NDN Blog

Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee yesterday and Senate Banking today. There are varying takes on his testimony, but there seem to be three important themes that many have picked out for policy going forward:

1) The Fed has an exit strategy – Bernanke chose to not only testify about this, but also to write a reassuringly worded op-ed in the Wall Street Journal:

My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.

As the New York Times' Catherine Rampell writes, the question, more then just the how, is the when. James Kwak at the Baseline Scenario agrees that the "when" is important and has a solid take on the Fed's actions and Bernanke's words to this point.

2) The Fed should retain it’s independence – amidst Ron Paul led efforts to audit the Fed, Bernanke defended the Fed’s actions to this point and pointed out a number of concerns about Paul's proposal noting that:

The Congress, however, purposefully--and for good reason--excluded from the scope of potential GAO reviews some highly sensitive areas, notably monetary policy deliberations and operations, including open market and discount window operations.

With the profile of the Fed's activities at a high level of public attention, it’s not particularly surprising that the Fed's independence is being challenged. The creation of independent commissions is always politically difficult – who likes to give up their power? (Part of the reason the IMAC development on healthcare is fairly impressive.)

In Mark Thoma's view, the Fed's independence should not be diminished, but the district banks' presidents should be selected differently. He also brings in some good history on the topic.

3) Lawmakers should reign in long-run deficits – Not too much to expound on this point (Bernanke didn't go into too much detail, aside from touching healthcare costs), but the point is that fiscal policy gone awry in the long-run can create tremendous problems in the conduct of sound monetary policy – not something a Fed chair is particularly interested in seeing. Noam Scheiber writes that Republicans either don't know or don't care about the difference between the long-run and the short-run.

Of course, this testimony comes amidst the beginnings of the discussion about whether Bernanke is to remain Fed Chair (his term ends in January). The coming months will tell how the head of the nation's independent central bank plays his politics. Apparently he's got solid instincts on the retail side.

In an article leading with Larry Summers' call on banks to increase lending, President Obama's National Economics Advisor gives Bloomberg reporters an update on the status of the economy:

Summers said the U.S. economy is "no longer in freefall," and poised for recovery starting this year. The former Treasury secretary and Harvard University president cited recent increases in exports, and said fiscal-stimulus and foreclosure- relief programs will create a "gathering force" in the coming months.

Even so, income growth may not "resume in the near term," he told Bloomberg editors and reporters.

"The pace of growth next year, I think, is very much in doubt and difficult to predict," Summers said. That "will depend crucially on our effectiveness in implementing the programs that have been legislated" and what Congress may do on health care, financial regulation and energy, he said.

In his speech yesterday announcing the American Graduation Initiative, President Obama sounded a new, tougher tone about the past and future of the American economy. NDN has long argued that, prior to the Great Recession, everyday Americans – faced with declining incomes, stagnating wages, and rising healthcare, energy, and pension costs – had been in a recession for nearly a decade. In his speech, the President discussed that fact, noting that we have to do more to ensure broad based American prosperity.

Here's what the President said about how we got here and the New Foundation we must create (emphasis added):

…the hard truth is, is that some of the jobs that have been lost in the auto industry and elsewhere won't be coming back.  They're the casualties of a changing economy.  In some cases, just increased productivity in the plants themselves means that some jobs aren't going to return.  And that only underscores the importance of generating new businesses and new industries to replace the ones that we've lost, and of preparing our workers to fill the jobs they create.  For even before this recession hit, we were faced with an economy that was simply not creating or sustaining enough new, well-paying jobs.

So now is the time to change all that.  What we face is far more than a passing crisis.  This is a transformative moment.  And in this moment we must do what other generations have done.  It's not the time to shrink from the challenges we face or put off tough decisions.  That's what Washington has done for decades, and it's exactly why I ran for President -- to change that mindset.  Now is the time to build a firmer, stronger foundation for growth that will not only withstand future economic storms, but that will help us thrive and compete in a global economy. 

As Simon wrote a few weeks ago, if the President can build a new narrative around the argument that the economic direction of the United States was untenable prior to the Great Recession, pieces of the President's agenda – reforming health care and energy policy and enabling future growth by creating a 21st century workforce (amongst many, many other pieces) – become crucial. It also allows the President to lead a badly needed national conversation about how we are going to remake a saner, more prosperous American economy that goes beyond recovery to respond to the great challenges of globalization.

President Obama has been a long time supporter of the notion that America's community college system can help create a workforce for a 21st century economy. He sounded that note in an op-ed on Sunday and his White House Council of Economic Advisors wrote on the value of community colleges in training the American workforce in a report released today on the Jobs of the Future.

