This morning, Federal Reserve Chairman Janet Yellen is testifying before the Senate Budget Committee. The Fed has largely dominated economic policy in recent years, with its program of “quantitative easing” intended to stimulate the economy. It has certainly stimulated the stock market, but the real economy continues to languish. Senator Jeff Sessions delivered remarks this morning as the committee’s ranking Republican; they reflect his usual sound judgment:
Like the foundation of a home, America’s economy must be built on something real, something solid, and something firmly planted. Neither federal stimulus in the form of easy money, nor fiscal stimulus in the form of government borrowing, can produce real, lasting prosperity or a sound financial future. …
No government regulator, no matter how intelligent, can see into the future or micromanage the economy. Let us consider the testimony of former Chairman Alan Greenspan, before this very committee, in January of 2001. Chairman Greenspan came to alert Congress about an urgent policy decision it would have to make. And what was that decision? Whether to raise interest rates? Reduce subprime lending? Reform entitlements? No, Chairman Greenspan came to warn us that we would have to decide how to spend all of the surplus money after we soon paid off the entire federal debt of the United States. He predicted budget surpluses “well past 2030 despite the budgetary pressures from the aging baby boom generation,” and said that “the highly desirable goal of paying off the federal debt is in reach before the end of the decade.” But, Greenspan warned that after “continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt,” we would need to “eschew private asset accumulation.” He added for emphasis that “the emerging key fiscal policy need is to address the implications of maintaining surpluses beyond the point at which publicly held debt is effectively eliminated.”
The Federal Reserve is not infallible. Our responsibility as legislators is to provide oversight. We are one small voice for the people in this process. In 2011, the Fed forecasted growth of between 3.5 and 4.3 percent in 2013. Actual growth was an anemic 1.9 percent—roughly half. This is a drastic over-estimation, not a small miss. And, the Fed overestimated 2013 growth in every formal quarterly prediction for each year since 2011. …
Let us consider whether the stimulus policies of the last five years have produced the results predicted by the Fed. Since 2007, interest rates have been near zero and the federal government has added $8.3 trillion to the debt. But where do we stand?
* The population has grown by 15 million since 2007, yet there are still 500,000 fewer people working than in 2007.
* The workforce participation rate has fallen to 63 percent of the civilian population, which is the lowest level in 36 years.
* Median household income has fallen an average of $2,268 per household. The low income cohort has grown while the middle income group has shrunk. The middle class is getting smaller in America.
While the stimulus mindset in Washington has at least, so far, been better for the investor class and the political class, it has not been good for the working class. Not only has this stimulus failed American workers, but it has left us with record debt and an economy dependent on unprecedented policies that cannot continue. …
The time has come to return to first principles: spend what you have, plan for the future carefully, lay out policies that are prudent and can be maintained long-term, don’t borrow what you cannot pay back. Here are ways we can improve the economy and economic stability—without government stimulus:
* Produce more American energy
* Eliminate all costly and wasteful regulations
* Make the tax code more globally competitive
* Ensure fair trade so our workers can compete on a level playing field
* Adopt an immigration policy that serves American workers
* Turn the welfare office into a job training center
* Streamline the government to make it more productive, and
* Balance the federal budget to restore economic confidence
These are all concrete steps that will work. We need to return to those principles and move this country forward.
It strikes me that Sessions has identified the economic principles that all Republicans should make their platform in this year’s elections. If you want to read Chairman Greenspan’s January 2001 testimony, it is here–a sobering reminder of the fallibility of economic forecasting.