Comment of the Day: Robert Waldmann: How Much Did Larry Summers Fear the Invisible Bond Market Vigilantes in December 2008?: “Wow there is a lot here…
…I think I will focus on your suggestions.
I very strongly agree with your critique #3 (housing) — I think that the FHFA mattered more than the FOMC and Edward DeMarco deserves a large share of the blame for the slow recovery. Since he was originally appointed by Bush, this is another case of incorrectly thinking it is possible to work with Republicans.
On #4 (Fed Governors) I note that it was generally assumed that the Chairman set monetary policy. Bernanke (like Obama) sought consensus so the board mattered. In any case he was an exception to the rule that one can’t work with Republicans (I use the past tense since he is now an ex Republican).
On grabbing Romney and Snowe, I note that their votes were not needed, but Max Baucus’s was. I think the approach of letting Baucus write the bill makes more political sense. Notably it worked.
You wrote ‘reconciliation’ three times in your critiques. I have a guess that a problem with this is that reconciliation can only be used if the chairman of the Senate budget committee agrees. The chairman was sincere deficit hawk Kent Conrad. I am reasonably sure he would not have accepted a proposal to create ‘an alternative, Reconciliation-process track to create the option to do a second Recovery Act’. I also wonder how enthusiastic about cap and trade the Senator from oil boom North Dakota would be. That leaves FICA or more generally stimulating by making the tax code more progressive. I strongly agree with that suggestion. Was it a good time to raise taxes on the relatively wealthy? Yes in the USA that has been a good idea since 1981.