I’ve spend much of this wintry weekend reading a very dry advanced copy of a left-wing dissection of the Great Recession which, the book argues, never happened, and that the continuing sluggish economic activity is a result of economic malpractice caused by faulty diagnosis back in 2008.
What I find particularly interesting is the attack on the Volker Rule, which would put restrictions on banks investing for their own accounts. Here’s the problem, apparently–the Volker Rule is going to backfire unless the Feds jack up the interest rates and could send the economy into a tailspin. Why, well, according to these folks, the sluggishness in the economy is caused by lack of money being put into savings banks because of low or non existent interest rates on savings. Low rates prevent people from putting money into banks. Banks make their money taking your money and lending it at a higher rate. One might argue that banks should be doing great right now because people or companies should be borrowing because rates are low, but banks can only lend money they have. If money isn’t put in by savers, it has to come from somewhere else. Right now, that money tends to come from trades that will be wiped out by the Volker Rule or by restrictions on fees charged by banks to consumers, a la Elizabeth Warren. (interesting attack on Warren from the left, btw, that “Senator Warren would be well-advised to defer from dictating how banks do business and rocket science, two elements of which the Senator has little knowledge and more potential to do harm than good. What’s ‘good’ for the consumer is not necessarily ‘good’ for the economy as a whole.”) Thus, you can’t cut off bank revenue, and expect banks to be able to flourish. Banks need their income from higher rates to savers, thus encouraging them to put their money in the bank. They also note in this book that the recovery has been jobless because low interest rates on savings have encouraged consumers to buy foreign made goods, which is great for China but bad for us. With the manufacturing sector in distress, we need to encourage investment through savings, not spending through foreign trade.
I’ve been trying to find a serious response to these kinds of criticism from the Obama Regime. Its always seemed credible to me that Obama and his team have been misreading the economy and not considering opinions from anyone outside the White House. In fact, I can’t even figure out who gives Obama advice on this stuff. I’ve tried using Google to find the White House response to serious questions about monetary policy, but all you get is platitudes and cliches. (Does Obama really need a spokesman named Ernest? Couldn’t he find one named Eager? Or Puppy-like?) Just try finding a serious discussion about the Volker Rule from a press conference–Obama always changes the subject when asked whether these restrictions, paired with reduced fees, would starve the banks into holding back lending.
I know Obamanomics must have a philosophical foundation, but it seems that whatever it is doesn’t have much support from the right or the left.