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THE NIGHT BEFORE THE BIG DAY

February 1, 2014

THE NIGHT BEFORE THE BIG DAY

Today is Friday, January 31, 2014, and most people are fixated on the upcoming Sunday evening, when the Super Bowl will be the main attraction. The Super Bowl has come to mark party-time, overeating, and a fun day in general (not to mention that it is also happens to be Groundhog Day this year and that many are hoping for a cloudy day in Pennsylvania after the harsh winter they have endured and are still enduring). Few will be thinking of what some of us are; that the Big Day is tomorrow, February 1, 2014.

So what’s the big deal tomorrow that has amateur economists like me excited? It is the changing of the guard at the Fed – Bernanke out, Yellen in. Tomorrow Janet Yellen becomes the Chair of the Fed. The Fed is our central bank and is an independent agency. It manages our money, sets interest rates, helps regulate banks etc. A century old last year, it does not answer to either the Congress or the Executive – it is a truly independent agency charged with critically important decisions to make that can have enormous effects on our economy – and even economies around the world.

Janet Yellen is not from the usual mold; she is not a Rubin or a Greenspan or a Geither or a Summers or a Paulson or even a Sperling. She is not a product of Wall Street; she is from academia and her specialty is in labor economics and unemployment. I think she is the right choice for the right time in this era of extreme income inequality. Under her leadership and the impact of monetary policies she may adopt on fiscal policies the politicians adopt – if they ever decide to govern – we may at last come to grips with outsourcing, labor-bashing, decent wages etc. and see our economy hum.

I am optimistic that this can happen under her tutelage because I know she is brilliant, and I think she is Keynesian. Her portfolio does not include fiscal policy; that is the preserve of the political class. However, as Chair there are many things she can do with monetary policy that sets the stage for the political class to pull the Keynesian trigger to make our economy hum and make our unemployment and financial woes go away. I am excited at the prospect of such a happy and long-awaited outcome.

She may have just arrived in the nick of time, because Wall Street and its multinational corporate handmaidens have not just taken production to China and elsewhere; they are selling off our domestic corporate assets as well to overseas investors. We are told that that is good because it brings new capital into America. I reject that propaganda because all such new capital goes to the already rich and corporate class who don’t need to spend it. It does nothing for our economy other than accelerate the rich-poor gap.

Now we have as of recent date Chinese communists who own Smithfield Ham, Fiat of Italy which has just completed the purchase of all Chrysler stock, and the Japanese whiskey-maker Suntory which just laid out $16 billion to acquire Beam, Inc, involving the iconic Jim Beam and Maker’s Mark whiskies. Now all profits from such acquisitions will leave America for overseas venues. Someone tell me how that enriches all of America.

The Oriental purchases above set forth make sense for the buyers: China has just set aside an area the size of Belgium that is so polluted that nothing can be raised on it; they are greatly overpopulated and they are ham lovers. The Japanese rationale for buying Beam, Inc. is the opposite; they must “boost overseas growth” because their population is both shrinking and aging. Their $16 billion dollar takeover of Beam, Inc. is the largest overseas acquisition by a Japanese company since telecom firm SoftBank bought Sprint for $21.6 billion in 2012.

Perhaps if the politicians had delivered us an economy with robust demand and fair wages many of these sales of American corporations would not have happened. With tepid demand because of all the outsourcing and wage inequality, one can reasonably infer that American companies are more likely to just sell out and go their way, as they have. Outsourcing and wage inequality are demand-killers just when we need to stimulate aggregate demand in order for businesses to profit and people to be employed, and it is inconceivable that policy makers would now adopt demand-killing austerity policies at such a critical juncture – but they have – contraction over expansion – an unimaginable policy choice.

Our politicians have failed America and its people and should be called to account irrespective of party. They refuse to employ Keynesian tactics on ideological grounds. We have an enormous amount of both pent-up work and demand waiting for those in power to pull the Keynesian trigger. So how long can this go on? Are we supposed to believe that austerity economics will solve our economic problems? As Joseph Stiglitz, Nobelist and Columbia University professor has repeatedly stated, “Austerity has never worked in large economies.” (Ours is large.)  What happens if ultimately all American corporations are owned by aliens and all profits go overseas? Third World, anyone?

I am hopeful that our new Fed Chair can show our politicians the error of their ways and rescue us from a political minority which gorges on Wall Street campaign contributions and ancient economic theories that don’t and can’t work these days. Candidly, I don’t think the potential for such a rescue ever really existed with the parade of Wall Street executives who have chaired and served on the board of governors of the Fed. They have favored Wall Street over Main Street, and we have reached a tipping point. It must stop.

To reiterate, our new Chair as of tomorrow is not from Wall Street, so we may have more than a changing of the guard. Far more importantly, we may have a changing of the philosophy of what makes an economy tick and how to keep it healthy.

Welcome to the brawl, Madame Chair!  GERALD  E

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