Federal Reserve Chairman Ben Bernanke held a press conference today, and my friend Pete is holding a Super Bowl party this Sunday. This is the second year in a row that two pre-expansion teams will go head-to-head, which means their names would’ve been familiar to people back in the 1950′s when I was a little kid in Utica, NY. If you had tried to tell the old Italian and Irish and Polish and other ethnic guys in our neighborhood that someday we’d have football teams with names like the “Marlins,” the “Buccaneers,” and the “Jaguars,” know what they would’ve said? They would’ve said, “Get outta here!” What if Pete managed his party the same way Bernanke’s running the Fed? Well, we’d have a lot of unhappy people watching the game, along with a couple of very happy ones. Since the presence of a large-screen TV is a given, Pete has two obligations as host: to provide a pleasing gustatory experience (aka “good eats”), and to ensure that costs don’t get out of control. Pete’s two goals can be tracked using two simple measurements: the “did it cost more than a meal at Red Lobster?” budgetary indicator, and the “where my nachos at?” food availability rate (also expressed positively as the “got my nacho on” index). These indicators track Pete’s two areas of responsibility, and his performance should be measured against them. Word to Florida fans: Don’t get me wrong. I’m not knocking your franchises, so please don’t flame me. I’m just explaining how unusual those names would have been sounded back when I was a little kid. Any new team names would’ve looked odd and unfamiliar back then. Things are terrible and that’s okay. Know what else would’ve looked wildly unfamiliar to Americans in the fifties? Today’s unemployment figures . We’ve got an official unemployment rate of 9.4%, with figures for discouraged workers and long-term unemployed that are even worse. Unemployment in the 1950′s ranged from a low of 2.5% to a high of 5.4%. Even allowing for changes in the way the number’s calculated, that’s a staggering difference. The fact that joblessness isn’t considered a national emergency shows how differently politicians view their responsibilities today. Leaders of both parties had a common vision of our country’s best interests during the period of our greatest prosperity. Where has it gone? Bernanke’s remarks came less than a week after Treasury Secretary Tim Geithner said that the economic expansion currently being enjoyed on Wall Street is “not a boom. It’s not an expansion that’s going to offer a rapid decline in unemployment.” And he didn’t say it as in, “and so we’ve got to do something about this horrible situation.” He said it as in, “Hey, it’s too bad, but sh*t happens.” Geithner made his remarks at Davos, where the bankers responsible for these staggering unemployment numbers – through incompetence, dishonesty, and often through out-and-out crime – met to celebrate their renewed wealth and figure out how to get more of it. They’ve got a lot to celebrate. The overall economy has expanded for six quarters. Banks are enjoying record revenues and surging profits, and bonuses are soaring. Put it this way: Nobody’s sweating about the cost of their first-class ticket to Switzerland, or the price of that chartered helicopter to fly them from the Zurich Airport straight to their mountain resort. (Limos are for nobodies. Who wants to spend two hours in the back of a stretch when you can be luxuriating among evergreen-carpeted peaks in less than 30 minutes?) The Administration keeps echoing the Right’s cost-cutting rhetoric, despite the ongoing pain of millions of Americans. And Republicans are in full-tilt crazy mode, pushing radical budget cuts that could mean another million lost jobs. Yet Bernanke offered only empty rhetoric about unemployment. You know what the old guys back in Utica would’ve said to that, don’t you? They’d have said, “Get outta here!” (Actually there would’ve been a couple of other words in there too – one of which starts with an “f” – but this is a family publication.) The State of the Nacho Economy at Pete’s House, February 2011 Bernanke’s remarks reflected the one-dimensionality behind much of today’s macroeconomic thinking, which tends to deals only in averages and can therefore overlook fundamental problems. Consider our party analogy: Let’s say there weren’t enough nachos at last year’s Super Bowl, and everybody went home bitching about it. Pete promises he’ll fix it – that’s the host’s job, after all – so he buys more nachos this year. But he doesn’t pay any attention to how they’re distributed. So the first couple of guys show up, get out a couple of shopping bags, pack up all the nachos, and take them home. That’s great for them – they’ll be snacking for days. The other eight guys show up starving, but there’s nothing for them to eat. And I mean nothing – no nachos, no Doritos, no buffalo wings, not even a freakin’ Pringle they can divide eight ways. (Yes, it will be all guys on Sunday, but that doesn’t we’re “no girls in the treehouse” men. My wife’s a basketball fanatic, for example, but she has no interest in football. The party’s gender uniformity was a market-driven outcome, the product of demand rather than regulation.) Back to the nacho problem: Pete, understandably, gets some heavy criticism from the eight hungry guys. If he were Bernanke, he’d … well, let’s just paraphrase Bernanke’s statement, changing a word here and there so that it describes the party rather than the national economy: “Guys,” Pete says, “we have seen increased evidence that a self-sustaining recovery in nacho spending may be taking hold. Notably, we learned that attendees increased their nacho consumption in real terms at a rate of more than 4 percent.” Pete goes on, acutely aware of the guys who are pissed about the snack situation: While indicators of overall chowing-down have, on balance, been encouraging, the “got-my-nacho-on” rate overall has improved only slowly … It will be several years before the “got-my-nacho-on” rate returns to a more normal level. In sum, although