Why Bernanke's analysis is wrong
Washington leadership's anti-market rhetoric is to blame for our current economic woes
Federal Reserve chairman Ben Bernanke walks past reporters as he arrives at a morning session of the Economic Policy Symposium at Jackson Hole in Moran, Wyo., Friday, Aug. 26. The author argues that Bernanke's comments at Jackson hole failed to pinpoint the economy's real problems.
Reed Saxon/AP
Below is a letter I sent to Denver post in response to an editorial praising recent remarks by Fed Chairman Bernanke: Denver Post, 鈥淔ed chief speaks loud and clear鈥� at :
In your August 27, editorial 鈥淔ed chief speaks loud and clear鈥� you correctly summarize that
the U.S. economy should bounce back and that what is standing in the way, is
the people in charge. But Chairman Bernanke鈥檚 analysis is wrong and does
not identify the true culprits. The economy has been effectively held back by
the regime uncertainty created by the anti-market rhetoric and
environment emanating from the leadership in Washington. A similar environment
forestalled recovery in the 1930s. The Fed鈥檚 near zero interest rate policy in
the 2003-05 period was, if not the cause, the enabler of the events leading to
the 2007 financial meltdown. The current Fed commitment to long term near zero
interest rates, which has been appropriately criticized by retiring Kansas City
Fed chairman Thomas Hoenig, now threatens to revive the stagflation of the 1970s.
Fiscal policy has been even more wrong and ineffective. The U. S. should not have had to endure the lingering slow recovery and debt burdens that were the predictable effects
of a return to crude Keynesian policy based on the old idea that vast amounts of
public spending could 鈥� cure a recession and ignite a new era of government-led
prosperity. Compare the administration鈥檚 prediction that the 2009 $862 billion stimulus package would
keep the unemployment rate below 8% to the February 9, 2009 Cato Institute
letter (WSJ, p. A14), signed by over 200 economists, which argued that support for the
stimulus was 鈥渁 triumph of hope over experience to believe that government
spending will help the U.S. economy 鈥� .鈥� This is as true now as it was then. While better economic policy may unfortunately have to await new
leadership in Washington (and at Fed), that better policy is now, and was at
the time of the passage of the failed stimulus, a policy that 鈥渟hould focus on
reforms that remove impediments to work, saving, investment, and production.
Lower tax rates and a reduction of government are the best ways of using fiscal
policy to boost growth.鈥� Hope that we don鈥檛 have to endure a lost decade of poor economic performance because of this enormous
failure of leadership, both political and economic, to retain a hard learned
lesson from history 鈥揔eynesian spending policy is a dead end policy.