Obama in the Washington Post:

We believe it's time to reform our community colleges so that they provide Americans of all ages a chance to learn the skills and knowledge necessary to compete for the jobs of the future. Our community colleges can serve as 21st-century job training centers, working with local businesses to help workers learn the skills they need to fill the jobs of the future. We can reallocate funding to help them modernize their facilities, increase the quality of online courses and ultimately meet the goal of graduating 5 million more Americans from community colleges by 2020.

From the CEA report, entitled Preparing the Workers of Today for the Jobs of Tomorrow (emphasis added):

Research suggests that the most valuable credentials are those in quantitatively-oriented fields or high-growth/high-need occupations such as health care. Similarly, evidence from Washington State suggests that displaced workers who attend a community college substantially increase their long-term earnings compared to those who do not. Again, the benefits are greatest for academic courses in math and science as well as courses related to the health professions and other technical fields. These findings point to a powerful role for community college education in helping displaced workers through the current economic downturn, particularly if they take classes in fields related to high-growth industries and occupations.

NDN could not agree more with the President and his economic team. Recently, House Democratic Caucus Chairman John Larson introduced H.R. 2060, The Community College Technology Access Act of 2009, which is based on a paper written in 2007 by NDN Globalization Initiative Chair Dr. Robert Shapiro called Tapping the Resources of America’s Community Colleges: A Modest Proposal to Provide Universal Computer Training. The legislation offers free computer training to all Americans through the already existing infrastructure of the nation's approximately 1,200 community colleges.

The bill is faring quite well in the House, with cosponsorship from 41 members:

Rep Blumenauer, Earl [OR-3] - 6/9/2009
Rep Bordallo, Madeleine Z. [GU] - 4/23/2009
Rep Castle, Michael N. [DE] - 4/27/2009
Rep Conyers, John, Jr. [MI-14] - 7/8/2009
Rep Costello, Jerry F. [IL-12] - 4/27/2009
Rep Courtney, Joe [CT-2] - 6/25/2009
Rep Edwards, Donna F. [MD-4] - 4/23/2009
Rep Ehlers, Vernon J. [MI-3] - 4/23/2009
Rep Filner, Bob [CA-51] - 7/8/2009
Rep Grayson, Alan [FL-8] - 4/27/2009
Rep Grijalva, Raul M. [AZ-7] - 6/2/2009
Rep Gutierrez, Luis V. [IL-4] - 6/11/2009
Rep Hare, Phil [IL-17] - 4/23/2009
Rep Himes, James A. [CT-4] - 4/23/2009
Rep Honda, Michael M. [CA-15] - 4/23/2009
Rep Kennedy, Patrick J. [RI-1] - 4/28/2009
Rep Kilpatrick, Carolyn C. [MI-13] - 4/23/2009
Rep Langevin, James R. [RI-2] - 6/2/2009
Rep Lofgren, Zoe [CA-16] - 6/24/2009
Rep Markey, Betsy [CO-4] - 4/23/2009
Rep Matsui, Doris O. [CA-5] - 4/23/2009
Rep McGovern, James P. [MA-3] - 4/23/2009
Rep McIntyre, Mike [NC-7] - 6/8/2009
Rep Miller, Brad [NC-13] - 4/23/2009
Rep Murphy, Patrick J. [PA-8] - 4/23/2009
Rep Napolitano, Grace F. [CA-38] - 4/23/2009
Rep Olver, John W. [MA-1] - 7/10/2009
Rep Pierluisi, Pedro R. [PR] - 6/2/2009
Rep Polis, Jared [CO-2] - 5/6/2009
Rep Price, David E. [NC-4] - 7/9/2009
Rep Reyes, Silvestre [TX-16] - 5/4/2009
Rep Ros-Lehtinen, Ileana [FL-18] - 5/18/2009
Rep Ross, Mike [AR-4] - 4/23/2009
Rep Roybal-Allard, Lucille [CA-34] - 6/11/2009
Rep Ryan, Tim [OH-17] - 7/8/2009
Rep Sablan, Gregorio [MP] - 4/23/2009
Rep Schwartz, Allyson Y. [PA-13] - 6/4/2009
Rep Sestak, Joe [PA-7] - 4/23/2009
Rep Sires, Albio [NJ-13] - 6/3/2009
Rep Smith, Adam [WA-9] - 4/23/2009
Rep Wu, David [OR-1] - 4/23/2009

On Wednesday, I asked if a high profile G8 summit was still worthwhile. Today, a few opinions on the aftermath of what was undoubtedly an unproductive summit. President Obama rightly sees the summit process in transition:

"I think we're in a transition period. We're trying to find the right shape that combines the efficiency and capacity for action with inclusiveness," Obama told a news conference on the final day of the summit in Italy.

