Blog postings by CEPR staff and updates on the latest briefings and activities at the Center for Economic and Policy Research.

Just in case you were wondering, work share looks like it's doing pretty damn good in Germany, the country that has embraced it most aggressively. Since the downturn began in the fourth quarter of 2007 Germany's GDP growth has been only slightly better than in the U.S. However, while our unemployment rate rose from 4.8 percent in the 4th quarter of 2007 to 9.1 percent in the most recent quarter, Germany's unemployment rate fell from 8.3 percent to 6.0 percent for the same period. (The German unemployment data for the third quarter of 2011 does not include September.) 

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Source: OECD.

In fairness, work sharing is not the whole story. Germany has other programs that encourage employers to keep workers on the payroll. Germany also has a slower growing workforce, so it takes less GDP growth to keep pace with its underlying population growth. Still the contrast between Germany's 2.3 percentage point decline in unemployment and the 4.3 percentage point rise in the U.S. is rather striking.

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The sun came up this morning and George Will doesn’t like the Occupy Wall Street (OWS) crew. He found some protestors there who said things that he found silly. For example, someone on Wall Street thought the minimum wage should be $20 an hour. That might seem a bit high, but if the real value of the minimum wage had kept pace with productivity growth since 1969 it would be almost $20 an hour today.

Will also seems to think that the bankruptcy of Solyndra is some incredibly damning piece of evidence against those who think the government can play a constructive role in the economy. I suppose that would be a compelling argument to people who have never heard of the Internet, Dos, penicillin or any of the thousands of other innovations that have benefited from government support. Also, the Solyndra failure may not seem that impressive to people who have seen the fraud and bankruptcies at companies like Enron, WorldCom, Lehman Brothers, and Bear Stearn. Maybe Will’s point is clearer to those who travel in his circles.

The idea of spending $1 trillion for infrastructure (much less than we are actually projected to spend in the next decade) also comes in for ridicule by Will. I guess he is blaming the OWS folks for thinking small.

He then warns progressives:

“From 1965 through 1968, the left found its voice and style in consciousness-raising demonstrations and disruptions. In November 1968, the nation, its consciousness raised, elected Richard Nixon president and gave 56.9 percent of the popular vote to Nixon or George Wallace. Republicans won four of the next five presidential elections.

Perhaps things will go better for progressives this time.”

Yes, Republican presidents did win those elections although it’s not clear how many people voted for George H.W. Bush in 1988 because of the Vietnam protests in 1968. More importantly, people should remember that Republicans in the White House created the Environmental Protection Agency, the Occupational Health and Safety Administration, proposed a more radical national health care plan than Obamacare, proposed a guaranteed annual income (like the one advocated by an OWS protestor that Will mocks) appointed Harry Blackman and John Paul Stevens to the Supreme Court and allowed us to have a 3.5 percent unemployment rate in 1969.

If President Obama supported measures that were as progressive as the ones pushed by Presidents Nixon and Ford, the Tea Party would be turning to nuclear weapons. It wasn’t that these Republican presidents were born radicals (I’m quite sure that neither were Moslem), they were responding to the pressures of their time.

If the #OWS protestors and their supporters around the country can sustain the momentum, then it can change the atmosphere in which the folks in Washington conduct their business. I suspect that few of them care whether Democrats or Republicans occupy the White House and Congress, they care about the policies pursued. If they can create an environment that results in presidents who push along a progressive agenda to the same extent as did Nixon and Ford, but it is Republicans who do the job, I doubt that many will be disappointed.  

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Suppose the Republican presidential candidates blamed an invasion by space aliens for the failure of the economy to generate jobs. Would the media dutifully repeat it without comment? Given the media's response to Republican complaints about regulation preventing job growth, we should assume that they would view the space alien invasion explanation as perfectly reasonable.

If the story that regulation was impeding job growth were true, then there should be evidence to support it. For example, we should see firms increasing average hours as a way to avoid hiring workers. We don't: Average weekly hours are still below their pre-recession level. We should be seeing firms hiring temps as a way to avoid hiring more permanent workers. We don't see this, either. Temp employment is still down by almost 20 percent from its pre-recession level.

