"There's a Flip Side to That Coin."

 A number of posts have discussed "Miles' Law," that is, where you stand depends on where you sit.  Attitudes toward procedures and institutions depend on whether you control them.  At Axios, Jim VandeHei and Mike Allen write:

Through silence or vocal support, House and Senate Republicans are backing an extraordinary set of new precedents for presidential power they may come to regret if and when Democrats seize those same powers.

Here are 10 new precedents, all set with minimal GOP dissent: 

1. Presidents can limit the classified information they share with lawmakers after bombing a foreign country without the approval of Congress.
2.  Presidents can usurp Congress's power to levy tariffs, provided they declare a national emergency.
3. Presidents can unilaterally freeze spending approved by Congress, and dismantle or fire the heads of independent agencies established by law.
4. Presidents can take control of a state's National Guard, even if the governor opposes it, and occupy the state for as long as said president wants.
5. Presidents can accept gifts from foreign nations, as large as a $200 million plane, even if it's unclear whether said president gets to keep the plane at the end of the term.
6. Presidents can actively profit from their time in office, including creating new currencies structured to allow foreign nationals to invest anonymously, benefiting said president.
7. Presidents can try to browbeat the Federal Reserve into cutting interest rates, including by floating replacements for the Fed chair before their term is up.
8. Presidents can direct the Justice Department to prosecute their political opponents and punish critics. These punishments can include stripping Secret Service protections, suing them and threatening imprisonment.
9. Presidents can punish media companies, law firms and universities that don't share their viewpoints or values.
10. Presidents can aggressively pardon supporters, including those who made large political donations as part of their bid for freedom. The strength of the case in said pardons is irrelevant.

Between the lines: Friday's Supreme Court ruling limiting nationwide injunctions — a decision widely celebrated by Republicans — underscores the risks of partisan precedent-setting.Conservatives sped to the courts to block many of President Biden's signature policies — and succeeded.

And since losing control of the Senate, Democrats have gone quiet on abolishing the filibuster. 

For decades, Democrats said that the term "states' rights" was coded racism -- until they used the term in defense of same-sex marriage.

Sack the Fed Head?

Many posts have discussed regulation and the administrative state. 

Peter J. Wallison at AEI:

In a 2020 case called Seila Law v. Consumer Financial Protection Bureau (CFPB), the Supreme Court created a legal foundation for the president’s control of the independent regulatory agencies, including the Fed.

The Court said in that case that in the US governmental system all the agencies of the government must be responsible to the president—the only official elected by all the people—and that the CFPB, which had a single administrator whose term of office the president could not terminate at will, was thus unconstitutionally structured because the president could not appoint his own director.

The Federal Reserve Board is headed by seven directors appointed for fixed but staggered terms of 14 years, and thus cannot be dismissed by the president under current law, unless the Supreme Court holds that the Fed is subject to the same rules as the other independent regulatory agencies.

In creating the Fed, Congress was careful to make sure that the agency was completely independent of the president and Congress. This was because the Fed’s control of the major elements of the economy—the money supply, interest rates, and the banking system—would all be important for a president (and his party) running for re-election. The Fed, for example, could lower interest rates and increase economic growth before an election, with major political implications for the president and his political party.

Accordingly, if the president is to be given control over the independent regulatory agencies, the Court must find some other way to assure that the Fed will remain independent of any president.

In Seila Law itself, before the Court decided whether the administrator of the CFPB could be removed and replaced by the president, it considered whether Congress would have created the CFPB in the first place, if it had known that the president would be able to take control of the agency.

The Court concluded that there was nothing in the legislative history of the CFPB to suggest that Congress cared whether the president controlled the agency or not. Accordingly, the Court allowed the agency to continue operations under the president’s control.

In the case of the Fed, however, the Court’s answer would almost certainly be different. It would be clear from the congressional debates over the Fed’s creation—and the extraordinary financial power of the Fed—that its independence from the president was a key in its establishment.

