Time to Change the Federal Reserve

by Norman Markowitz

Ben Bernanke, Chair of the Federal Reserve is "warning" Congress that "fiscal stimulus packages" meaning social spending and tax policies to increase purchasing power will not be a long term solution to the "credit crisis." Rather he is suggesting that more extensive bank bailouts may be necessary.

Bernanke isn't opposing the present bailout, but it is or should be obvious that he is still thinking in terms of reviving the financial system that he inherited from Alan Greenspan, since he isn't talking about serious reregulaton or any serious connection between finance capital "bailouts" and the job and income security except "old time trickle down religion" which was good enough for Coolidge and Hoover, Reagan, Clinton, and the two Bush presidents.

It is time for Congress to write a new national banking act that makes the chair of the federal reserve directly accountable to Congress and the President and gives the President with the consent of Congress the right to appoint and remove Federal Reserve chairs. It is also time to have the Federal Reserve work in concert with the Treasury and the Federal Government as a whole as part of a national economic program.

Although the "monetarism" most associated with the late Milton Friedman and carried forward in the U.S. by Alan Greenspan on the Fed has failed completely, a point that President Elect Obama made during the campaign without specifically mentioning monetarism or Friedman, monetary policy in conjunction with fiscal policy remains important in both containing the economic crisis and developing a healthy national economy based on higher real wages, greater overall labor skill, and greater income inequality, not mountains of debt and deepening income
inequality which has characterized the last thirty years of U.S. economic policy.

The Obama administration is hitting the ground running by focusing on the economic crisis and preparing to deal with it in its first days. This compares very favorably with Bill Clinton, who began his administration as if he had a hangover, half-heartedly and unsuccessfully advocated a modest fiscal stimulus package and then went on to one domestic policy disaster after another, seeking to win over the Republican opposition who handed him his lunch while he alienated the progressive mass constituencies of his party.

But Obama has a much taller order than just being a lot better than Bill Clinton or Jimmy Carter. Large numbers of Americans, and not just older Americans, expect him to be another Franklin Roosevelt, an agent of major , progressive change , of a new age of social-economic reform that will make future generations of Americans remember Ronald Reagan and George W. Bush the way Calvin Coolidge and Herbert Hoover were remembered after WWII, as relics of a discredited period of history.

Obama, like Franklin Roosevelt, has talked about "action and action now." He should start next week, both with fiscal policies to confront the economic crisis, policies to protect workers and
homeowners and regulate the way that the banks use the billions that they are getting, and also policies that change the Federal Reserve system, so that the chair of the Federal Reserve will no longer be the second most powerful "public official" in the U.S. with no serious accountability to the elected federal government.

Food Stamps, Wall Street, and Corruption

by Norman Markowitz

A few quick comments on the news of the day. First, the number of people receiving food stamps has risen to twenty-eight million, which goes up and down with the number of jobs in the economy.

Now the Food Stamp Plan is something that I know a great deal about as a scholar. It was created in the Department of Agriculture under Henry Wallace's leadership in 1939 and then eliminated by the conservative coalition in Congress during WWII (conservatives always despised all New Deal social programs and used the fact that the war had produced a full employment economy to eliminate the program).

The Food Stamp Plan was revived in the 1960s and has had its ups and downs since then, as the terms which make people eligible have changed over and over again. But Food Stamps was the kind of reform that the New Deal government was famous for. The program helped the poor directly, helped merchants who could retrieve the coupons or stamps from the government for money, and helped move foodstuffs, which helped farmers also. It was a social subsidy program that benefited those in need. The rightwing has not been able to abolish it over the last forty years, even though it has crusaded to eliminate all New Deal and Great Society programs that it could.

The Republican Right also pledged to eliminate the Department of Housing and Urban Development (HUD) and failed. But here the story is a little different. Here, Bush's HUD Secretary, Donald Jackson, is resigning as stories mount of a major scandal. Jackson is accused of giving big HUD contracts for projects in New Orleans and the Virgin Islands to big developer friends. He is also accused of threatening the Philadelphia Housing Authority with a withdrawal of HUD aid unless it turned over a two million dollar public property to a developer associate. What is alleged here is exactly the sort of thing that rightwing Republicans did in the 1920s, that is, privatize for a price, as a sinister alliance of rightwing ideologues and simple crooks ran wild. The Reagan administration in the 1980s launched a policy of massive reductions of HUD aid for public housing and housing authorities. Using HUD as a shill for private developers stimulates this kind of corruption. Using HUD as an instrument to provide federal support for public housing and rent controls so as to reduce the overall cost of housing to the general population and also eliminate the super-exploitation of both small homeowners and rents who find themselves paying more than half of there incomes in many cases for housing plus utilities costs should be a high priority for the next administration.

Meanwhile, the average price of a gallon of regular unleaded is now $3.27, suggesting the need for both re regulation and a national energy policy (in that area, Senator Obama especially has come forward with important suggestions and McCain with nothing. Lehman Brothers, caught in the mortgage debacle, is raising three billion through stock sales and issuing statements that the fact that it could borrow from the Federal Reserve is evidence that it is in decent shape(as against the fact that it had to borrow from the Fed is an example of the opposite).

