Economist Justin Wolfers, one of the most engaging economists around, sat down to talk with Thomson Reuters' Chrystia Freeland out at the Aspen Ideas Festival in Colorado.
Among the provocative points Wolfers made was this: Normally, we think of the Federal Reserve as a key player in setting the nation's macroeconomic policy largely through its ability to set interest rates.
But with the interest rates the Fed can influence at or near zero, the central bank has basically run out of monetary policy tricks. So Congress is now really running macroeconomic policy, something Wolfers clearly believes lawmakers' don't have the knowledge or political independence to pull off.
Wolfers is particularly alarmed by this state of affairs because he thinks the nation's unemployment crisis requires more economic stimulus, not less, and certainly not spending cuts.
This leads him to state some pretty blunt conclusions about Congress. He was also critical of the Obama White House. The following interview transcript is from about the 10:00 mark in the video.
WOLFERS: We're in a very odd situation. We have idiots in Congress. Both houses. And that's just a norm of normal political life.
FREELAND: They think highly of economists, also.
WOLFERS: I'm sure. But normally it doesn't matter. Because they can do idiotic things on macro policy and the Fed just undoes it. And the people who are really setting the macro policy are the Fed.
The problem is the Fed's at the zero lower bound which means the idiots are now making macro economic policy. And it's worse than that. Which is, Congress has a very different incentive with respect to stimulating the economy than my unemployed father-in-law and than the president. And so there's a strong bias towards inaction.
FREELAND: Why, you think Congress is taking the Leninist view that the worst the better so that in 2012 the Democrats get hammered? Are they that cynical?
WOLFERS: I can't see inside the hearts or minds of these people. But to believe that austerity is the order of the day when we have millions of people long-term unemployed strikes me as problematic.
FREELAND: Isn't this also the president's fault?
FREELAND: I haven't heard this kind of a full-throated argument in favor of 'all guns blazing' and really an explicit admission of the fact that things are pretty dire. I haven't heard anybody from the White House saying that. I hear healing, optimism. These guys are sort of behavioral economists and they think that 'If we smile then everything will be OK.'
WOLFERS: Yeah, I think politically they've got two choices. One, pretend everything's OK and hope that that fools enough people that you get re-elected. The other is, make it clear they're not, make it clear you want to do something about it and make it clear who is standing between you and helping people...
... It is striking they haven't taken the case to the public and said, they're something that can be done, there's something that should be done, there's something you want us to do and...
FREELAND: And if you don't do it, disaster.
WOLFERS: Exactly. The thing that's really different this time is unemployment is touching a lot of people. Something like one in six people had someone in their family, their immediate household, unemployed last year...
Wolfers also had some interesting things to say about the "lost decade" he believes the U.S. is on the path towards and his happiness research. The entire video is well worth the time to watch it.