'Vehement Partisanship' Threatening US Economy

“Vehement partisanship” in U.S. politics has stopped the Right and Left from coming up with effective solutions to solve the current economic crisis, according to Woody Brock, author of “American Gridlock.”

The Federal Reserve headquarters in Washington, DC.
The Federal Reserve headquarters in Washington, DC.

“Gridlock is a term that describes the state of American politics, it’s really not to do with the economy per se,” he told CNBC, explaining the title of his book. “It’s just a deafening dialogue of right-wing and left-wing … it’s almost a joke. The problem is that the problems are not being solved in Washington.”

The U.S. Federal Reserve announced it would continue its bond-buying program, dubbed Operation Twist — in which it sells bonds with maturities of three years or less and buys securities with maturities of six years and more in its attempt to push down longer-term interest rates — on Wednesday.

Fed Chairman Ben Bernanke said that the central bank would consider further asset purchases if the economy needs it. Brock, who is also president of economic advisory service Strategic Economic Decisions, said that these decisions should be made with “fiscal and monetary theory” in mind.

“The mistake we’re making is going right back to the most fundamental work in economic theory, including Tinbergen’s (1969) Nobel Prize. There is no way to fix an economy or to run an economy using the Fed. You must have at least two independent knobs on the dashboard, fiscal and monetary theory,” he said. “We focus on the Fed because they’re there and can change the rate, but without fiscal policy you’re ‘whistling Dixie.’ The Fed has gone for very easy measures for three-years, but the economy isn’t fixed.”

He said that after 10 years of tax cuts for Main Street and Wall Street in wages, dividends, and capital gains, the fiscal clifflooming at the end of the year would force a compromise. The U.S. is also facing presidential elections in November.

“I think the joblessness rate is so high that both sides probably will compromise and we will partially repeal the cuts but not completely. I don’t think we’re going to have a huge increase in taxes. They’re not going to let that happen because it would mean another recession,” he said. “They’re scared about the cliff, because it really could lead to very sharp increases in taxes on everybody.”