We should also see some differences in hiring patterns across industry: Industries in which jobs tend to be longer-lasting should be doing less hiring than industries in which the length of employment tends to be very short. We don't see this, either. Job growth has been relatively good in sectors such as engineering and law offices; it has been comparatively weak in sectors such as retail and restaurants, which tend to have high turnover.

We might also expect that businesses would blame regulation for limited growth when they are asked. They don't. The National Federation of Independent Businesses' survey of its members show little change in the percent of businesses that list regulation as a major obstacle from the Bush or Reagan years.

In short, the "regulation is impeding job growth" story has no evidence to support it. This story is a pure invention of the right wing. Presidential candidates who repeat it should be ridiculed by the media – just as if they were talking about space aliens.

This post originally appeared in The Guardian.

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After writing about Elaine Kamarck's wrongheaded defense of the conservative 1996 Personal Responsibility Act, I remembered pollster Stan Greenberg's similarly odd claim, made in a widely read New York Times commentary published last July, that "Mr. Clinton's welfare reform in 1996 required efforts to make work pay and expand child care ...." 

No. It. Didn't.

Here, however, are some of the things that the 1996 measure signed by President Clinton actually did do: 1) block granted the Social Security Act's Aid to Families with Dependent Children program; 2) froze federal funding for the block grant—as a result, real federal funding today for the program is more than 25 percent below its 1997 level; 3) made many immigrants who are lawfully in the U.S. ineligible for various health and public benefits that citizens are eligible for; and 4) cut Food Stamp eligiblity and benefits for millions of families.

Among the things the 1996 law didn't do: 1) increase funding for any program; 2) require states who receive block grant funding to do anything to "make work pay"; 3) require states to do something as minimal as report on how many families they are helping with the vast majority of their block grant funds.

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A roundup of the labor market research reports released this week and last week.

Center for American Progress

Redefining Teacher Pensions: Strategically Defined Benefits for New Teachers and Fiscal Sustainability for All
Raegen Miller


How Much Does Employee Turnover Really Cost Your Business?


The State Of Massachusetts' Middle Class
Tamara Draut

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According to the latest Bureau of Labor Statistics' employment report, the economy added 103,000 jobs in September. While this increase — together with upward revisions to the prior two months’ data, which brought average job growth over the last three months to 99,000 per month — brings job growth almost exactly to the number needed to keep pace with the growth of the labor force, the jobs numbers are still really pathetic.

Nonsense talk of a double-dip has created an environment where even this dismal rate of job growth looks good. The truth is that the economy is continuing to grow at a very slow rate and we are making no progress in bringing the economy back to full employment. One notable bright spot in the latest jobs report is the health care sector, which added 43,800 jobs in September. This number is striking because this seems to be part of an ongoing trend. Health care employment has grown at a rate of 31,400 per month since June, accounting for almost one-third of employment growth over this period. In a very weak labor market, health care jobs are becoming ever more important.

For more, read the latest Jobs Byte.

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In his column today, Paul Krugman picks up the suggestion from Richard Yeselson, that debt relief for working people would be a good demand for the Wall Street occupiers to pursue. While there is a good logic to this demand -- many people find themselves facing crushing mortgage, credit card or student loan debt -- there are also problems with going this route.

For example, suppose we go the route of making every underwater mortgage above water by writing off the extent to which the debt exceeds the value of the home. As of what date do we wipe out underwater debt, today, six months ago, six months from now? That it isn't a joke, home prices are still falling in many areas. So do we say that people who were smart enough to be underwater as of some prior debt benefit, but folks who waited to get underwater are screwed?

Do we have a limit on debt write-offs? There are a lot of people who were speculating in homes who took out zero-down mortgages on expensive properties in places like Las Vegas and Miami at the peak of the bubble. Say they borrowed $450k on a home that is worth $200k today. Is it important to ensure that these people have their mortgages brought above water.

There is also the question of the other side of these loans. Close to half would of the underwater mortgages would now be held by Fannie Mae or Freddie Mac, so the write off would be a loss of government money. We can argue over whether this is the best use of it. Some of the rest of the mortgages are held by banks, but most are in pools. The owners of these pools include some rich investors, but it also includes institutional investors like pension funds and individuals with 401(k) holdings.

