What we have here is a failure to coordinate

Joseph Gagnon, "Future of the Fed" from Roosevelt Institute on Vimeo.

Joe Gagnon, who helped the Federal Reserve implement the successful first round of quantitative easing, argues that the policy would?ve been better still if the administration had done more to bolster the housing market. That seems plausible, but I don?t know enough about the possible policies to really judge. The larger point Gagnon is making, however, is very important: The interactions between various policies, and various government agencies, is extremely important.

A partial list of government actors involved in the economic recovery would include the Federal Reserve, of course, but also Congress, the White House, and each and every state and local government. Unfortunately, they?ve frequently been working against one another. At the same time that the federal government was pumping stimulus into the economy, state and local governments were pulling money out of the economy, creating what was, in effect, a massive anti-stimulus that the feds had to overcome before they could make any improvements. At the same time the Federal Reserve was unleashing QE2, which was essentially hundreds of billions of dollars meant to make it cheaper to borrow money and thus more attractive to invest in the real economy, the Defense Department was unexpectedly pulling back on spending, shaving more than half a percentage point off gross domestic product growth in the first quarter.

This has had the effect of discrediting everybody involved. The federal government?s stimulus looks worse because contraction at the state and local level undercut it. The Federal Reserve looks worse because the federal government often refused to take it up on its offer of cheap money that could be pumped into the economy. And so everyone is more constrained going forward because the public doesn?t trust that their interventions actually work.

Source: http://feeds.washingtonpost.com/click.phdo?i=e0ce822c4911b54f22b07b83e7c820d7

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