8/13/2019 A Stimulus for the Middle Class

1/3

Last Fridays disappointing employment number 88,000new jobs created in June is the latest reminder that theeconomy continues to struggle, and that the 13 millionworkers still unemployed will remain that way for theforeseeable future. But while Congress refuses to enact anynew stimulus spending, Federal Reserve Chairman BenBernanke has already responded to the slowing economicgrowth with the announcement of an additional $267

billion of stimulus activities.

That action just a few weeks ago was supposed to reassureall Americans. After all, economic stimulus actions fromthe Fed are intended to pass through the largest financialinstitutions and result in more loans at lower cost forindividuals and businesses, and more jobs for the unemployed.

But the truth is, and has been, that for the past four years, the Feds significant and continuous stimulusactivities have principally helped the nations largest corporations: their shareholders and theirexecutives. The announced extension of the Feds current stimulus program termed Operation Twistwill not create jobs or improve the financial condition of working families.

8/13/2019 A Stimulus for the Middle Class

2/3

This skewed distribution of federal economic support in favor of the wealthy is further fueling inequality between the rich and the rest while failing to address the structural challenges undermining the U.S.economy.

But the Fed chairman does not have authority over spending and taxes that would enable him to pursuemore targeted policies to help working families. As a result, the middle class needs its own Bernanke that is, an advocate, albeit one with a different set of policy tools, to level the playing field.

As in the case of tax cuts for the wealthy, the trickle down from the Feds stimulus policy has notoccurred. In May, for example, the FDIC reported that U.S. banks experienced their highest quarterly

profits since mid-2007. But those earnings were not the result of loans used to start or expand businesses, rebuild the nations infrastructure or help families buy homes loan balances actually fellduring the first quarter of 2012.

And the Feds zero percent interest rate lending for financial firms enables banks to earn acceptable profits on relatively safe investments that have no meaningful impact on job growth or economic output.The ability to earn solid returns on government bonds, for example, allows banks to avoid the risksassociated with financing business startups or expansions. But these latter investments are preciselywhat spur job growth.

In fact, in spite of stellar bank earnings, the bond rating firm Moodys downgraded 15 big banksincluding the five largest in the U.S. one day after the Feds decision to extend its stimulus efforts.

Lowered ratings reflect the fact that not even exceptional federal support can insulate the banks from thereality that their institutional and individual customers at home and abroad remain drowning in an oceanof debt and mired in economies that are barely afloat.

According to a recent Fed study , from 2007 to 2009 the median net worth of the American family fellalmost 40 percent. It will take years for the typical family to recover their losses. The wealthy, on theother hand, have already recovered and are now padding their gains. The top 1 percent of wealthyhouseholds captured 93 percent of the income gains in 2010 according to University of California-Berkeley economist Emmanuel Saez.

Impressive returns for the rich are the result of a strong recovery of the stock market, dividend payouts

and corporate profits all directly supported by the Feds ongoing stimulus actions. In fact, some Fed policies that help major corporations directly harm the middle class, such as zero percent loans for the big banks that translate into near zero percent returns on bank savings accounts.

The Fed cannot single-handedly restore American economic prosperity with its limited monetary policytoolbox. A recent paper by the Center for American Progress points to a range of impediments to arobust and sustainable U.S. recovery. Those challenges include an increase of more than two billion

8/13/2019 A Stimulus for the Middle Class

3/3

newly-employable (and mostly low-wage) workers largely from China, India and the former Soviet blocstates, massive consumer debt in the U.S. largely in the form of underwater mortgages and student loans,the unmanageable government debt load of many European nations and a general lack of consumerdemand for products and services.

These problems require a comprehensive economic recovery program including economic stimulusspending to jump-start demand and get America back to work. President Barack Obama has askedCongress numerous times to join him in passing legislation that invests in Americas infrastructure andgreen technologies and creates jobs for working Americans.

In response, Congress is heading in the opposite direction, toward a fiscal cliff of automatic spendingcuts and tax increases that could propel the economy back into recession.

In light of that unproductive stalemate, its unfortunate that middle-class working families dont have a policymaker like Bernanke working on their behalf. But, unlike the Fed chairman, one who actually hasauthority over tax and spending policies as well as a mandate to act unilaterally to pursue actions thatcreate jobs and promote shared prosperity. The middle class deserves an equivalent set of consistent andgenerous economic stimulus programs to those that are currently reserved for the wealthy.

Jim Carr is a former assistant director for tax policy for the U.S. Senate Budget Committee, an advisorycommittee member of the Federal Reserve Bank of San Francisco Center for Community Development

Investments and a Closing the Racial Wealth Gap Fellow of the Insight Center for Community Economic Development and the Op-Ed Project. He is also co-editor of Segregation: The Rising Costs for America .