This raises both a question of fairness and also dampens the economic impact -- which has been hugely overstated in any case. If we eliminate $900 billion in underwater mortgage debt (certainly a high estimate, since it implies that almost 10 cents of every mortgage dollar outstanding represents underwater debt), we should expect the additional wealth to generate around $54 billion of additional consumption a year (this assumes a 6 percent wealth effect)

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Signed into law by President Nixon, Supplemental Security Income provides basic income supplements to adults and children who have severe disabilities and limited resources. The number of children with disabilities who are SSI beneficiaries is quite modest: about 1.2 million nationally in 2009, compared with 31.5 million children total in low-income households. But for these children the help SSI provides is extremely important.

Research has shown that families caring for children with disabilities are more likely to experience various economic hardships than families caring for non-disabled children, even controlling for income. This is no surprise since caring for children with disabilities is expensive, health insurance doesn't cover many added expenses, and raising a child with a disability can take a considerable physical, emotional and financial toll on parents. Research conducted by Mark Duggan and Melissa Schettini Kearney has shown that increases in the receipt of SSI by disabled, low-income children are "associated with a significant and persistent reduction in the probability that a child lives in poverty of roughly eleven percentage points" without reducing parental employment. In short, the hard evidence shows that SSI is a small program that works well. 

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In a profession that is controlled almost exclusively by people who completely overlooked the largest asset bubbles in the history of the world, Ken Rogoff earns at least a “B” for his early warnings of dangerous economic imbalances. However, his column criticizing financial speculation taxes (FST) is more on a par with the work of his hopelessly lost colleagues.

The column argues that an FST of the size being considered by the European Union (EU) would reduce the information content of prices, reduce liquidity, and have no appreciable impact on volatility. In the long-run they will raise the cost of capital and therefore slow growth, and not end up raising much revenue.

This is a serious list of charges against a tax of 0.1 percent on a stock trade (0.05 percent on each side) and 0.01 percent on derivative trades (0.005 percent on each side). The most obvious reason for skepticism about Rogoff’s attack is that the increase in transactions costs implied by the tax would just raise them back to the levels of early or even mid-90s.

Computerization and deregulation has led to a sharp decline in transactions costs over the last three decades. A tax of 0.1 percent on stock trades would just remove part of this decline. Trading costs would still be lower than they were in the 80s and much lower than they were in 50s or 60s when they were typically 1 percent of the share price or more.

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The Institute for Women's Policy Research (IWPR) has released not one, but two, major research reports today. Both analyze rising economic insecurity and draw on the findings from a large survey commissioned by IWPR and the Rockefeller Foundation in the fall of 2010.

The first report, "Women and Men Living on the Edge: Economic Insecurity After the Great Recession" (pdf) is a comprehensive overview of widespread economic hardship, a situation that has continued almost unabated despite the official end of the recession in the summer of 2009. The official statistics tell us that the unemployment rate hovered around 9 percent in the fall of 2010. The IWPR/Rockefeller survey reveals this figure to be only the tip of the iceberg: more than one-third of respondents "reported that they or someone else in their household had been unemployed and looking for work for at least one month during the previous two years."

The survey provides many other extensions of the existing official statistical record of the downturn: whether families have savings for emergencies, their children's education, or their own retirement (a large share do not); whether families have had difficulty paying food, health care, housing, utilities, or credit-card bills (a large share do); whether adults were willing to learn new skills, increase the length of their commute, or take a pay cut to escape unemployment (a large share would).

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The following highlights CEPR's latest research, publications, events and much more.

CEPR on Social Security

While Social Security was spared during the latest round of budget negotiations, those who want to cut Social Security continue to assert their fallacious claims about the program’s solvency. CEPR provided Social Security allies with additional ammunition in September, releasing three papers on Social Security.

The Impact of Cutting Social Security Cost of Living Adjustments on the Living Standards of the Elderly,” by CEPR Co-director Dean Baker and Economist David Rosnick, looks at similar changes in the past and finds that workers would likely not be able to raise their savings in response to lowering the measure of inflation used to calculate cost of living adjustments for Social Security benefits (a change that was proposed by President Obama during the debt ceiling negotiations), leading to significantly reduced living standards of retirees.

Who's Above the Social Security Payroll Tax Cut?” by CEPR Director of Domestic Policy Nicole Woo, Research Assistant Janelle Jones, and Senior Economist John Schmitt examines the most recent Census Bureau data available from the American Community Survey to determine how raising the cap would affect workers based on gender, race or ethnicity, age, and state of residence. Raising the cap from its current level of $106,800 to a new level of $250,000 would affect only a small share of workers, but would strengthen the program and avoid increases in contributions from the middle-class and the poor.