snack growth will probably increase this year, we expect the “where-my-nachos-at” rate to remain stubbornly above the levels that Big Game party planners have judged to be consistent over the longer term with our mandate to foster both full “got-my-nacho-on” satisfaction and “didn’t-cost-more-than-a-meal-at-Red-Lobster” overall stability. Yes, that’s exactly what Bernanke said, adjusted for our analogy. Picture what a roomful of hungry football fans would say if Pete gave that speech. Now ask yourself why Bernanke’s comments are any more acceptable. If you had a friend like Ben … The fact that Bernanke held a press conference at all shows how unusual things have become. The Fed Chair typically keeps contact with the press to an absolute minimum, because any offhand or misinterpreted comments can move billions of dollars in the market. The Chairman’s remarks are studied with the same obsessive fascination courtiers once directed toward their Emperor: Did he raise an eyebrow slightly while he nodded, indicating that this offer has truly pleased him? It’s worth re-examining an economic system which places so much power in one person. But given that the Fed chair does have that power, Bernanke’s caution is understandable. The Fed’s two primary missions are to ensure “price stability” and maintain “full employment” (roughly equivalent to our “Red Lobster budget” and “nacho” party goals.) There was a time when Bernanke didn’t even acknowledge the “employment” aspect of his mandate, so presumably it’s a sign of progress (or, more likely, of political pressure) that he even mentioned it today. But he didn’t say the situation was unacceptable. He said “we expect the unemployment rate to remain stubbornly above, and inflation to remain persistently below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate from the Congress to foster maximum employment and price stability.” In other words, he’s saying he knows its in his job description, but it’s not going to happen. What’s more, he’s not going to try doing anything new to make it happen. How would your boss react if you said that? Feeding the Python Let’s use a complete different analogy for a second. Let’s say you’ve got a python and some hungry leopards in a cage. What happens if you feed a rat to the python? There will be a big bulge in the python, but the leopards will still be hungry. Bernanke’s approach “creates” money. But if banks don’t invest that money in job-creating investments, they’ll become more profitable but unemployed Americans continue to go without work. Will his policies create jobs? Maybe a few. But there are much more efficient ways to reduce unemployment, and right now targeted government spending is the best approach. Instead of supporting stimulus spending, Bernanke made a point of praising the destructive austerity economics of the Simpson/Bowles Deficit Commission. The commission chairs’ proposals (the commission itself failed to deliver a report) would kill millions of jobs while further enriching the well-to-do. Bernanke indicated he’ll keep pursuing monetary policies that do little or nothing to reduce unemployment, and his premature emphasis on deficit reduction undermines the investment we need to stimulate economic growth and create jobs. In a cage full of hungry leopards, he’s about to feed another rat to the python. Whaddya gonna do? Why does Bernanke say that the unemployment rate is “stubborn”? The unemployment rate is a thing , not a living creature. It’s the product of human decisions and human behavior. It has neither emotions nor a will of its own. Consciously or not, Bernanke performed a little rhetorical misdirection by anthropomorphizing this figure. He’s drawing our attention away from the effect of his own actions. He’s saying that unemployment doesn’t “want” to come down, instead of saying that he can’t or won’t do more to bring it down. What do you think would happen at the party if Pete said the nachos don’t “want” to be available to everybody? Let’s get real: The unemployment rate isn’t being “stubborn”: Bernanke, Geithner, and our other economic planners are. If the stock market had fallen as catastrophically as employment has, and had stayed down as long,, don’t you think they’d be in full “Defcon 4″ mode trying to fix it? Of course they would. They’d use every tool at their disposal – and if that didn’t work they’d invent new tools. But when it comes to unemployment, they’re all shrugging their shoulders and saying “whaddya gonna do?” They’re saying there’s nothing more they can do to fix the problem. That’s not an acceptable answer – and it’s not an honest one, either. It’s crunch time We can have a little fun with our party nachos analogy, but economic pain isn’t funny. Institutions like the Fed and the Treasury Department are charged with managing unemployment and sustaining economic growth, and they’re failing. But hey: Enjoy the game. I’ve been planning to root for Pittsburgh this year, because I love the people there and because Pittsburgh reminds me of my home town. But wait — I’m being interviewed on Madison radio tomorrow, and I’ve never even been to Green Bay. Maybe I should reconsider … As for who I think will win, that’s a deeply personal matter, to be discussed only in the strictest confidence with my bookie religious confessor. Both towns have been hit hard by the loss of jobs. Who hasn’t? And nobody in either town wants to hear our leaders say that the worst unemployment figures in modern history are the “new normal,” or that they don’t feel the need to come up with a new game plan. But they better find one, and fast. It’s crunch time for Washington, and we need some come-from-behind job creation along with a whole lot of smash-mouth economic stimulus. It ain’t over ’til it’s over, but if they don’t get their act together it’s gonna be over. Now pass the nachos, wouldya? _______________________________________________________________ Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light . He can be reached at “rjeskow@ourfuture.org.” Website: Eskow and Associates
