Wednesday, December 06, 2006

Reich: Democrats In Power, Powerless Reich: Democrats In Power, Powerless

Former Clinton Secretary of Labor, Robert Reich suggests in: In Power, Powerless: Why Democrats, and the public, are helpless to do anything regarding Iraq or the economy. He points out that George Bush is going to be Commander in Chief for another two years, regardless of what the Democrats may want. And, of course, within the next two years, things are likely to calm down there somewhat.

He then goes on to repeat the liberal canard that the economy is lousy due to the huge deficits:
The economy is also out of the hands of Democrats or the American electorate, notwithstanding that most Americans say they don't like the way it's being handled. Because of the huge budget deficits, fiscal policy can't be used to fine tune the economy. The only lever that counts any more is monetary policy, which means Ben Bernanke and the Federal Reserve Board's Open Market Committee are the only game in town. Bernanke said last week that outside of the automobile and housing sectors, economic growth remains solid, and a tight labor market could spur inflation. Translated, this means the Fed won't lower interest rates. It may even raise them.
All this is indication that Reich's economics are mired in the 1930s with John Maynard Keynes. The reality is that fiscal policy may be useful in the short term, but in the long run, it is invariably counter-productive. And his point about the Fed not lowering interest rates shows ignorance of monetary policy. Following Reich's implied suggestions would likely get us back into the stagflation of the Carter years. It was reversing this that finally broke that cycle.


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