In "The Social Security Benefits of Sitting Senators Revisited," CEPR Program Assistant Kris Warner, Domestic Communications Coordinator Alan Barber and Dean Baker updated CEPR'sprevious paper (incorporating the newest CBO projections) to show the scheduled Social Security benefit for each current member of the Senate. As CEPR’s Congressional Social Security Accuracy Campaign has shown, many members of Congress (and some presidential candidates) need a refresher course on Social Security. In the month of September, Dean Baker sent letters to Senator Saxby Chambliss and Representatives Paul Ryan and Mike Coffman, correcting misstatements they made about the program.

Dean’s August letter to Republican presidential candidate Rick Perry was mentioned in the New York Times’ “The Caucus” blog. His letter to Representative Ryan was reprinted in the Madison Capital Times, and an earlier letter to Senator Marco Rubio was reprinted in the Palm Beach Post. Since February 2011, 31 members of Congress and two Republican presidential candidates have received similar letters.

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Via Harold Pollack, here's the National Review's Rich Lowry on the economic struggles of workers who make "only" $250,000 a year:

[Warren Buffett] should give all his wealth away .... come move to Westchester County. Move to McLean, Virginia. Move to the suburbs of San Francisco with his wife. Adopt a couple of young kids, so he has a young family again. Make arrangements so that he only makes $250,000 every year. ... And see how he feels about seeing his taxes increased, when he actually has to worry about expenses, again.

McLean, Virgina and Westchester County are very wealthy places, with median incomes more than triple national median income. But Lowry need not worry about Buffet's ability to make ends meet in either place on $250,000 a year, at least as long as Buffet continues to avoid the intemperateness and profligacy that plague too many of America's elite today. Even in these places, $250,000 is a decent income—in fact, it's higher than the income of at least 90 percent of families living in Westchester, and $100,000 more than the median family in McLean County. 

Lowry would feel even better if he perused some of the Heritage Foundation's reports on the opulent living standards that prevail in today's America, even among families with much lower incomes. According to Heritage's Robert Rector, most American families living on less than $25,000 a year, one-tenth of les pauvres riches of Westchester and McLean, are able to meet what he calls "all essential expenses" and even have many luxuries like color TVs, VCRs, and coffee makers. Unfortunately, Rector doesn't provide similar statistics for families making over $250,000 a year. But given that they have incomes more than 10 times the amount of the families Rector focuses on, Lowry shouldn't waste too much time fretting about their ability to make ends meet.

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In a recent post, Jared Bernstein notes that he doesn't "put a whole lot of weight on the importance of how issues are framed" arguing instead that "underlying power dynamics are what matters most, and history is littered with carefully, compellingly framed arguments that lost because one side had deeper pockets and greater access than the other." Relying in part on a NYT op-ed by Stan Greenberg from earlier this year, he concludes that progressives must "re-establish faith in the institution of government ... and that has to come from explanation, evidence, and effective implementation of government programs." 

A fair amount of what goes under the heading of "framing" these days is facile and I'm not really a fan of the word (a better description might be "constructing compelling narratives that are based on progressive values and don't just throw a lot of numbers at people" but that's a lot to say). I imagine Jared has some of the more facile stuff in mind when he critiques framing, but I can't say that I'm persuaded that "explanation, evidence, and effective implementation" are any more effective. Don't get me wrong, I love doing careful policy analysis and hope it makes a difference, but I also think doing it without paying as much (or more) attention to framing is folly for progressives. 

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The Case-Shiller 20-City Index saw another strong increase in July, this time rising 0.9 percent. The index rose 1.1 percent in June and has now increased at a 13.1 percent annual rate over the last three months; although it is still down by 4.1 percent over the last year. But unlike in June, when all 20 cities showed house price increases, 18 of the 20 cities had price increases in July, with only Phoenix and Las Vegas showing modest price declines (0.1 percent and 0.2 percent, respectively).

