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Jim CarrBack to OpinionJim Carr

A stimulus for the middle class

Last Friday’s disappointing employment number — 88,000 new jobs created in June — is the latest reminder that the economy continues to struggle, and that the 13 million workers still unemployed will remain that way for the foreseeable future. But while Congress refuses to enact any new stimulus spending, Federal Reserve Chairman Ben Bernanke has already responded to the slowing economic growth with the announcement of an additional $267 billion of stimulus activities.

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

But the truth is, and has been, that for the past four years, the Fed’s significant and continuous stimulus activities have principally helped the nation’s largest corporations: their shareholders and their executives. The announced extension of the Fed’s current stimulus program termed “Operation Twist” will not create jobs or improve the financial condition of working families.

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 pursue more 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 Fed’s stimulus policy has not occurred. 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 nation’s infrastructure or help families buy homes — loan balances actually fell during the first quarter of 2012.

And the Fed’s 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 risks associated with financing business startups or expansions. But these latter investments are precisely what spur job growth.

In fact, in spite of stellar bank earnings, the bond rating firm Moody’s downgraded 15 big banks including the five largest in the U.S. one day after the Fed’s decision to extend its stimulus efforts.

Lowered ratings reflect the fact that not even exceptional federal support can insulate the banks from the reality that their institutional and individual customers at home and abroad remain drowning in an ocean of 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 fell almost 40 percent. It will take years for the typical family to recover their losses. The wealthy, on the other hand, have already recovered and are now padding their gains. The top 1 percent of wealthy households 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 Fed’s 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 policy toolbox. A recent paper by the Center for American Progress points to a range of impediments to a robust and sustainable U.S. recovery. Those challenges include an increase of more than two billion newly-employable (and mostly low-wage) workers largely from China, India and the former Soviet bloc states, 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 consumer demand for products and services.

These problems require a comprehensive economic recovery program — including economic stimulus spending — to jump-start demand and get America back to work. President Barack Obama has asked Congress numerous times to join him in passing legislation that invests in America’s infrastructure and green technologies and creates jobs for working Americans.

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

In light of that unproductive stalemate, it’s unfortunate that middle-class working families don’t have a policymaker like Bernanke working on their behalf. But, unlike the Fed chairman, one who actually has authority over tax and spending policies as well as a mandate to act unilaterally to pursue actions that create jobs and promote shared prosperity. The middle class deserves an equivalent set of consistent and generous 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 advisory committee 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.”