Lack Of Left Flank To Monetary Policy Debate Has The Fed Stuck In Neutral

Binyamin Applebaum has a tragic article in The New York Times about how no help's coming to the labor market that features a quote that sends shivers down my spine. He speaks to Eric Rosengren, President of the Boston Fed and generally one of the good guys, and President Rosengren explains that monetary policy won't be coming to the rescue not so much because it can't as because of political paralysis:

"We've done things that are quite unusual. We're using tools that we have less experience with," Mr. Rosengren said. "Most of the criticism has been that we're being too accommodative. That is a concern that we have to put some weight on."

Heather Boushey, senior economist at the Center for American Progress, a liberal research group, said that the Fed was being too cautious about inflation and too callous about joblessness.

"We have a massive unemployment problem in this country right now. It is festering. It's not good for our economy. It's not good for our society. And we have the tools to fix it," she said. "We certainly need to be concerned about what happens down the road, but shouldn't we first be concerned about getting the U.S. economy back on track?"

Obviously, I agree with my colleague. But part of what we're seeing here are the policy consequences of the progressive movement's strange monetary policy blindness. For the Fed to do anything "unorthodox" naturally opens the institution up to criticism. And if nearly 100 percent of the criticism is either from the hard money right or else is vague condemnations of "bailouts," then this biases policy toward inaction. People need to understand that in economic policy terms, the Fed's monetary policy committee is the single most important institution in the country. It's not the only thing that matters, but it matters a lot. Talking about jobs without talking about the FOMC is like talking about the legal system and forgetting there's a Supreme Court. Folks in Minneapolis for Netroots Nation this year should come to my panel on monetary policy.

In other news, this Matt Rognile post from last week is a good money-focused explanation of how mortgage losses could trigger such a huge recession.