The strongest factor pushing up prices is the reversal of the sharp price declines in bottom-tier home prices in the period immediately following the end of the first-time buyers tax credit. Recent extraordinarily low interest rates will provide a boost to the market — though the scaling back of Fannie and Freddie’s higher mortgage limits will be a factor going in the other direction — but this upward bounce is surely coming to an end. The inventories of new and existing homes for sale remain above normal levels. In addition, there is a large amount of inventory not showing up on the market, which is best demonstrated by the near-record vacancy rate nationwide.

For more, read the newest Housing Market Monitor.

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In a recent column, Paul Krugman cites Elizabeth Warren to make the important point that today's libertarian conservatives:

... miss[] the point that all of us live in and benefit from being part of a larger society. Elizabeth Warren, the financial reformer who is now running for the United States Senate in Massachusetts, recently made some eloquent remarks to this effect that are, rightly, getting a lot of attention. "There is nobody in this country who got rich on his own. Nobody," she declared, pointing out that the rich can only get rich thanks to the "social contract" that provides a decent, functioning society in which they can prosper.

In the National Review Online, Rich Lowry refers to the idea of an underlying social contract as "Elizabeth Warren's piffle" and "folly." Lowry's dismissal of what he calls the "supposed" social contact is worth contrasting with the views of a more substantive conservative intellectual, the jurist and legal theorist Richard Posner. Here's what Posner had to say in his 1990 book, Problems of Jurisprudence

In a state of nature people would not have much in the way of life, liberty, or property to protect. The long life, spacious liberties, and extensive property of the average American citizen are the creation not of that American alone but of society—a vast aggregation of individuals, living and dead—and of geographical luck (size, topography, location, natural resources, climate). Assuming two equally able and hard-working people, one living in a wealthy society and the other in a poor one, the former will almost certainly have more income and wealth than the latter, and the difference will be due to the efforts of other members, living and dead, of the wealthier society, as well as to the accidents of geography. Human nature being what it is, the employment of the government's taxing and spending powers to redistribute the "social" component (as one might call it) of a person's income will adversely affect the incentives of both the taxpayer and the welfare recipient. But there is no necessary breach of the social contract. The taxed person is still much better off than he would be in the state of nature. ...

The point can be made in slight different terms, with the help of the Hegelian insight that the idea of individual rights—indeed of individuality—is socially constructed rather than presocial. Men's natural state is not one of equality and sturdy independence; it is one of dependence on more powerful men. Economic freedom in the classic liberal sense is one of the luxuries made possible by social organization. The individual's right to property is not "natural." His possessions are a product of social interactions rather than of his skills and efforts alone. Moreover, these skills may be, at least in part, a social product too. American workers are paid more than South Korean workers; are they better workers? Better people?

Of course, Posner's assertion that redistribution of the social component "will" adversely affect the incentives of both the "taxpayer and the welfare recipient" is simplistic, too sweeping, and empirically incorrect.  (Most "redistribution" happens between "taxpayers and taxpayers" and between "taxpayers and corporations that don't pay taxes," and incentives can be affected either positively or negatively depending on the specifics of the redistribution.) But other than this misstatement, there isn't much in Posner's account to argue with.

On the other hand, while Lowry is willing to acknowledge that "the average earnings of the typical man working full time are beneath 1978 levels," he (and today's libertarian conservatives in general) have no serious program for doing anything other than making things worse. As the legacy of the Bush tax cuts have shown, reducing the federal income taxes of the fabulously wealthy—those "lucky duckies" who have benefitted so much from, in Posnerian terms, the efforts of others living and dead and the accidents of geography—has failed to create more good jobs for most Americans. 

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For far too long economists and economics reporters have fixated on the prospect of deflation, as though something really bad happens if the inflation rate falls below zero and becomes negative. This is another one of the ungodly silly things that otherwise intelligent people are inclined to believe.

Of course there is zero magic to zero. The problem is not a negative inflation rate per se, the problem is an inflation rate that is too low.

Given the weakness of the economy, we would like a large negative real interest rate. The federal funds rate is zero, which is as low as it could go, and even the long-term rate is approaching its lower limits. (People holding long-term bonds at very low interest rates risk large capital losses if interest rates rise at some future point.) This means that to get the real interest rate down, we need to get the inflation rate up.

