It's a No-Brainer to Keep Rates on Hold

By Joseph Stiglitz, MarketWatch

13 September 15

 

Higher rates would slow the economy and hurt African-Americans and Hispanic Americans the most

t the end of every August, central bankers and financiers from around the world meet in Jackson Hole, Wyo., for the U.S. Federal Reserve’s economic symposium. This year, the participants were greeted by a large group of mostly young people, including many African- and Hispanic Americans.

The group was not there so much to protest as to inform. They wanted the assembled policy makers to know that their decisions affect ordinary people, not just the financiers who are worried about what inflation does to the value of their bonds or what interest-rate hikes might do to their stock portfolios. And their green T-shirts were emblazoned with the message that for these Americans, there has been no recovery.

Even now, seven years after the global financial crisis triggered the Great Recession, “official” unemployment among African-Americans is more than 9%. According to a broader (and more appropriate) definition, which includes part-time employees seeking full-time jobs and marginally employed workers, the unemployment rate for the United States as a whole is 10.3%. But, for African-Americans, especially the young, the rate is much higher. For example, for African-Americans aged 17-20 who have graduated high school but not enrolled in college, the unemployment rate is over 50%. The “jobs gap,” the difference between today’s employment and what it should be, is some 3 million.

With so many people out of work, downward pressure on wages is showing up in official statistics as well. So far this year, real wages for non-supervisory workers fell by nearly 0.5%. This is part of a long-term trend that explains why household incomes in the middle of the distribution are lower than they were a quarter-century ago.

Wage stagnation also helps to explain why statements from Fed officials that the economy has virtually returned to normal are met with derision. Perhaps that is true in the neighborhoods where the officials live. But as the bulk of the increase in incomes since the U.S. “recovery” began going to the top 1% of earners, it is not true for most communities. The young people at Jackson Hole, representing a national movement called, naturally, “Fed Up,” could attest to that.

There is strong evidence that economies perform better with a tight labor market and, as the International Monetary Fund has shown, lower inequality (and the former typically leads to the latter). Of course, the financiers and corporate executives who pay $1,000 to attend the Jackson Hole meeting see things differently: Low wages mean high profits, and low interest rates mean high stock prices.

The Fed has a dual mandate: to promote full employment and price stability. It has been more than successful at the second, partly because it has been less than successful at the first. So why will policy makers be considering an interest-rate hike at the Fed’s September meeting?

The usual argument for raising interest rates is to dampen an overheating economy in which inflationary pressures have become too high. That is obviously not the case now. Indeed, given wage stagnation and the strong dollar, inflation is well below the Fed’s own 2% target, not to mention the 4% rate for which many economists (including the IMF’s former chief economist, Olivier Blanchard) have argued.

Inflation hawks argue that the inflation dragon must be slayed before one sees the whites of its eyes: Fail to act now and it will burn you in a year or two. But in the current circumstances, higher inflation would be good for the economy. There is essentially no risk that the economy would overheat so quickly that the Fed could not intervene in time to prevent excessive inflation. Whatever the unemployment rate at which inflationary pressures become significant — a key question for policy makers — we know that it is far lower than the rate today.

If the Fed focuses excessively on inflation, it worsens inequality, which, in turn, worsens overall economic performance. Wages falter during recessions; if the Fed then raises interest rates every time there is a sign of wage growth, workers’ share will be ratcheted down, never recovering what was lost in the downturn.

The argument for raising interest rates focuses not on the well-being of workers, but that of the financiers. The worry is that in a low-interest-rate environment, investors’ irrational “search for yield” fuels financial-sector distortions. In a well-functioning economy, one would have expected the low cost of capital to be the basis of healthy growth. In the U.S., workers are being asked to sacrifice their livelihoods and well-being to protect well-heeled financiers from the consequences of their own recklessness.

The Fed should simultaneously stimulate the economy and tame the financial markets. Good regulation means more than just preventing the banking sector from harming the rest of us (though the Fed didn’t do a very good job of that before the crisis). It also means adopting and enforcing rules that restrict the flow of funds into speculation and encourage the financial sector to play the constructive role in our economy that it should, by providing capital to establish new firms and enable successful companies to expand.

I often feel a great deal of sympathy for Fed officials, because they must make close calls in an environment of considerable uncertainty. But the call right now is not a close one. On the contrary, it is as close to a no-brainer as such decisions can be: Now is not the time to tighten credit and slow the economy.

