congress could plausibly be half as important as maximizing their long-term impact on the composition of the Federal Reserve. But the political press isn't treating the Federal Reserve openings that way, and neither is the administration.

Kohn's resignation is the fifth possible opening on the Federal Reserve Board. Two other possible slots were filled: The first went to Daniel Tarrulo, a banking expert who advised the campaign and is now overseeing banking regulation at the Fed. The second was Ben Bernanke's renomination, and whatever you think of the merits of reappointing Bernanke, it certainly did not represent the administration's decision to try to leave their imprint on the Federal Reserve.

Every smart economic observer I know is baffled by the administration's failure to nominate anyone for the two slots that have been empty for months. Those are votes and arguments that the administration could have put at the Fed's table and has simply chosen not to. Now they've got three open positions and no nominees. One of those positions is the vice chairmanship, which can go to an inside candidate (speculation centers around Janet Yellen, governor of the San Francisco Federal Reserve), although that would mean replacing that candidate on the board.

According to Irwin, two will be macroeconomists and one will be a financial markets specialists. I'm not versed enough in this stuff to have any candidates in mind. But the critique of the administration's strategy on jobs that I find compelling is that they've not had any coordinated strategy when it comes to the Federal Reserve. Bernanke's renomination was a missed opportunity, and so too are the empty seats on the board. It's hard to look at that sluggishness and be confident that the administration has a vision for this going forward.

Photo credit: Reuters

By Ezra Klein  |  March 2, 2010; 5:51 PM ET
Categories:  Federal Reserve  
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Comments

This is a huge opportunity, and I second the surprise that it's not being taken. The ability to appoint 3 board members from the "pro-jobs" camp (rather than strict "anti-inflation") could have a large positive effect on the economy.

Posted by: etdean1 | March 2, 2010 6:25 PM | Report abuse

I am not clear how you are linking Fed positions with jobs. You need to be more explicit here.

Posted by: umesh409 | March 2, 2010 6:50 PM | Report abuse

how was bernanke a missed oppurtunity? i thought the admin supported his renomination.

Posted by: eriklontok | March 2, 2010 8:12 PM | Report abuse

I agree with umesh409 re the Fed with jobs. By jobs I mean the kind that produces a good income such as manufacturing and development of all sorts. It is the President and Congress that will make that happen by changing their attitude toward "one world commerce" albeit with countries that play unfair at all levels. The Fed can make the bank loans possible for this but only after the action by the Big Players. I am afraid that we will have a terrible structured unemployment for many years to come otherwise.

Posted by: HarGru | March 2, 2010 10:49 PM | Report abuse

Ezka, please, the people don't need another Alan Greenspan. He kept the interest rate so low for so long, which ultimately created the biggest housing bubble.

Posted by: jack65 | March 2, 2010 11:27 PM | Report abuse

I don't think that this is so baffling.

I'd guess it is a matter of differing philosophies. The Obama Administration clearly has a Keynesian approach to economics. They would be sympathetic to arguments such as these: http://krugman.blogs.nytimes.com/2009/09/30/does-unconventional-monetary-policy-solve-the-zero-bound-problem/

http://web.mit.edu/krugman/www/trioshrt.html

If you think we're in a liquidity trap, then monetary policy is impotent (or the amount of monetary stimulus necessary is too high to realistically consider, as Krugman put it).

Monetarists would be more sympathetic to the view that you can get out of a liquidity trap. See point 8 in this post from Scott Sumner.

http://blogsandwikis.bentley.edu/themoneyillusion/?p=2810

That all said, if your economic viewpoint is that monetary policy is likely to be ineffective or insufficient, then provided your current FOMC isn't planning on sending rates higher in a hurry, then you're okay.

Posted by: justin84 | March 3, 2010 1:40 AM | Report abuse

We're in a recession that was triggered by the government program to use Fannie Mae and Freddie Mac to subsidize bad home loans which toxified assets around the globe....now the poor in this country are forced to suffer tremendously.

As we ponder legislation that recklessly expands the tax-payer liability for healthcare, we citizens need to consider seriously the consequence of passing a program designed to help the poor the ultiately results in the bankruptcy of USA.

Will the poor really be better off with another global meltdown and a dramatic shifting of wealth away from the USA?

Warren Buffet's comments were PERFECT!!!!

Without handling the spiraling cost of healthcare, any government entitlement to help the poor will fail in its ultimate goal!!!

Posted by: FastEddieO007 | March 3, 2010 7:40 AM | Report abuse

Well of course he hasn't nominated people to fill those positions. He has been too busy trying to ram through a health care bill no one wants. He has neglected every thing else in order to push a bill that doesn't have enough votes to pass the House.