Finally, the Bush administration's Treasury Secretary has come forward with a comically phony plan to "expand" the Federal Reserves Regulatory powers by reducing the SEC's regulatory power over Wall Street even more, turning credit unions into banks, and give state regulated insurance companies the "choice" of either continuing to be regulated by states or taking on a federal regulator (a bit like economic HMO choices). It is doubtful that any of this will be enacted and even the Treasury Department understands that but the fact that they would even put forward such a "regulatory reform" shows either how disconnected from reality they are or how contemptuous they are of the public. Senator Christopher Dodd of Connecticut, mentioning that this plan was introduced on the first day of the baseball season, called it a "wild pitch," which was charitable. For those suffering the effects of the escalating mortgage scandal it is, along with the HUD scandal, more like a bean ball.

All of this shows the need for real re regulation in the interests of wage earners and consumers and public sector revitalization in the interests of all people in the next administration. The present administration and those who seek to continue it through the McCain campaign haven't a clue about what is to be done to deal with the U.S. economic crisis.

Bernanke and the Return of Keynes

by Norman Markowitz

When the chairperson of the Federal Reserve calls for a fiscal stimulus package, you know, as Bob Dylan famously sang, "The Times they are a changin." "Fiscal stimulus" approaches to fight business cycle downturns derive from the thinking of John Maynard Keynes, the British economist who, after WWI, contended that the capitalist system faced a "secular crisis" which called for state fiscal policies to sustain mass purchasing power in the economy in order to counteract stagnation that would produce decline.

Unlike Marx and Lenin, Keynes didn't see the crisis as structural, but he saw it as long-term and not simply "cyclical," as most ruling class theorists contended, to be waited out until the "market corrected itself"(traditional ruling class economists saw state intervention, particularly policies to provide jobs for the unemployed and protect workers wages, as leading to a withdrawal of private capital and making the overall situation worse). Keynes contended that state intervention was necessary to save capitalism both from long-term stagnation and decline and (he implied) from the political consequences of that, which might very will be socialist revolution to end capitalism. Keynesian theories and policies were adopted in many developed capitalist countries from the depression to the 1970s, with the New Deal in the U.S. playing a leading force in this development, informally during the depression and more formally after WWII though U.S. government influence in the world capitalist economy.

These policies were connected to general economic expansion and stabilization within the capitalist world through the early 1970s, but, just as U.S. capitalists had no love of the New Deal, except as an alternative to a socialist America, capitalists everywhere had no real love of economic policies which both regulated their predatory activities and, more importantly, supported minimum wages, public pensions, work programs for the unemployed, and other social and labor legislation as a way to sustain mass purchasing power. By the 1960s, Keynes and Keynesianism in its positive sense had been scrapped for the conservative monetary theories of economic Milton Friedman, Keynes great antagonist, who argued that the free market could be free again, unions, minimum wages, social legislation were all essentially handicap for economic growth, and that "compensatory fiscal policies" that had been the hallmark of Keynesian theory, especially "social investments" in health care, education, housing, transportation, jobs for the unemployed, could be replaced with central banks using what one might call "compensatory monetary policies," that is, controlling the flow of credit by raising or lowering prime interests rates to "fine tune" the economy.

We have lived with these policies and the devastation that they have caused since the 1980s We have a national debt ten times what it was when Ronald Reagan became president. Minimum wages have lagged way behind (they were frozen for 12 years under Reagan and Bush I). The percentage of workers in trade unions is substantially lower than it was when Reagan became president, as both union busting policies and the export of jobs have undermined it.

But capitalists don't really care about that. They do care that Merrill Lynch posted a $9.8 billion loss earlier this week. They do care that the giants of Wall Street, investment bankers and brokerage houses, are selling shares in themselves to deal with their losses and debts. They do care that the peoples crisis is becoming
their own.

So, after a couple of decades, Ben Bernanke announced that the Federal Reserve supports a Keynesian solution, a fiscal stimulus package. That may mean many things, including Wall Street's realization that they need the next Democratic president and Congress to go back to traditional liberal Democratic policies to bail them out (of course, if the "fiscal package" includes large increases in the minimum wage, a jobs program for the unemployed, and substantial re-regulation of capital and a revival of progressive tax policies they will be kicking and screaming). It may also mean that Bernanke realizes that the jig is up for the Republican right and since he will be around for the next administration, he had better make it clear that he is not, like his predecessor, in denial that the New Deal in the U.S ever happened.

The return of Keynes, if he is really returning, is a small step forward for the working class. Reviving what in the U.S. was "left Keynesianism," that is government support for strong unions, a strong public social security system to provide an decent living for retirees, national public transportation, housing, education and energy policies (both on the TVA principle and in the development of alternative energy programs) and repeal of both the Bush and Reagan regressive and reactionary tax policies and revival of progressive taxation would be a much bigger step.