News reports on Feb. 18 that a number of Federal Reserve officials are leaning toward retaining interest rates at ultra-low levels for longer than expected do not come as a surprise to this writer.
Factors weighing on the Fed’s decision, as disclosed in the latest minutes of the Fed’s rate-setting panel, clearly include the collapse in oil prices, the strengthening dollar and “global disinflationary pressure.”
But not to be overlooked in peering over the shoulder at Fed Chairwoman Janet Yellen’s hypothetical dashboard is the dysfunction in Washington that is causing the U.S. economy to grow at rates that are far below its potential.
Just consider the post-Presidents Day developments in one area with huge potential to create thousands of new businesses and millions of new jobs — immigration reform.
While the world’s best and brightest scientists covet places at U.S. companies, our creaky visa system doesn’t provide a frictionless way for top technologists to take coveted roles. Meanwhile, providing a path to citizenship for some 11 million undocumented workers would likely create a new generation of small-business owners — just as it did in the final years of the Reagan Administration, the last time we took a stab at resolving this perennial issue.
The Immigration Reform and Control Act of 1986 was not meant to be the last word on what to do about people who crossed the border illegally. But because of congressional gridlock and ineffective White House leadership, we are stuck with 20th Century immigration rules trying to guide our 21st Century economy.
In the latest wrinkle, President Barack Obama’s belated effort to provide a unilateral fix for some of the rules have been at least temporarily stymied by a hostile U.S. District Court in Texas. But surely this is no way to run the world’s biggest economy.
Likewise, the nation’s tax system, also last reformed in the 1980s, is a leaky, slow-moving vessel with such complicated machinery that nobody really knows how it works. Patch upon patch has been added to the system, creating enough revenue to keep the government moving toward a balanced budget but providing little flexibility for meeting defense challenges, and not nearly enough for infrastructure repairs.
The framework is there for a series of compromises that would unleash the entrepreneurial power of American men and women. And provide a simplified tax system to take part of the wealth they are creating to re-energize national defense and build what former President Bill Clinton once described as a “bridge to the future.”
In the meantime, we all have to live with aging policies that have inefficiencies built into their DNA and keep sustained recovery from the financial crisis stuck in second gear.
The Federal Reserve is not all-knowing. But one consequence of woefully deficient public policy is that interest rates will remain low for a very long time to come.