One can dispute how large a negative real interest rate we would want (according to some measures of the Taylor Rule, it should be as high as - 6.0 percent), but the basic story is the higher the better. In this context a prolonged period of very low inflation is bad, even though a period of low deflation would be even worse. However, crossing zero is just a difference of quantity, not quality. There is no reason to be more upset about a drop in the inflation rate from 0.5 percent to -1.5 percent, than a drop from 1.5 percent to 0.5 percent.

Krugman essentially makes this point in his blogpost yesterday. Hopefully this will help to end the obsession with deflation. The point being that everything is not okay as long as the inflation rate just stays positive. Some of us have been saying this for a while (e.g. here, here and here), but it helps hugely to have Krugman making this point.

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In a recent Washington Monthly blog post, Elaine Kamarck argues that the conservative 1996 law that eliminated AFDC and replaced it with a block grant (known as TANF) is a success. Kamarck is quite right when she argues that "TANF is not, nor was it meant to be, the central pillar of the social safety net"—but she then goes on to effecitvely make TANF the central pillar of "welfare reform."

This is both an analytical and political error. As I argued previously here, it conflates the progressive welfare reform efforts that took place in the late 1980s and early 1990s—including the large-scale expansion of the EITC in 1993, increases in the federal minimum wage, and successful demonstration programs like New Hope and the Minnesota Family Investment Project—with the "truly conservative" hijacking of progressive reform in the 1996 block grant law. Making TANF the central pillar of welfare reform as Karmarck does only bolsters conservative arguments for more block grants, and makes it harder to reform TANF along the lines of previous progressive initiatives that have been shown to be successful based on hard data.

The question that Karmack needs to ask is: of the various policies that fell under the banner of "welfare reform" in the 1990s, which ones are working (or worked, if they were demonstrations), which ones have failed, and which ones do we not know enough about to judge whether they have been a success or failure?

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The Republican congressional leadership took the unusual step of sending Federal Reserve Board Chairman Ben Bernanke a letter warning against "additional monetary stimulus."This drew an outraged response from many Washington pundits, although for the wrong reasons.

Many in the pundit class expressed outrage that politicians would dare to influence the policy decisions of the "independent Fed." This is the high priest theory of central bankers. In this worldview, the Fed and other central banks are run by people who get the truth directly from the economy and make their judgements after carefully meditating on the latest economic data and connecting it to the sacred texts of the economics profession.

The high priest theory always warranted ridicule, but after the economic collapse of 2008 no self-respecting person should ever be associated with this view. The housing bubble that wrecked the economy was cleaarly visible from at least 2002. If the central bankers had any superior knowledge of the economy, they would have been shooting at the bubble at that point rather than allowing it to grow large enough so that its collapse would wreck the economy.

Note that shooting at the bubble does not mean raising interest rates. Note that shooting at the bubble does not mean raising interest rates [corrected -- thanks Sandwichman]. (Sorry, I had to say that twice for the economists who might be reading this.) It meant first documenting the bubble, showing that house prices had grown far out of line with historical trends and with rents. This information should have been at the center of every public appearance by Greenspan and other Fed officials. The Fed also should have used all its regulatory authority to crack down on the fraudulent mortgages that were being issued.

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The Federal Reserve Board's Open Market Committee (FOMC) met today and decided on a modestly expansionary monetary policy. It decided to unload $400 billion worth of short-term assets over the next 9 months and replace them with longer term government bonds. The idea is that this would place some downward pressure on long-term interest rates.

The effect on interest rates and the economy is likely to be very modest. It is unlikely that long-term rates would fall by even 20 basis points (0.2 percentage points) as a result of this action and more likely the effect would be closer to 10 basis points, but at least it is a step in the right direction. This will make it cheaper for people to buy a car or refinance a mortgage. It will also be cheaper for firms to borrow to invest. It would have been good to see stronger action, but this is what the FOMC was prepared to do.

However what was most striking about this decision was the breakdown on the vote. Five of the people voting were members of the board of governors. (There are 7 positions, but 2 are currently vacant.) The governors are appointed by the president and approved by Congress for 14-year terms. Of the 5 sitting governors, 3 were appointed by President Obama, 1 was appointed by President Bush, and 1 governor (Chairman Ben Bernanke) was appointed by both.

The other members of the FOMC are the presidents of the 12 district banks. These presidents are essentially appointed by the banks in the district. All 12 district bank presidents sit in on the FOMC meeting, but only 5 vote at one time.

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