The American economy is like a chronically ill patient suffering from a mysterious wasting disease that physicians would call "idiopathic" (a fancy term that means they have no idea what’s causing it).
Vast teams of self-interested doctors are still huddled around the patient, prodding it and tut-tutting over the strange disease. But rather than taking a fresh look at the affliction, they are merely re-prescribing favorite standard cures that have already been proven not to work. President Obama’s recently departed chief physician, Timothy Geithner, left office in January congratulating himself over having saved the nation from another Great Depression, but without acknowledging his part in the slowest job recovery since World War II. The former Treasury secretary, of course, spent most of his energy and resources in an effort to resurrect (now) tightfisted Wall Street banks, the same ones that caused the disaster in the first place, prompting even his own Cabinet colleague, Attorney General Eric Holder, to admit recently that the banks are now too big to call to account.
Meanwhile, politically comfortable Republican congressmen, their salaries unsequestered, continue to insist on a nostrum that is the scientific equivalent of medieval bloodletting: more austerity. This GOP “cure” has been accompanied by another fine medieval technique: surgery performed with an ax, and without anesthesia--in other words automatic across-the-board cuts. Thank you, Dr. Faustus!
And, of course, Obama and the Republicans continue to argue over whose austerity medicine is better, vying over entitlement-cutting budgets that will almost certainly only prolong the disease. According to my colleague Ron Fournier, Obama will propose specific cuts to Social Security and Medicare in his annual budget next week.
The latest job numbers, out Friday, were only a reminder of the chronic nature of the illness. According to the Bureau of Labor Statistics, the unemployment rate edged down to a still-high 7.6 percent, but only because many more people dropped out of the workforce, bringing the labor-participation rate to a new low since 1979: 63.3 percent. That means another 663,000 Americans have been added to the record 90 million who are no longer even looking for work.
And while the sequester cuts had little to do with this particular grim report, get ready for coming ones: among the big-government programs slated for sequester is the Unemployment Trust Fund, with about $2.39 billion to be cut. While regular unemployment benefits are exempt from sequestration, these payments intended for people who have been unemployed longer than 26 weeks are not. According to the Bipartisan Policy Center, most of these long-term unemployed will eventually see their benefits cut by a ruinous amount, more than 10 percent, for the remainder of fiscal 2013.
With the politicians off playing doctor—on TV, of course—the only real physicians administering to the U.S. and world economy these days are starting to run out of medicine. These would be the central bankers, who, as Neil Irwin writes in his timely and enlightening new book, The Alchemists, have acted “with a speed and on a scale that parliaments and presidents could never seem to muster.” But they cannot much affect the underlying chronic unemployment problem, which as Fed Chairman Ben Bernanke noted last summer, “will wreak structural damage on our economy that could last for many years.”
It already has. Some economists, such as Kenneth Rogoff of Harvard, who along with coauthor Carmen Reinhart tracked 800 years’ worth of economic recoveries in a landmark 2009 book, This Time Is Different: Eight Centuries of Financial Folly, say the economy’s doing about as well as could be expected, given the financial origin of the economic disease. The difference between current slow job recovery and previous postwar recessions, he says, is that the others—for example, in 1981 and 1990—weren’t caused by a major financial crisis, which almost always results in prolonged economic impact beyond normal recessions.
All of which points up the need for Geithner’s successor, Treasury Secretary Jacob Lew, to ensure that he deals aggressively with the chief pathology behind today’s chronic disease: Wall Street. Although it never became a 2012 campaign issue, financial regulation has lagged well behind schedule (no one even seemed to care, for example, when Mitt Romney failed to propose an alternative to Dodd-Frank, even though he had promised to do so). Wall Street’s lobbyists have managed to delay the “Volcker Rule” —the closest thing we have today to a Glass-Steagall law separating federally insured commercial banking from risky investment banking—by six months.
Treasury spokesmen say Lew is intent on implementing Dodd-Frank fully and ensuring the safety of the financial system. But others in the regulatory field, for example at the Federal Reserve, say they’ve heard nothing yet from him.
And so the suffering goes on.