Washington Merry-Go-Round

IMMEDIATE RELEASE 26 November 2021 WASHINGTON MERRY-GO-ROUND Today’s Events in Historical Perspective America’s Longest-Running Column Founded 1932 Thankfully, they understand the economic rhythms of history By Douglas Cohn and Eleanor Clift           WASHINGTON — The economic theories of British John Maynard Keynes (1883-1946) have lived on in the persons of former Fed Reserve Chairman Ben Bernanke and current Chairman Jerome Powell, both of whom subscribe to the idea that “priming the pump” with government deficit spending in hard times leads to surpluses in good times. Both men are Republicans, appointed by Republican presidents and reappointed by Democratic presidents, making them unintentional bridges between the disparate parties.           After months of hesitation, President Biden chose Keynesian continuity over party loyalty to nominate Powell for another four-year term, a move that was hailed by leaders in both political parties, and most notably by GOP Senate Minority Leader Mitch McConnell, R-Ky. Powell was originally appointed by President Trump, but Biden did not let that stop him, and he even may have been guided in the decision by his experience in the Obama White House.           When President Obama and Vice President Biden took office in January 2009, the country was in the throes of a housing collapse and economic meltdown that would be remembered as “The Great Recession.” The chairman of the Fed was a Republican appointee, Ben Bernanke, who had the gumption to slash interest rates, bail out failing financial institutions, push more federal spending to bolster the economy, and, most notably, institute a policy of quantitative easing (printing money to buy U.S. notes – Treasury Bills).           In 2010, Obama nominated Bernanke to a second four-year term, cementing a partnership that is widely credited with saving the U.S. economy.           Biden chose the same path, linking arms with a Republican appointee who has also demonstrated his independence, standing up to then-President Trump and showing no inclination toward partisanship in the Fed’s policies. Senator Elizabeth Warren, D-Mass., made no secret of her wish to have someone more openly progressive as Fed Chair, but Biden stood up to his party’s left wing for the top spot, and instead chose Lael Brainard for vice chair, a popular pick to placate Warren and others.           Biden split the difference ideologically, in keeping with his brand of reaching across the divide both within his party and with the opposition party when he can. The left-leaning Brainard had been on the Fed’s Board of Governors since 2014, and the promotion gives her a greater voice in Fed policy.           The business magazine, Forbes, says the best thing to say about the choice of Powell is that Brainard would be worse, that she’s “even softer” on inflation than Powell. While recognizing that inflationary pressures are here for a while as a result of the pent-up demand coming out of the pandemic, Powell has stayed steady in his support of legislation that is at the heart of Biden’s agenda.           There is the American Rescue Plan, signed into law early this year, providing a major cash infusion into people’s pockets as jobs were lost and rents went unpaid. A child tax credit cut child poverty in half.           Next, the just-enacted bipartisan infrastructure plan will transform the face of America with projects spanning everything from broadband and electric cars to much needed makeovers of roads and bridges.           However, Republicans have seized on inflationary fears to argue against passage of the Build Back Better Bill, and Powell has pushed back to say it will not boost inflation but instead ease those pressures by helping families with childcare and medical costs.           Like Obama and Bernanke, a decade ago, Biden and Powell understand why now, in the middle of a pandemic, is the time to once again “prime the pump.”. And it’s especially true when interest rates are so low that the U.S. government can borrow money from China and others at one and a half percent interest.           Biden insists the Build Back Better Bill is fully paid for, and he is mostly right because if the Chinese and others are willing to loan money at these rates, America would be foolish to walk away. A door like this to rebuild the country has not been opened for some time, and it could be another generation before this opportunity comes around again to combat climate change and build a more equitable economy.           Biden is on the right track with a Fed pick who understands the economic rhythms of history.           Douglas Cohn’s latest books are The President’s First Year: The Only School for Presidents Is the Presidency and World War 4: Nine Scenarios (endorsed by seven flag officers).           Twitter:  @douglas_cohn           © 2021 U.S. News Syndicate, Inc.           Distributed by U.S. News Syndicate, Inc.           END WASHINGTON MERRY-GO-ROUND CandC-Nov-26-Thankfully-they-understand-the-economic-rhythms-of-history.docx