Federal Reserve Chair Janet Yellen will testify before Congress Tuesday and Wednesday about the economy and future Fed policy. We won’t learn much about either, because the Fed refuses to recognize the facts on the ground.
Its policymaking committee recently stated that inflation is below 2 percent. Yet, according to the Bureau of Labor Statistics, consumer price inflation has been accelerating since March and is now 4 percent.
It asserts the economy and labor market are improving, but that denies the trials of most ordinary Americans whose wages continue to lag behind inflation or many who remain unemployed.
The Obama recovery has delivered 2.1 percent annual GDP growth. That’s about the same as the Bush expansion but half the pace accomplished during the Reagan-Clinton era. And the Bush-Obama economy has created 6 million jobs, whereas it would need 40 million to match the Reagan-Clinton record.
The unemployment rate has fallen steadily in recent months, mostly because so many jobless have quit looking for work and are no longer counted.
For native-born Americans, the problem is dire, because nearly all the new jobs have gone to immigrants.
America’s large universities, banks and technology companies have successfully pressured the Obama administration to permit virtually uncontrolled immigration to push down wages for higher-paying science, technology and finance occupations, and in lower paying industries, such as hospitality, where most of the employment growth has occurred.
President Obama obliges, because Asian and Hispanic voters, who favor lax immigration enforcement, make the critical difference for Democrats in swing states like Virginia.
The Fed has recklessly pumped more than $3 trillion into financial markets, making credit cheap and bloating bonuses for hedge fund managers and Wall Street bankers who contribute mightily to political campaigns. However, trickle-down benefits to ordinary folk – especially native-born Americans – have been minimal.
What stifled growth and jobs creation during the Bush years remains unaddressed by Obama, and the Fed can’t fix it.
The huge trade deficit was responsible for half the 2.9 percent first quarter drop in GDP. And more burdensome business regulations, which add more paperwork than accomplish results, are driving investment to China.
Both Obama and House Speaker John Boehner are fearful to confront Chinese protectionism, and administration restrictions on offshore petroleum development keep America dependent on Middle East oil and finance terrorism.
The regulatory morass is rooted, for example, in administration reluctance to acknowledge that Wall Street banks, like JP Morgan and Citigroup, are too big to manage or regulate effectively. A solution requires breaking up banks in the manner of Glass-Steagall, but that would disrupt the flow of political cash from bank executives to congressional coffers.
The Fed’s low-interest rate policies and rosy assessments of the economy distract media and broader public attention from these follies and corruption and permit politicians to demagogue the jobs crisis.
According to the Congressional Budget Office, the president’s proposal to raise the minimum wage to $10.10 an hour would kill 500,000 to 1 million jobs. Add in the jobs lost in jurisdictions like California and New York City, which have minimum wages above the federal standard, and the upper end estimate becomes more likely correct.
Former Fed Chairman Alan Greenspan was not shy to tell Congress the limits of monetary policy in the face of administration and congressional debauchery.
If Janet Yellen truly appreciated the reality of ordinary Americans – or simply acknowledged the federal data sitting on her desk – she would tell Congress that inflation is threatening, and she would enumerate the trade, energy and regulatory policies that constrain growth and make monetary policy impotent.
Sadly, that is not about to happen, and ordinary Americans’ living standards will continue to be punished by the Fed’s inflationary policies. Wages will remain depressed and jobs scarce thanks to the president’s drive to ensure a political realignment that favors Democrats by enabling an endless tide of Asian and Latin American immigrants.
Peter Morici served as Chief Economist at the U.S. International Trade Commission from 1993 to 1995. He is an economist and professor at the Smith School of Business, University of Maryland.