His expertise IS the disqualifying factor

Michael Grunwald does a pretty good summary of our Serious Times.

Until yesterday, my favorite symbolic moment of the Obama era was the rejoicing of the right after the President’s hometown failed to land the 2016 Olympics. Because any bad news for Obama is by definition good for America, even if it happens to involve bad news for America. But now I have a new favorite: the defeat of Peter Diamond’s nomination to the Federal Reserve Board after Republicans declared him “unqualified.” What makes this so perfect is not just Diamond’s status a Nobel Laureate economist, but his specific expertise in unemployment and the labor market. Because anyone who understands unemployment and the labor market is by definition unqualified to participate in economic policy.

Unemployed reality

David Leonhardt is shrill.

One question more than any than other is crying out for an answer: Why has Mr. Bernanke decided to accept widespread unemployment for years on end, even though he believes he has the power to reduce it?

The Fed’s own forecasts suggest that the unemployment rate won’t fall below 5 percent for perhaps another five or six years. Mr. Bernanke believes the Fed “retains considerable power” to reduce unemployment faster, despite the fact that its benchmark interest rate is zero, as he’s said before. Yet he has been hesitant to use that power.

He is in a tough spot, to be fair. Several other voting members of the Fed’s monetary policy committee — and some prominent members of Congress — oppose aggressive action, because they worry it will set off inflation. But these critics always worry about inflation. They have been wrong again and again over the last two years. More important, they don’t have enough power to keep Mr. Bernanke from pursuing the policy he thinks is best.

So the Fed’s decision to permit high unemployment for an extended period rests on his shoulders.

As he has explained many times, the Fed has alternatives. It could announce that it would keep its benchmark rate at zero for a few years, which would probably hold down long-term rates. It could say that it was comfortable with higher inflation for a limited period of time, given how low inflation has been since 2007 and how high unemployment is. Above all, Mr. Bernanke could make clear that he considers years of widespread unemployment to be unacceptable.

He has not done so, and he has yet to offer a satisfying rationale.

Instead, he has said that more aggressive action brings risks. And it does. Low interest rates have the potential to spark inflation, by enticing millions of households and businesses to borrow money and causing the economy to overheat. Higher inflation could, among other things, increase borrowing rates for the United States government and worsen the deficit.

But it’s worth keeping in mind that just about every decision involves some risk. Simply stating that more aggressive action brings risks is not a good argument against that option.

He goes on in shrill fashion.

Where's the outrage, vol 8,492

In past recessions, a 10% unemployment rate would have rattled politicians, as was the case in 1983. Today, with unemployment persistently hovering above 10%, Brad DeLong is amazed and unsettled by the lack concern shown by lawmakers in Washington.

Some wise senior Democrats have told me to calm down. The differences between today and 1983 aren’t all that great, they say. Because the Democrats are in power they don’t want to paint a grim picture. Republicans traditionally worry much more about inflation than unemployment; they’re unable even to figure out what policies they want. Moreover, in 1983 it was clear that the monetary and fiscal expansion trains were leaving the station. It was easy for politicians to call for bold and decisive action to fight unemployment, secure in the knowledge that such actions were already in motion and one could soon take credit for them.

But whenever I wander the halls of Washington these days, I can’t help but think that something else is going on—that a deep and wide gulf has grown between the economic hardships of Americans and the seeming incomprehension, or indifference, of courtiers in the imperial city.

Have decades of widening wealth inequality created a chattering class of reporters, pundits and lobbyists who’ve lost their connection to mainstream America? Has the collapse of the union movement removed not only labor’s political muscle but its beating heart from the consciousness of the powerful? Has this recession, which has reduced hiring more than it has increased layoffs, left the kind of people who converse with the powerful in Washington secure in their jobs and thus communicating calm while the unemployed are engulfed in panic? Are we passively watching an unrepresented underclass of the long-term unemployed created before our eyes?

Meanwhile, an entire generation seems to be forgotten.