Should-Read: Matthew Yglesias: The economy really is broken — but we know how to fix it

Matthew Yglesias: The economy really is broken — but we know how to fix it: “The top 5 percent includes all the members of Congress and all of the donors and lobbyists and business leaders whom members of Congress speak to… https://www.vox.com/2017/9/19/16319416/broken-economy

…It also includes all the Federal Reserve governors and regional bank presidents and all the business leaders whom they speak to. It includes the top editors of all the major media outlets and most of the star talent. For that matter, it also includes most of the leading economic experts at top universities. All else being equal, of course, political elites prefer lower unemployment to higher. But it simply isn’t instinctively urgent in elite circles the way a financial market panic is. When the economy was crashing in the fall of 2008, the American political system went into emergency mode. When things had stabilized by the summer of 2009, emergency mode ended. But for the bottom 95 percent or so, the emergency didn’t really end until years later.

Yet policymakers spent this whole period in a kind of haze of inflation paranoia carried over from the 1970s. Tim Geithner in his memoirs says that even at the peak of the crisis, it was important for the Fed to “signal that they’ll eventually hit the brakes, and that they’ll remain vigilant about inflation going forward,” even though creating an expectation of future catch-up inflation would actually have boosted the economy at the bottom. The Obama administration pivoted to deficit reduction in early 2010 based on vague green shoots of recovery. And Republicans were, of course, worse, preaching austerity at the worst possible time. Janet Yellen’s Federal Reserve is raising interest rates to slow job creation in order to head off the possibility of future inflation even though actual inflation remains below target. Meanwhile, Kevin Warsh — the Republican most likely to replace Yellen — spent years warning that the Fed was doing too much to aggressively boost job creation.

For the economy to work for normal people, the federal government needs to be obsessed with avoiding recessions and making them as short as possible. If that means short bursts of inflation during supply-side shocks, or reduced bank profits due to restrictions on lending, or high deficits to stimulate the economy, we need to be willing to make those trade-offs. Wage earning is the backbone of the mainstream economy, and when unemployment is high, not only do a few million people lose out on the chance to work but tens of millions more lose the chance to bargain for wages…