Rep. Mike Pence, Republican of Indiana, who has been part of the House GOP leadership, wants to end the Fed's multiple roles in fighting inflation and boosting employment. "I think we ought to get the Fed ... (out of) this dual mandate of full employment for the country," he said on CNBC Monday. This is the job of fiscal policy that should be carried out by the Congress' executive branch, and not as monetary policy set by the Fed.
Clearly the Democratic Congress' and the president's impotent spending stimulus policies have failed to get the economy running at full throttle. Instead, as growth has fallen to a mediocre 1.7 percent and unemployment is stuck at nearly 10 percent, they have turned to the Fed in a last-ditch bid to rescue them from their follies.
But the Fed's tools are woefully inadequate for this Herculean job. The rise in Treasury interest rates "appears to reflect, at least in part, investors' perceptions that the sharp criticism has made it less likely the Fed will extend its program of buying Treasury bonds to boost the economy," writes Fed watcher Neil Irwin in the Washington Post.
As criticism of the Fed's policies mount, "Bernanke is also finding himself with less latitude," Irwin says.
He has tried to stay out of the tax policy debates between Capitol Hill and the White House, but from time to time, he has suggested tax cuts are one way to grow the economy, and that's where Congress can exert the full range of its fiscal powers.
Think of the economy's weakness as acute anemia throughout its entire body. Treating only parts of the illness through a limited list of spending projects will not cure it. This is going to require a stronger, more pervasive medical treatment that reaches into every nook and cranny of the economy, and that is a federal tax system.
Step 1 in this treatment is making all of the 2001 and 2003 Bush tax cuts permanent so businesses, employers and investors know what their tax bite will be this year, next year and beyond.
Step 2 is to begin applying the brakes on spending to shrink the deficit and reduce the size of government.
Step 3: Lower the tax rates on corporations, small employers and capital gains to further boost business expansion and new job creation and make the U.S. more competitive in the global economy.
Businesses hate uncertainty, and that's about all they've gotten out of Washington lately. Economic certainty creates confidence in the future, something we sorely need.