For weeks now, a debate has unfolded among Democrats over just how economically populist a posture the party should strike going forward. The unofficial spokesperson for what you might call the “economic justice” wing of the Democratic Party has been Elizabeth Warren, whose signature issues are at the center of this debate: Wall Street accountability, financial reform, stagnating middle class wages, the need for an end to austerity, and now, the push to increase Social Security benefits.
But this debate has been mostly silent on another key area that should be central to any serious new economically progressive agenda: Monetary policy.
This is important, because as Ben Bernanke explained in an important new speech, there is nothing that has more influence over the state of the labor market than monetary policy, and current policy has proven sadly inadequate to our ongoing unemployment crisis. During normal times, the Federal Reserve uses the control of interest rates to adjust the economy. If unemployment is too high, then it lowers rates to spark additional loans and spending. If inflation is too high, it raises rates to slow loaning and spending. But in 2008, the Fed lowered rates all the way to zero — the dread “zero lower bound” — and has been stuck there for five years. Their replacement unconventional policies, while preventing outright depression, haven’t sparked a return to full employment.
The problem, stated in its simplest form, is not enough spending in the economy. Here’s a brief menu of policies that might be considered for Democrats from the “economic justice” wing: