Divergent views

This from the New York Times:

“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” Ms. Yellen said.

So what about the economy and inflation?

CPI and REAL GDP 1948 TO 2015

data from St. Louis FED

The Bureau of Economic Analysis (BEA) just released the latest figures on gross domestic product.


Real gross domestic product increased at an annual rate of 1.1 percent in the second quarter of 2016, according to the “second” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent.

Not exactly scorching. Both inflation and GDP are at or near historical lows, save for major recessions on the latter metric.

Prominent economists—including Paul Krugman, Larry Summers, Jared Bernstein, and Dean Baker—argue against the FED’s raising rates. The economy, they contend, is stuck in very low gear, as the above figures illustrate. Nor is inflation showing any signs of moving upwards; it’s going down, actually.

As it happens, the FED may have little ability to improve the economy given secular stagnation. What is needed, say the aforementioned economists, is fiscal expansion by the federal government. But you know who won’t allow that to happen. The Republicans’ reason for closing the spigot? Well, they really don’t have one, other than their unwavering belief that government is bad, so its spending must also be bad.

Yet, if there was ever a time for the federal government to spend, it’s now. The country needs massive investments in public infrastructure to prevent wholesale collapse. And such spending would improve the economy now and in the future.

That Republicans balk at fiscal expansion ultimately translates into an assault on the Rest of Us. We are deprived of decent transportation, decent schools, decent environment, and decent standards of living.

Cruel, as always.