the trouble with politicians

notes from remarks made yesterday by diane swonk. Swonk is a senior managing director and chief economist with mezirow financial.

"i've turned down a position with the fed several times. it doesnt pay very well and has a lot of headaches.

the only way yesterday's elections will make a difference is if we get some compromise instead of crisis in washington.

we need to have a plan to deal with our deficit. if the new people coming in are willing to talk with the remaining incumbents, we might be able to move something.

i'm not overwhelmingly hopeful on that because many of them were elected saying that they didnt want to talk at all to the incumbents or compromise.

the bottom light is that gridlock is not what we need at this time. we have to come up with a plan to reduce our deficit. it doesnt have to be tomorrow, nor in a few months, but in the next 5 to 10 years, we need a plan in place to give some flexibility in dealing with problems and restore credibility in the u.s. government and remain the major currency in the world.

a lot of myths about the economy are in the vernacular right now. this is sad because it reflects a very low economic intelligence.

one of my joke is that the national association of economics, of which i was once president, used to invite members of congress to speak, but we stopped inviting them.

they didnt talk economics, they talked ideology.

they have taken economics out of the debate on both sides of the aisle, and it's despicable and reprehensible. you can hear my anger. i am very angry.

this is due to several things. we elect unqualified people who act like a bunch of adolescent teenagers, of which i have some running around the house.

adolescents are like 2 year olds, only older. they throw their little fits and want to show their individuality, but they blame everybody else for their problems, rather than taking responsibility for what part of this that they caused.

the reality is that to solve our problems, we have to look internally and not look for scapegoats.

this was 30 years in the making. this was an evolution of problems that happened.

we chose to liberalize credit. when they couldnt afford to buy homes because they didnt have the education and wages, we gave homes to them anyway.

they didnt have college degrees, but they had homes. this was an ultimately unsustainable policy.

the markets didnt fail. we failed markets. we obscured market decisions by distorting them, and encouraging all of this dysfunctional behavior. now we are acting like little children, thinking santa claus is still alive, and we are waiting for him to give us the presents for christmas and it will all be good again.

(interviewer: the government is spending $1,000/month per household. if you ripped that away, it would be an ugly situation)

the reality is that, in order to deal with the deficit, first of all, ben bernanke has said that we dont have to deal with it immediately, but we need a plan in place. let's just get a plan over the next 5 or 10 years.

let's get a plan that actually has rules that we have to operate on.

the bipartisan commision to deal with this, inside closed doors, agrees that we need to set national priorities, and what are going to do about taxes.

their agreement is that our tax system is too complex. tax rates need cut, but deductibility needs lowered. i dont hear the realtors stand up and say, we dont need to subsidize million dollar mortgages anytime soon.

i would much rather take a lower tax rate than have all the deductibility and distortions that the current tax laws permit.

a lot of corporations are holding money abroad. bring it home. change the loopholes that allow that to happen. you can then lower tax rates.

it's not a one dimensional debate. it's a multi dimensional debate, but a lot of special interest groups are stopping us from doing it.

the minute the extremes of the parties get outside of the closed doors, they dont talk very well.

all economic intelligence flies out of their heads. people want to hear simple solutions. one side wants to spend forever, which we cannot do; the other side wants to cut taxes forever.

we have 5 years to get a plan in place, while we are still the reserve currency.

we are the best of the worst. there is no alternative for the moment.

instead of gradually changing the debt course over a decade, we act as if we are getting a free wave. the way the election cycles work, you have from january to june, before these decisions have to be made.

i dont see a lot of compromise coming out of this congress between january and june of 2012.

the commonly accepted theory that gridlock is a good thing is terrible.

if you say that, whatever side of the aisle you are on, you have no idea what is going on.

this is insanity to think that we dont have to make decisions to put our fiscal house in order.

gridlock, when deficits are expanding, is not a good thing.

when our economy was going in the right direction, gridlock was ok.

right now, we are doing a lot of harm.

about the currnt quantative easing of the fed, anybody who says they know what will happen from this is lying. we are in uncharted waters. i listen to the smarted economists that i know both inside and out of the fed. the debate on this matter is as heated as i can ever recall.

there are no answers. the fed is in a really difficult position, because we no longer have fiscal policy at our fingertips to deal with the situation.

the fed is outside of the law. this bothers ben bernanke. they have a dual mandate. we dont have price stability; we dont have stable and low enough employment rates.

they are being asked to continue doing something until they get results.

whether or not they hav the tools is irrelevant to the people who made the rules, and that is congress. the fed is in a very difficult political position, where they are forced to be the stimulator of last resort.

ben bernanke is not a stupid guy. he helped divert a repeat of the great depression, and we dont know exactly what's going to happen from this, but it is reasonable to say there are a lot of risks, and i'm concerned about those risks, but, with the unemployment rate and low economic growth numbers, we could dip into another recession.

the fed would welcome inflation. they know how to deal with inflation. they handled it in the 1980s. inflation is much easier than deflation and disinflation.

inflation is the lesser of 2 evils to them.

the fact that housing prices are down is the best sign of deflation.

health costs are incredibly important and have to be reined in. no one seems to really want to grapple with them.

we have robust disinflation and it's accelerating.

a pew study indicates that 55% of americas feel they lost ground in the recession and are continuing to lose ground today.

45% say that they held their own.

the overwhelming majority feel that we are still in a recession. many of those who claim to have done well are retirees.

retirees dont have to deal with unemployment; for the most part, their housing costs are fixed, and they have no immediate fear of losing it.

it's us younger baby boomers who need to worry about social security.

we can fix social security for a good portion of americans.

old economists never retire; they just die."