By Peter Morici - 07/14/14 08:04 PM EDT
Federal Reserve Chairwoman Janet Yellen will testify to Congress Tuesday and Wednesday about the economy and future Fed policy. We won’t learn much about either, however, because the Fed refuses to recognize the facts on the ground.
Its policymaking committee recently stated inflation is below 2 percent. Yet, according to the Bureau of Labor Statistics, consumer price inflation has been accelerating since March and is now at 4 percent.
The Obama recovery has delivered 2.1 percent annual growth in gross domestic product (GDP). That’s about the same as the Bush expansion but half the pace accomplished during the Reagan-Clinton era. And the Bush-Obama economy has created 6 million jobs, whereas it would need 40 million to match the Reagan-Clinton record.
The unemployment rate has fallen steadily in recent months, mostly because so many jobless people have quit looking for work and are no longer counted.
For native-born Americans, the problem is absolutely dire, because nearly all the new jobs have gone to immigrants.
America’s large universities, banks and technology companies have successfully pressured the Obama administration to permit virtually uncontrolled immigration to push down wages for higher-paying science, technology and finance occupations, and in lower-paying industries, such as hospitality, where most of the employment growth has occurred.
President Obama obliges, because Asian and Hispanic voters, who favor lax immigration enforcement, make the critical difference for Democrats in swing states like Virginia.
The Fed has recklessly pumped more than $3 trillion into financial markets, making credit cheap and bloating bonuses for the hedge fund managers and Wall Street bankers who contribute mightily to political campaigns. However, trickle-down benefits to ordinary folk — especially native-born Americans — have been minimal.
What stifled growth and job creation during the Bush years remains unaddressed by Obama and unfixed by the Fed.
The huge trade deficit was responsible for half the 2.9 percent first-quarter drop in GDP, and more burdensome business regulations, which add more paperwork than accomplish results, are driving investment to China.
Both Obama and Speaker John Boehner (R-Ohio) are fearful to confront Chinese protectionism, and administration restrictions on offshore petroleum development keep America dependent on Middle East oil and finance terrorism.
The regulatory morass is rooted, for example, in administration reluctance to acknowledge Wall Street banks, like JPMorgan and Citigroup, are too big to manage or regulate effectively. A solution requires breaking up banks in the manner of Glass-Steagall, but that would disrupt the flow of political cash from bank executives to congressional coffers.
The Fed’s low-interest-rate policies and rosy assessments of the economy distract the media and broader public attention from these follies and corruption, and permit politicians to demagogue the jobs crisis.
According to the Congressional Budget Office, the president’s proposal to raise the minimum wage to $10.10 an hour would kill 500,000 to 1 million jobs. Add in the jobs lost in jurisdictions like California and New York City, which have minimum wages above the federal standard, and the upper-end estimate becomes more likely correct.
Former Fed Chairman Alan Greenspan was not shy in telling Congress the limits of monetary policy in the face of administration and congressional debauchery. If Yellen truly appreciated the reality of ordinary Americans — or simply acknowledged the federal data sitting on her desk — she would tell Congress that inflation is threatening and enumerate the trade, energy and regulatory policies that constrain growth and make monetary policy impotent.
Sadly, that is not about to happen, and ordinary Americans’ living standards will continue to be punished by the Fed’s inflationary policies. Wages will continue to be depressed and jobs scarce thanks to the president’s drive to ensure a political realignment favoring Democrats by enabling an endless tide of Asian and Latin American immigrants.
Morici is an economist and professor at the Smith School of Business, University of Maryland, and a national columnist. He is the five-time winner of the MarketWatch Best Forecaster award.