Madness of Blockading Syria's Regime

By Robert Parry, Consortium News

12 September 15

 

The U.S. State Department is trying to block Russian supplies going to Syria’s embattled government despite the risk that collapsing the regime would create a vacuum filled by the Islamic State or Al Qaeda, another nightmare dreamt up by the neocons and liberal hawks, writes Robert Parry.

oes the U.S. government want the Islamic State and/or its fellow-travelers in Al Qaeda to take over Syria? As far as the State Department is concerned, that seems to be a risk worth taking as it moves to cut off Russia’s supply pipeline to the Syrian government of President Bashar al-Assad — even as Sunni terrorist groups expand their grip on Syrian territory.

It appears that hardliners within the Obama administration have placed the neocon goal of “regime change” in Syria ahead of the extraordinary dangers that could come from the black flag of Sunni terrorism raised over the capital of Damascus. That would likely be accompanied by the Islamic State chopping off the heads of Christians, Alawites, Shiites and other “heretics” and/or Al Qaeda having a major Mideast capital from which to plot more attacks on the West.

And, as destabilizing as the current flow of Middle East refugees is to Europe, a victory by the Islamic State or Al Qaeda’s Nusra Front would open the flood gates, sending millions of desperate people pouring out of Syria and creating a political as well as humanitarian crisis. At that point, there also would be enormous pressure on President Barack Obama or his successor to mount a full-scale invasion of Syria and attempt a bloody occupation.

The human and financial costs of this nightmare scenario are almost beyond comprehension. The European Union – already strained by mass unemployment in its southern tier — could crack apart, shattering one of the premier achievements of the post-World War II era. The United States also could undergo a final transformation from a Republic into a permanent-warrior state.

Yet, Official Washington can’t seem to stop itself. Instead of working with Russia and Shiite-ruled Iran to help stabilize the political/military situation in Syria, the pundit class and the “tough-guy/gal” politicians are unleashing torrents of insults toward the two countries that would be the West’s natural allies in any effort to prevent a Sunni terrorist takeover.

Beyond words, there has been action. Over the past week, the State Department has pressured Bulgaria and Greece to bar Russian transport flights headed to Syria. The U.S. plan seems to be to blockade the Syrian government and starve it of outside supplies, whether humanitarian or military, all the better to force its collapse and open the Damascus city gates to the Islamic State and/or Al Qaeda.

In explaining its nearly inexplicable behavior, the State Department even has adopted the silly neocon talking point which blames Assad and now Russia for creating the Islamic State, though the bloodthirsty group actually originated as “Al Qaeda in Iraq” in reaction to President George W. Bush’s invasion of Iraq in 2003.

Then, backed by money and weapons from Saudi Arabia, Qatar and other U.S. “allies,” AQI moved into Syria with the goal of ousting Assad’s relatively secular government. AQI later took the name Islamic State (also known by the acronyms ISIS, ISIL or Daesh). Yet, the State Department’s official position is that the Islamic State is Assad’s and Russia’s fault.

“What we’ve said is that their [the Russians’] continued support to the Assad regime has actually fostered the growth of ISIL inside Syria and made the situation worse,” State Department spokesman John Kirby said on Tuesday. “If they want to be helpful against ISIL, the way to do it is to stop arming and assisting and supporting Bashar al-Assad.”

Yet, the reality is that Assad’s military has been the principal bulwark against both the Islamic State and the other dominant Sunni rebel force, Al Qaeda’s affiliate, the Nusra Front. So, by moving to shut down Assad’s supply line, the U.S. government is, in effect, clearing the way for an Islamic State/Al Qaeda victory since the U.S.-trained “moderate” rebels are largely a fiction, numbering in double digits, while the extremists have tens of thousands of committed fighters.

In other words, if the U.S. strategy succeeds in collapsing Assad’s defenses, there is really nothing to stop the Sunni terrorists from seizing Damascus and other major cities. Then, U.S. airstrikes on those population centers would surely kill many civilians and further radicalize the Sunnis. To oust the Islamic State and/or Al Qaeda would require a full-scale U.S. invasion, which might be inevitable but would almost certainly fail, much as Bush’s Iraq occupation did.

A Scary Fantasyland

As scary as these dangers are, there remains a huge gap between the real world of the Middle East and the fantasyland that is Official Washington’s perception of the region. In that land of make-believe, what matters is tough talk from ambitious politicians and opinion leaders, what I call the “er-er-er” growling approach to geopolitics.

Democratic presidential hopeful Hillary Clinton joined in that growling on Wednesday at the Brookings Institution, which has become home to neocons such as Robert Kagan and a host of “liberal interventionists,” such as Michael O’Hanlon and Strobe Talbott.