"And my expectation is that over the next several years you'll see an evolution and we'll be able to find the right combination. The one thing I will be looking forward to is fewer summit meetings," he said.

The President's quote brings to mind Moises Naim's recent essay in Foreign Policy on minilateralism. Naim, you'll remember, recently spoke at NDN's event ahead of the G20 summit.

David Rothkopf gives the summit a "mixed grade and a semi-eulogy" and agrees that the President spending less time at summits is a good thing.

Simon Johnson sees "messed up" messaging and seems pretty ticked about the handling of global energy markets.

And Daniel Drezner finds a policy trap on the Doha round, sounding not particularly optimistic.

On the up side, the Senate is planning to take up energy and climate legislation in the fall, which will hopefully be helpful timing in terms of one of the big international summits of the year: Copenhagen in December.

Simon Johnson, former chief economist at the IMF, says why bother:

The L’Aquila summit seems likely to achieve nothing, i.e., nothing that could not have been agreed upon in a conference call among deputy ministers.  Just because there’s a communiqué does not mean it has any real content.  Does this kind of expensive pageant make politicians today look important or frivolous?

More broadly, three longer-run shifts mean the G7/G8 is increasingly anachronistic.

First, emerging markets have obviously risen in both respectable clout and ability to make trouble.  China’s exchange rate policy is a leading example, but think also about Mexico, Brazil, or India.  Having a global economic discussion (e.g., on climate change or aid to Africa) without these players fully at the table does not really make sense – particularly as the G20 now operates effectively at the heads of government level.  And inviting these countries to a dinner or other event on the fringes of the main meeting just adds insult to injury.

Second, the Europeans are now organized into a loose political union and all of the major economies – except the UK – are in a currency union.  What is the point of sitting down with Italy, Germany, France, and the UK separately?  It is much more effective when they – and other Europeans – work out common positions and bring those to the table collectively.  The European Union belongs to the G20 but not the G7.

Third, the idea that the US and its allies “lead” by any kind of economic policy example is plainly in disarray.  The recent crisis focuses our attention, but we’ve seen two or three decades with irresponsible credit and throwing fiscal caution to the winds across these countries.  These countries traditionally position themselves as “G7 models” worth emulating; this message needs to be toned down.

President Obama obviously has a talent for diplomacy (e.g., at the April G20 summit).  He should use the Pittsburgh G20 summit in September to transition away from the dated emphasis on the importance of a G7/G8 heads of government meeting (e.g., reduce the excessive display of nothingness, lower the hype, have it feed into the G20 more explicitly).  Canada, chair of the G7 next year and usually very sensible on these kinds of issues, can help.

In the Financial Times, Citigroup’s William Rhodes argues that the G8 can demonstrate leadership on global trade, and, in the words of the WTO’s Pascal Lamy, “come back to the table at a political level.” Rhodes’ op-ed warns against the mistakes of Smoot-Hawley, bemoans that lack of movement on FTAs and the Doha round, and speaks of the dangers of protectionism:

Meanwhile, protectionism continues its rise in insidious ways. Very recently, the House of Representatives included trade protectionist provisions in the climate change and energy conservation bill, while earlier this year such provisions were added to the economic stimulus package. Fortunately, Mr Obama has been swift to speak out against these measures, but the congressional actions reflect rising political pressures today. Other countries are implementing similar protectionist regulations or requirements, including calls to “buy domestically” or to limit the issuance of work visas.

It is precisely the danger of one country retaliating against another’s trade restrictions, leading to an ever more threatening spiral of restrictions and tensions, that is now the gravest risk. There are indications of this, for example, in the financial area. In response to the financial crisis, governments, one by one, are moving to stabilise their domestic situations by imposing inward-oriented measures on financial services firms, such as requiring them to curb foreign lending and boost domestic credit. Such provisions penalise developing countries in particular, while, more generally, undermining the flow of capital across countries. This raises the costs of trade finance and it undermines foreign direct investment. These measures exacerbate the more than 10 per cent plunge in global trade that is likely this year.

The proliferation of domestic-oriented finance measures not only fragments the international financial system, but risks its disintegration. This will compound the damage done by rising nationalistic trade actions. Combine the finance and trade protectionist measures, and the potential for a slowing of economic recovery moves from a risk to a certainty. It could prolong the pain of the economic downturn on the millions of people and businesses who are suffering from the current crisis, while threatening the fabric of international understanding and co-operation between governments.

Already today we learn that a climate agreement was not in the cards at the summit (although the headline on the story is a little misleading.)

Update: So, there was a climate agreement of sorts, but no committment from developing countries.