Why Debt Matters

 Desmond Lachman at Inside Sources:

The major problem with a high public debt level is that it saddles the government with large future interest payment obligations. That leaves little room for other public expenditures and makes it difficult for the government to bring the budget deficit under control. Failing to rein in the deficit, in turn, risks keeping the public debt on an ever-increasing path. In that context, it has to be of deep concern that the non-partisan Congressional Budget Office is forecasting that on present trends the country’s public debt to GDP ratio will approximately double from around 100 percent at present to 200 percent by 2050.

A high public debt level highly compromises the Federal Reserve’s ability to keep inflation under control. In particular, it makes it difficult for the Fed to raise interest rates for fear of adding to the government’s interest payment burden. Such a consideration would seem to have particular pertinence today with inflation running at its fastest pace in the past forty years and with the Fed needing to raise interest rates substantially from its present zero bound if it hopes to get the inflation genie back into the bottle.

Especially at a time of high inflation, a high public debt level makes the country economically vulnerable. That is because we have become the world’s largest debtor nation. For many years now, we have relied on the kindness of strangers in general and on the Chinese and Japanese in particular to finance our budget excesses.

If foreigners begin to perceive that we are in the process of inflating away our debt, they will be reluctant to hold that debt and will demand higher interest rates in order to compensate them for inflation risk. That in turn could cause the dollar to swoon, which would only add to inflationary pressures and fuel further concerns about our wanting to inflate away our debt.

The Power of the Fed

Felix Salmon at Axios:

We're not in the throes of a "Greater Depression," and we're not facing a tsunami of bankruptcies. In fact, the stock market is hitting new record highs, while employment is rising fast. For all of these things, thank one institution above all others: the Federal Reserve.

Why it matters: The coronavirus crisis has made abundantly clear the awesome power of central banks in general and of the Fed in particular.

The big picture: Most of the time, the Fed is a deliberately slow and quiet agency, keeping a close eye on thousands of economic indicators and trying its best to keep employment high and inflation low.

• In a crisis, however, the Fed has now shown beyond any doubt that it is both willing and able to create as much liquidity as is needed to put out all fires and get the economy floating happily again.
• As Minneapolis Fed Chair Neel Kashkari memorably put it on "60 Minutes" in March 2020: “There is an infinite amount of cash in the Federal Reserve. We will do whatever we need to do to make sure there’s enough cash in the banking system.”

How it works: The Fed, working hand in glove with the Treasury, announced a long list of programs in March 2020, all of which were designed to stabilize extremely jittery markets and make sure that creditworthy businesses had access to the capital they needed to get through the crisis.

Dion Rabouin at Axios: 

How it works: The Fed steadied the economy by setting interest rates near 0%, and buying so many bonds in the open market that it now boasts a $7.7 trillion balance sheet.

• The hope is that companies will hire more workers, but that's no longer how the economy works, notes Columbia University professor and Nobel Prize-winning economist Joseph Stiglitz.
• Rather than hiring, companies buy back their stock and invest in technology designed to replace workers.

"We’ve been through a period where low-interest rates have not stimulated the economy very much and where disproportionately [companies' increased profits] go into automation, killing jobs, not creating jobs," Stiglitz tells Axios.

• "At a zero interest rate the cost you focus on is the cost of labor, because that’s your only cost. Whereas if the cost of capital goes up relative to the cost of labor you get a more balanced kind of innovation and investment."

Yes, but: Many argue the Fed was forced into this position and the extraordinary economic intervention is its attempt to make up for a new world of slowing growth, growing debt, an aging population and a dysfunctional Congress.

What happened: To battle the coronavirus pandemic, the Fed announced on March 23, 2020, that it would buy an unlimited amount of U.S. government bonds and mortgage-backed securities; purchase corporate bonds, including debt with a "junk" credit rating; and even provide financing directly to individual companies.

COVID-19 and a Coin Shortage

From the Federal Reserve:

The COVID‐19 pandemic has significantly disrupted the supply chain and normal circulation patterns for U.S. coin. In the past few months, coin deposits from depository institutions to the Federal Reserve have declined significantly and the U.S. Mint’s production of coin also decreased due to measures put in place to protect its employees. Federal Reserve coin orders from depository institutions have begun to increase as regions reopen, resulting in the Federal Reserve’s coin inventory being reduced to below normal levels. While the U.S. Mint is the issuing authority for coin, the Federal Reserve manages coin inventory and its distribution to depository institutions (including commercial banks, community banks, credit unions and thrifts) through Reserve Bank cash operations and offsite locations across the country operated by Federal Reserve vendors.

