The Democrats’ Recession Problem (And Why It Won’t Get Fixed Anytime Soon)

August 27, 2010 6:51 a.m.

According to the Commerce Department this morning, the country’s gross domestic product this spring grew at an anemic 1.6 percent. But that’s just the latest in a series of indications that the economy isn’t really improving. Forget mosques and immigration and health care reform — they may split the country and bedevil Democrats politically, but it’s the economy that’s really to blame for all of it. The good news is, there are steps the government can take to improve the situation. The bad news is they’re not gonna. And that’s why Democrats are suffering.

“It’s very difficult to envisage any significant policy response to current economic problems in the near term,” said Mark Zandi, one of the nation’s top economists, earlier this week.That means economic indicators won’t be improving. Unemployment is stuck at 9.5 percent and threatening to climb. Jobless claims are inching higher over time (there were 473,000 this week) and new home sales tanked in July, down 12.4 percent. It may not be a double-dip recession, but as Paul Krugman notes, “this isn’t a recovery, in any sense that matters.”

That means pain for Americans, and potentially big losses for the Democrats in November.

But help isn’t on the way. Congress could pass legislation extending COBRA subsidies, food stamps, or major incentives for small business to hire. But the Democrats long ago gave up on passing significant stimulus, their hands tied by Republicans and squeamish, vulnerable members of their own party. And without any further action to pump money into the sputtering economic engine, Americans will be left to simply wait for the economy to improve on its own — which won’t happen very quickly.

That leaves one, opaque alternative: The Federal Reserve. It could take a number of steps to stimulate the economy through its control of monetary policy, but its decisions are made behind closed doors, and its members have been resistant, for reasons that remain unclear, to jump into action.

But in a speech today at the Fed’s annual retreat, Fed Chairman Ben Bernanke will offer a glimpse into the Fed’s thinking and potential actions. “The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” Bernanke will say. The forum isn’t exactly one for major, specific policy announcements, but economists and investors will be looking for any sign that the Fed might change course. Democrats should too.

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