Time and time again, we've seen President Obama go around the world's leaders to speak directly to its people. This emphasis on the politics of the bottom up, which Simon has written about as a global phenomenon, has gone from a hallmark of the Obama campaign to a hallmark of his foreign policy. Today in Russia, he addressed the power of these new politics:

We not only need a "reset" button between the American and Russian government, but we need a fresh start between our societies -- more dialogue, more listening, more cooperation in confronting common challenges. For history teaches us that real progress -- whether it's economic or social or political -- doesn't come from the top-down, it typically comes from the bottom-up. It comes from people, it comes from the grassroots -- it comes from you. The best ideas and solutions come from ordinary citizens who become involved in their communities and in their countries. And by mobilizing and organizing and changing people's hearts and minds, you then change the political landscape. And oftentimes politicians get the credit for changing laws, but in fact you've created the environment in which those new laws can occur.

Yesterday, NDN, CTIA, the UN Foundation, and the Vodaphone Foundation partnered to release a study on mHealth for Development. Following a morning program focusing on the domestic benefits of mHealth, and specifically its ability to impact chronic disease, the evening program focused on mHealth in the developing world.

The evening session featured speakers very close to NDN. Simon opened the presentation, framing the conversation broadly around the power of mobile and reading from the 2007 paper he coauthored with Alec Ross, now the Senior Advisor on Innovation to Secretary of State Clinton:

A single global communications network, composed of Internet, mobile, SMS, cable and satellite technology, is rapidly tying the world’s people together as never before. The core premise of this paper is that the emergence of this network is one of the seminal events of the early 21st century. Increasingly, the world’s commerce, finance, communications, media and information are flowing through this network. Half of the world’s 6 billion people are now connected to this network, many through powerful and inexpensive mobile phones. Each year more of the world’s people become connected to the network, its bandwidth increases, and its use becomes more integrated into all that we do.

Connectivity to this network, and the ability to master it once on, has become an essential part of life in the 21st century, and a key to opportunity, success and fulfillment for the people of the world.

We believe it should be a core priority of the United States to ensure that all the world’s people have access to this global network and have the tools to use it for their own life success. There is no way any longer to imagine free societies without the freedom of commerce, expression, and community, which this global network can bring. Bringing this network to all, keeping it free and open and helping people master its use must be one of the highest priorities of those in power in the coming years.

The evening continued as Ross spoke, largely about his work at the State Department, noting that “networks are as, if not more, important than states and governments.” Following Ross, Tom Kalil, the Deputy Policy Director of the White House Office of Science and Technology Policy spoke, reviewing the conclusions he drew in the paper he wrote last year for NDN affiliate, the New Policy Insitute, on Harnessing the Mobile Revolution. In October of 2008, Kalil wrote:

that the explosive growth of mobile communications can be a powerful tool for addressing some of the most critical challenges of the 21st century, such as promoting vibrant democracies, fostering inclusive economic growth, and reducing the huge inequities in life expectancy between rich and poor nations.

The benefits of mobile communications are particularly profound for developing countries, many of which are “leapfrogging” the traditional fixed telecommunications infrastructure. As a result, billions of people in developing countries are gaining access to modern communications of any sort for the first time. There is no doubt that mobile communications are having a significant impact on the way Americans live, work and communicate with each other. But the impact is no doubt more keenly felt by the African mother who can call ahead to determine whether a doctor is available to treat her sick child before traveling for hours.

Following Kalil, former Senator Tim Wirth of the UN Foundation introduced the study on mHealth and Development, which is available here.

This morning, I tweeted the proceedings of the CTIA mHealth event on Capitol Hill and this evening I did the same from the NDN, Vodafone, UN Foundation event celebrating the release of an important report on mHealth and development. It was a little experiment in microblogging that I hope some of our readers enjoyed. You should, of course, follow NDN on Twitter and stay tuned to the video from this evening's event.

The World Bank released research yesterday on the state of global finance and the global economy, arguing that the world is going to enter an "era of markedly slower economic growth." They are generally positive on the policy response to date, but still argue that much is to be done. One of the most important releases comes from their thoughts on the prospects of a global recovery:

Finally, there is a very urgent need to recognize that poor countries that were already under strain—notably from suffering through the food and fuel crisis—should receive attention quickly. These countries have little or no access to private foreign capital even in good times, and are largely dependent on donors for the resources needed to meet the Millennium Development Goals, which have a due date of 2015.

Recent history has seen hundreds of millions of people lifted out of poverty by the creation of economic opportunity around the world. The Great Recession has reversed or forestalled this trend in many places, with potentially disastrous social and political consequences. It's the kind of thing that makes one wonder about members of Congress blocking IMF funds.