The Federal Reserve is working on several fronts to mitigate the effects of low coin inventories. This includes managing the allocation of existing Fed inventories, working with the Mint, as issuing authority, to minimize coin supply constraints and maximize coin production capacity, and encouraging depository institutions to order only the coin they need to meet near‐term customer demand. Depository institutions also can help replenish inventories by removing barriers to consumer deposits of loose and rolled coins. Although the Federal Reserve is confident that the coin inventory issues will resolve once the economy opens more broadly and the coin supply chain returns to normal circulation patterns, we recognize that these measures alone will not be enough to resolve near‐term issues.

What Makes an Effective President?

At The Washington Examiner, David Drucker asked former Secretary of State George Shultz: what makes an effective president?

A key is to have a strategy. Nixon was a strategist...Ronald Reagan was a strategist. He was long-headed and I'll give you an example. I was chairman of his economic policy advisory panel during the primaries, during the election campaign, and for the first year and a half of his time in office, before I was secretary of state. And, he came into the office and he knew that we couldn't have a decent economy with the kind of inflation that was going on. And we all knew that, and we all said that.

And there was [Federal Reserve Chairman] Paul Volcker over at the Fed. Paul had been my undersecretary when I was secretary of the treasury so I knew Paul well. And, he was doing what you had to do, namely, discipline the money supply. And people would run into Reagan and say, Mr President, Mr President, we're going to cause a recession, we're gonna lose seats in the midterm election. And, Reagan basically — he didn't say this, but basically he said, if not now, when? If not us, who? And he basically put a political umbrella over Paul. And, I let Paul know that.

But Paul told me, I was talking to him recently, he said, I remember seeing many occasions when reporters dished up a question to Reagan, sort of inviting him to come down on the Fed, and he never did. So what happened? We did have a recession, we did lose seats. But by early '83, inflation was under control and everybody could see that it was going to stay that way. And the incentive that had been put into the economy kicked in, and the economy as you remember took off like a bird in 1983. But that was a president taking a long-headed deal and saying the country has to get rid of the inflation if we're going to be healthy. That means we're going to take a short-term hit for a long-term objective. That's strategic thinking — and acting on it. And, that takes guts, political guts. And, the ability to stand up to things.

Mnuchin's Rent-a-Friends

& Many posts have shown how interest groups cynically use charitable contributions to buy political support.  The latest example comes from the designee for Treasury Secretary, as Isaac Arnsdorf and Kenneth P. Vogel report at Politico:

Donald Trump’s choice for treasury secretary, Steven Mnuchin, earned tens of millions of dollars from a 2015 bank sale that got a boost from an array of nonprofit groups that had one thing in common — they had received tens of thousands of dollars each from the bank’s foundation, which was run by Mnuchin.

The sale of OneWest, a bank that Mnuchin co-founded and chaired, to CIT Group for $3.4 billion drew significant opposition from public interest groups because OneWest had been accused of wrongful foreclosures and racial discrimination in its mortgages and small-business loans.

But a parade of community-based nonprofits stepped forward to testify to the federal regulators considering the merger about the good corporate citizenship of OneWest. All of the groups — ranging from a pair of local Boys Girls Clubs to a pair of Junior Achievement clubs — were beneficiaries of grants from the bank’s charitable arm, the OneWest Foundation, which Mnuchin chaired, according to a POLITICO review of filings with the Internal Revenue Service and the Federal Reserve.

In all, 14 groups that sent letters to the Fed in support of the merger received a combined total of $2.5 million from the OneWest Foundation in the four years leading up to the merger. In their letters, the groups lauded OneWest’s support for community groups. In seven of the letters, the groups acknowledged the dollar amounts they received from Mnuchin’s charity arm; in the other seven, they referenced only having enjoyed the support of the bank.

...
The Fed received 593 petitions in support of the banks’ request to forgo a public hearing on the merger, which could have slowed down the process. But all of the petitions came from Yahoo email accounts, even though Yahoo’s share of the email market at the time was 3 percent, according to a letter to regulators from the California Reinvestment Coalition, an advocacy group that opposed the merger.