Posted by: Bob65 | March 3, 2010 10:05 AM | Report abuse

As BDL writes, "OBAMA!! GET ALAN BLINDER AND DAVID ROMER ON THE FED BOARD NOW!!!!" (http://delong.typepad.com/sdj/2010/01/the-internets-chief-bernanke-apologist-officer-speaks.html).

Posted by: DJM5 | March 3, 2010 10:31 AM | Report abuse

Sheesh!!! We're doomed unless BOLD action is taken to save and revive the US manufacturing base. Tweaking small policy issues will not work. Nor will training for "new" jobs that can still be offshored quickly in pursuit of cheaper labor. While campaigning for president, Obama promised to reopen out Trade Agreements with an eye to correcting glaring problems (like the decimatiion of the US manufacturing jobs American citizens once held). Now, Obama says nothing about those Trade Agreements. Please notice I refer to Americans as CITIZENS, not CONSUMERS; one of the worst premises is that Trade Agreements should be made with Consumers' benefits in mind, rather than CITIZENS' benefits or loss of said benefits.

"We have avoided a second Great Depression," Paul Krugman wrote a while back... HA! Tell that to the 7 million people out of work or underemployed; for THEM this IS a depression. It's like the old saying, a recession is when people are out of work, a depression is when I myself am out of work... With at least half of the 7 million people un/under-employed for more than 6 months or more this is a DEPRESSION to those people, and there is NO solution in sight if you go by what our "leaders" are timidly proposing.

The only REAL solution to the unemployment TSUNAMI we are seeing now would have to include something that never seems to be mentioned in talk about jobs creations in the USA: Tearing up our so-called Free Trade Agreements and Favored Nation Status with China, etc, and then implementing new economic and trade policies that would make it cost-prohibitlve to import stuff not manufactured HERE in the USA. MILLIONS of jobs have disappeared overseas to cheaper labor and environmental regulation in places like China & Mexico. The standard line from you and the mainstream press seems always to be, "Those jobs are never coming back. Get over it and find some other way to create jobs in the USA."

Sorry, but NO! This evisceration of the USA's manufacturing base was an incredibly short-sighted experiment that has gone on too long. Protectionism IS a national good when it keeps jobs and the ability to produce our own basic needs here within our own borders. National security depends upon it, and there really is NO other solution to bring back jobs to the USA without instituting some harsher new trade laws that insist upon production being done HERE in the USA whenever possible (cheaper labor costs overseas do NOT outweigh the need to keep jobs and manufacturing ability here in the USA).

Mark M Pepp
Chicago

Posted by: pobox10275 | March 3, 2010 10:50 AM | Report abuse

Obama and his Lemmings could help create jobs by abandoning all of their so far proven INEPT Leftist policies..Learn how JFK, Clinton and Reagan and yes GW did it and RESIGN...That would get America on the Move once more!!!

Posted by: redhawk2 | March 3, 2010 10:57 AM | Report abuse

Of course, any nomination would almost certainly be filibustered...

I think you're mistaken about one thing, though: historically, at least, vice chair is not really a separate position; you had to be a member of the board of governors to hold it, but it was mostly an internal matter. So you have three openings either way.

What this does mean is that the Fed is partially crippled for a bunch of regulatory purposes as long as the vacancies persist. Decisions voted by less than a majority of the full board could be subject to (ultimately unsuccessful but expensive and time-consuming) litigation about their legitimacy.

Posted by: paul314 | March 3, 2010 11:56 AM | Report abuse

What's wrong with the manufacturing base?

Industrial production on Jan2010 was 40% higher than it was Jan1993, a CAGR of 2.0%. That's despite two severe manufacturing recessions in the past 10 years.
http://research.stlouisfed.org/fred2/series/INDPRO

Free trade has no net impact on the number of jobs, and is positive for national income. Also, foreigners don't take our dollars and pin them up on the wall (wouldn't it be great if they did! we buy expensive stuff in exchange for cheap paper). Those dollars get recycled, either into American products, or investments in America which increase our productivity and wealth. Remember that if we cut off trade, we'll lose millions of exporting jobs at the drop of a hat, far quicker than we could create new jobs. Unless you're willing to flash fossil fuel use at the same time, we'd be still be stuck with a trade deficit.

Externalities of free trade, such as some manufacturing jobs being displaced and some trading parters' poor environmental standards are legitimate concerns and should be addressed. I'd be in favor of a carbon tax and import duties levied on trading partners without carbon taxes - more so for global warming concerns than anything else.

Manufacturing jobs are falling all over the world. We aren't exporting jobs to Mars - the reason why most manufacturing jobs are disappearing is technological progress. New factories don't need all that much labor. Manufacturing is going through the same process agriculture went through 100 years ago - eventually we'll only need a few factory workers to produce everything we need. Putting up trade barriers and attempting to force employment into a sector that doesn't need it is bad policy.

Posted by: justin84 | March 3, 2010 7:16 PM | Report abuse

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