Though she formally endorsed the nuclear agreement with Iran, former Secretary of State Clinton insulted both the Iranians and the Russians. Noting Russia’s support for the Syrian government, she urged increased punishment of Moscow and Russian President Vladimir Putin — aimed at forcing Russia to abandon the Assad regime.

“We need a concerted effort to up the costs on Russia and Putin; I am in the camp that we have not done enough,” Clinton declared. “I don’t think we can dance around it much longer,” she said, claiming that Russia is trying to “stymie and undermine American power whenever and wherever they can.”

Clinton appears to have learned nothing from her past support for “regime change” strategies in Iraq and Libya. In both countries, the U.S. military engineered the ouster and murder of the nations’ top leaders, but instead of the promised flourishing of some ideal democracies, the countries descended into anarchy with Sunni terrorists, linked to Al Qaeda and the Islamic State, now controlling large swaths of territory and engaging in widespread atrocities.

Yet, for Clinton, the higher priority is to come across as super-tough, proving her value to Official Washington’s influential neocons and liberal hawks. Thus, a potential Clinton presidency suggests an even more warlike foreign policy than the one carried out by Obama, who recently boasted of ordering military strikes in seven different countries.

Clinton seems eager for more and more “regime changes,” targeting Syria and even Russia, despite the existential risks involved in such reckless strategies, especially the notion of destabilizing nuclear-armed Russia. The neocons and liberal hawks always assume that some malleable “moderate” will take power, but the real-life experience is that U.S. interventionism often makes matters worse, with even more extreme leaders filling the void.

Where’s Obama?

Now, with Official Washington lining up behind a blockade of Russian assistance to the Syrian government – even if that would mean an Islamic State/Al Qaeda victory – the great unknown is where President Obama stands.

A source familiar with the back channels between the White House and the Kremlin told me that Obama had encouraged Putin to step up Russian aid to the embattled Syrian government as part of the fight against the Islamic State and that the Russians are now bewildered as to why Obama’s State Department is trying to sabotage those efforts.

As odd as that might sound, it would not be the first time that Obama has favored a less confrontational approach to a foreign crisis behind the scenes only to have neocon/liberal-hawk operatives inside his own administration charge off in the opposite direction. For instance, in 2009, Obama bowed to demands for what turned out to be a useless “surge” in Afghanistan, and in 2014, he allowed neocon Assistant Secretary of State Victoria Nuland to start a new Cold War with Russia by helping to orchestrate a “regime change” in Ukraine.

As Assistant Secretary of State for European Affairs, Nuland would presumably be at the center of the recent arm-twisting in Bulgaria and Greece to get those countries to block Russian flights to Syria, which has been a longtime neocon target for “regime change,” a goal that the neocons now see as within their grasp.

Typically, when his underlings undercut him, Obama then falls in line behind them but often in a foot-dragging kind of way. Then, on occasion, he’ll break ranks and make a foray into genuine diplomacy, such as Syria’s 2013 agreement to surrender its chemical-weapons arsenal or Iran’s 2015 nuclear deal – both of which were achieved with significant help from Putin. But Obama has proved to be an unreliable foreign-policy partner, bending to the hawkish pressure from many of his subordinates and even joining in their rhetorical insults.

Today, Obama may feel that he has gone as far as he dares with the Iran nuclear deal and that any foreign policy cooperation with Iran or Russia before Congress decides on the agreement’s fate by Sept. 17 could cause defections among key Democrats.

Once the deadline for congressional review passes, Obama could get serious about collaborating with Iran and Russia to stabilize the situation in Syria. By strengthening the Syrian government’s military – which has protected Christians, Alawites, Shiites and other minorities – and incorporating reasonable Sunnis into a power-sharing arrangement, there would a chance to stabilize Syria and push for elections and constitutional reforms. But that would require dropping the slogan, “Assad must go!”

So, while President Obama is saying little about his Syrian plans, his State Department has moved off on its own aggressive course hoping to finally achieve the neocon/liberal-hawk dream of “regime change” in Syria – regardless of what nightmares might follow.

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Investigative reporter Robert Parry broke many of the Iran-Contra stories for The Associated Press and Newsweek in the 1980s. You can buy his latest book, America’s Stolen Narrative, either in print here or as an e-book (from Amazon and barnesandnoble.com). You also can order Robert Parry’s trilogy on the Bush Family and its connections to various right-wing operatives for only $34. The trilogy includes America’s Stolen Narrative. For details on this offer, click here.