The letter claimed that when attempts were made to contact those 593 petitioners about their support, 30 percent of the emails bounced back, and other petitioners replied saying they did not in fact support the merger, according to the letter. In addition, many of the messages were time-stamped around 2 a.m. on the night of Feb. 13, 2015.

Economic Disparities

The Federal Reserve Board’s triennial Survey of Consumer Finances (SCF) shows disparities in the evolution of income and net worth since 2010.  From the report:

• Between 2010 and 2013, mean (overall average) family income rose 4 percent in real terms, but median income fell 5 percent, consistent with increasing income concentration during this period (figure 1).
•  Some of the 2010 to 2013 growth differential reflected a return to trend, after the cyclical narrowing of the income distribution between 2007 and 2010, when large decreases in top incomes associated with the recent financial crisis reduced mean family income more than median family income.
•  Families at the bottom of the income distribution saw continued substantial declines in average real incomes between 2010 and 2013, continuing the trend observed between the 2007 and 2010 surveys.
• Families in the middle to upper middle parts (between the 40th and 90th percentiles) of the income distribution saw little change in average real incomes between 2010 and 2013 and thus have failed to recover the losses experienced between 2007 and 2010.
• Only families at the very top of the income distribution saw widespread income gains between 2010 and 2013, although mean and median incomes were still below 2007 levels.
• The differentials in average income growth between 2010 and 2013 are also observed for other family groupings in which large differences in income levels are observed, notably across education groups, by race and ethnicity, homeownership status, and levels of net worth.

Knowledge, Deliberation, and Economic Policy

The Federal Reserve this week decided not to end an important policy.  The public, which knows very little about the Fed, scarcely noticed. On the eve of the decision, Reuters explained:

The Fed's $2.8 trillion "quantitative easing" program has, among other things, lifted stock prices to record highs, driven interest rates to record lows and put a floor under what had been a reeling housing market.

Yet barely a quarter of Americans even know what it is.

A poll leading up to the Fed's pivotal decision, expected Wednesday afternoon, found just 27 percent of U.S. adults could pick the correct definition of quantitative easing from among five possible answers

... 

 Twelve percent of respondents thought QE was a computer-assisted program that the Fed uses to manipulate the dollar. Another 11 percent thought it was part of the Dodd-Frank Wall Street reform legislation enacted following the crisis.

To be sure, two of the more popular incorrect answers - "a way the Fed makes it easier for commercial banks to borrow money from Fed and relend it to consumers," and "when the Fed repeatedly lowers its official interest rate" - were in the right ballpark, if not completely on target.

After all, quantitative easing is geared to reducing borrowing costs.

But for a Fed that has emphasized how important communications are - and how much the effectiveness of its policies depends on the public's understanding of their impact on inflation and employment - the fact that 73 percent of respondents cannot define the critical program suggests the Fed has a serious communications challenge.

 TechCrunch reports on deliberative polling, one effort to address the problem.

Most Americans are ignorant of policy issues. Two-thirds can’t name a single Supreme Court Justice, only 37 percent of young Americans can’t find Iraq on a map, one-third believes President Obama is a Muslim, and (as of 1999) 20 percent still think the sun revolves around the Earth.

Despite their lack of knowledge, Americans will answer questions related to things they know nothing about. Last year, 39 percent had an opinion about a completely imaginary budget plan.

Which is where “deliberative polling” comes in. It’s a social-statistical process of educating a randomly selected group of citizens in an attempt to understand what Americans would think about an issue.

And we’re going to be testing it out here on TechCrunch.

We’re going to be the media partner on a $165,000 Knight Foundation grant to business consulting firm, Refram It, which will develop a new method of deliberative polling for media organizations.The godfather of deliberative polling, Stanford Professor James Fishkin, will be helping us adapt the procedure (note: TechCrunch is not the recipient of the grant, it is the media partner. Reframe it is the recipient).

Specifically, Fishkin and Reframe It, a company co-founded by his son, Bobby Fishkin, will conduct two deliberative polls related to a few technology policy issues, including immigration reform and the National Security Agency. Over the next few months, we will publish stories about the process of deliberative polling and (hopefully) release the first results later this fall.

Know Your Fed

Many posts have discussed political knowledge. This past weekend, Lawrence Summers put an end to weeks of speculation by withdrawing from consideration to be the next chair of the Federal Reserve.  The matter was a big deal to the political elite.  The general public scarcely noticed. David Wessel writes at The Wall Street Journal:

A new Wall Street Journal/NBC News poll asked respondent to rate their feelings toward Mr. Summers. Some 69% didn’t recognize his name or didn’t have an opinion.

Among the rest, more than half described their attitude toward him as “neutral.” Of the 13% who actually expressed a view, it was negative by 2-to-1.

Mr. Bernanke is somewhat better known, but still 45% said they didn’t know who he was or didn’t have an opinion. That is down from 67% in September 2007, before the financial crisis hit.

The remainder of respondents split about evenly among those with positive, negative or neutral feelings toward Mr. Bernanke.

J.P. Morgan Chase, the big bank, is much better known than either Mr. Summers or Mr. Bernanke. Fully 80% of the respondents told the pollsters that they recognized the brand. Among those who expressed opinions about the bank, nearly three times as many were negative as positive.

Household Wealth Has Not Recovered

A report from the Federal Reserve Bank of St. Louis indicates that household wealth has not yet recovered from the Great Recession:

The Federal Reserve reported March 7, 2013, that aggregate household net worth at the end of 2012 was $66.1 trillion, nearly back to its precrisis peak of $67.4 trillion, reached at the end of the third quarter of 2007. After falling to $51.4 trillion at the end of the first quarter of 2009, the subsequent increase of $14.7 trillion through the end of last year represented a recovery of 91 percent of the losses suffered. Does this mean that the financial damage of the financial crisis and economic recession largely has been repaired?

The simple metric of aggregate household net worth is misleading for at least three reasons. First, the effect of inflation is ignored. Consumer prices increased about 2 percent per year in the five and one-quarter years since the third quarter of 2007, reducing the purchasing power of a dollar by a total of about 10 percent. Therefore, a return to the previous nominal dollar peak does not mean that a given amount of wealth could buy as much as before.

Second, simple aggregate net worth does not adjust for population growth. The number of households increased by about 3.8 million between the third quarter of 2007 and the end of 2012, or about 3.4 percent. The wealth of all American households now is shared by more families than before.

Third, the recovery of wealth has not been uniform across families. Of the total recovery of $14.7 trillion between the first quarter of 2009 and the fourth quarter of 2012, $9.1 trillion, or 62 percent, of the gain was due to higher stock-market wealth. Stock wealth is unevenly held, with the vast majority of stocks owned by a relatively small number of wealthy families. Thus, most families have recovered much less than the average amount.

The figure and table provide details of three different measures of household net worth—aggregate nominal net worth, as reported in the Flow of Funds accounts; aggregate inflation-adjusted net worth; and average inflation-adjusted net worth per household, a household-level measure consistent with the data format in the Survey of Consumer Finances as discussed in this article. Clearly, the 91 percent recovery of wealth losses portrayed by the aggregate nominal measure paints a different picture than the 45 percent recovery of wealth losses indicated by the average inflation-adjusted household measure. Considering the uneven recovery of wealth across households, a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified.

The Fed and Grim Numbers

Our chapter on economic policy discusses the goals of the Federal Reserve.The New York Times reports:

When the Federal Reserve’s vice chairman said in a 1994 speech that the central bank “had a role in reducing unemployment,” colleagues were publicly dismissive. The very word “employment” did not appear in a policy statement until 2008. The Fed was focused on inflation, officials said time and again.

That era is over. The signs have been there for some time, but they are now unmistakable. Ben S. Bernanke, the Fed’s chairman, made clear on Thursday that job creation is its primary concern for the foreseeable future.

The remarkable transformation of the Fed’s priorities is partly a response to the grim reality that more than 20 million Americans cannot find full-time jobs. It is made easier by the fact that the Fed has been so successful in stabilizing inflation right around the 2 percent annual pace that officials consider most healthy.

But as circumstances have changed, so has the Fed itself. Under the leadership of Mr. Bernanke — with considerable prodding and support from a board almost entirely appointed by President Obama — the central bank has gradually concluded that it has a responsibility to act more forcefully, and, equally important, that it has the ability to spur job creation directly.

AP reports:

The number of Americans seeking unemployment benefits jumped to the highest level in two months, although the figures were skewed in part by Hurricane Isaac.

Applications increased by 15,000 to a seasonally adjusted 382,000, the Labor Department said Thursday. That's up from 367,000 the previous week. The four-week average, a less volatile measure, increased for the fourth straight week to 375,000.

Isaac made landfall as Category 1 hurricane on Aug. 28 in southeastern Louisiana and was later downgraded to a tropical storm. It disrupted work in nine states and boosted applications by roughly 9,000, Labor officials said.

Applications for unemployment benefits reflect the pace of layoffs.

...
Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said that after excluding the impact of the hurricane, applications are likely closer to 370,000. Still, the job market has shown little vigor this year.

Overall, the news is not good.  Bloomberg reports:

Industrial production in the U.S. unexpectedly fell in August by the most since March 2009, highlighting risks to the economic outlook a day after the Federal Reserve boosted record stimulus.

The 1.2 percent decrease at factories, mines and utilities followed a revised 0.5 percent gain in the prior month, figures from the Fed showed today. The median estimate in a Bloomberg survey of 81 economists called for no change. Another report showed purchases cooled at retailers excluding auto dealers and gasoline service stations.

A global economic slowdown is restraining demand for U.S. exports, making it harder for companies like Texas Instruments Inc. (TXN) and Dow Chemical Co. (DOW) to expand sales. Manufacturers are also challenged by the prospect of budget cuts and tax increases set to take effect at the end of the year and consumer spending that’s hampered by 8 percent unemployment.

Plunging Net Worth

An article from The Federal Reserve:

The Federal Reserve Board's Survey of Consumer Finances for 2010 provides insights into changes in family income and net worth since the 2007 survey. The survey shows that, over the 2007–10 period, the median value of real (inflation-adjusted) family income before taxes fell 7.7 percent, while mean income fell more sharply, an 11.1 percent decline. Both median and mean net worth decreased even more dramatically than income over this period, though the relative movements in the median and the mean are reversed; the median fell 38.8 percent, and the mean fell 14.7 percent. [emphasis added] 

The report indirectly makes an observation about generational divides:

The decline in median income was widespread across demographic groups, with only a few groups experiencing stable or rising incomes.Most noticeably, median incomes moved higher for retirees and other nonworking families. 

Fed Deliberations, Continued

In an earlier post, we discussed a proposal to open Federal Reserve deliberations to greater congressional scrutiny. Fed chair Ben Bernanke reacts to this proposal in The Washington Post:

Independent does not mean unaccountable. In its making of monetary policy, the Fed is highly transparent, providing detailed minutes of policy meetings and regular testimony before Congress, among other information. Our financial statements are public and audited by an outside accounting firm; we publish our balance sheet weekly; and we provide monthly reports with extensive information on all the temporary lending facilities developed during the crisis. Congress, through the Government Accountability Office, can and does audit all parts of our operations except for the monetary policy deliberations and actions covered by the 1978 exemption. The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation.

The Federal Reserve and Its Deliberations

In chapter 18, we discuss the deliberations of the Federal Reserve. The House Financial Services Committee just voted for a measure to allow the Government Accountability Office to scrutinize these deliberations. Former Fed chairs Alan Greenspan and Paul Volcker wrote the committee to oppose the measure and express support for current law. The Wall Street Journal explains:

A 1978 statute excludes from GAO oversight the Fed’s monetary policy deliberations, loans to banks from its discount window and related activities to, in the words of a congressional report issued at the time, permit the Fed to “independently conduct the nation’s monetary policy.” A provision adopted by the committee Thursday would undo that. “We can assure you that this protection of internal deliberations in reaching decisions that will affect market conditions and could expose sensitive information about particular institutions is indispensible in the Federal Reserve’s conduct of monetary policy,” Greenspan and Volcker said.