What Ben Bernanke should’ve said
By Ezra Klein,
By Jim Young/Reuters Earlier this afternoon, Federal Reserve Chairman Ben Bernanke gave his first news conference. This isn’t what he said. But it’s what he should’ve said.
Good afternoon. This is a strange moment for me. As most of you know, I’m the first Federal Reserve chairman in history to give a news conference. I’m not doing it because I want to. I recognize that the likely outcome of this effort is that I’ll accidentally say “contraction” when I mean “expansion,” Matt Drudge will put up a siren, CNBC will go to Defcon 5, and the Dow will fall by a 1,000 points — all before I’m able to correct myself in the next sentence. Most of you are wolves who would happily crash the economy in return for a Nielsen point — particularly you, Maria — and my predecessors were probably right to ignore you.
But there’s something I have to say. Something the Federal Reserve has to say. We’ve screwed up. We’re sorry. But we can’t make things right unless you’re willing to help.
We were the folks who had both the power and the responsibility to pop the credit bubble before it enveloped the entire economy. I wasn’t the guy in charge then, but it’s not like I saw it coming. I think we did a better job once the financial crisis began. You folks have no idea how bad things would’ve gotten if I hadn’t broken every rule in the Federal Reserve’s Big Book o’ Don’ts. Half of what I did was arguably illegal. And, if I’m being honest, the biggest mistake I made was not stretching the law further and keeping Lehman from going under. Damn Lehman.
But since then, things haven’t gone so well. Let me be very clear: 8.8 percent unemployment in the second year of a recovery isn’t a problem or a cause for concern. It’s an absolute, unmitigated catastrophe. It is millions and millions of people who are suffering unnecessarily — people who we know will have lower lifetime earnings, more depression and suicide, more arrests and divorce. In fact, it’s worse even than that: We know their kids will suffer, too, with lower earnings over the course of their entire lifetimes. And we’re not doing nearly enough about it.
I have a lot of power. But I’m not a dictator. The Federal Reserve’s Open Market Committee has 12 members. If I’m being generous, five or six of them seriously understand how bad things are right now. And outside these walls, a guy who wrote a book called “End the Fed” now chairs the House committee that oversees us. Sarah Palin appears to be developing strong and incoherent views on monetary policy. Paul Ryan dabbles in this stuff. If I went public with what really needs to be done — buying bonds related to the real economy rather than Treasury bonds, paying a negative rate on bank reserves so they move the money we’ve given them out of our coffers and into the labor market, doing price-level targeting so we make up for the years of sub-2 percent inflation with a few years where inflation is above 2 percent — I’d be strung up tomorrow. I’d go from having the freedom to talk half-measures to maybe — maybe! — having the freedom to take quarter-measures.
And that’s fine. I understand why people are freaked out by the idea of some group of bearded economists getting together to decide what’s going to happen in the economy next year. But you know when exactly you get bearded economists making the big decisions? When Congress becomes too paralyzed and polarized to make them itself. I mean, good Lord. The division of labor here is — or at least is supposed to be — that the Federal Reserve holds interest rates down while Congress spends money to stimulate the economy. Then, in a few years, when the economy is working again, we begin tightening and they begin reducing the deficit. That’s what Japan should’ve done. In fact, I got hired for this job because I was one of the people telling Japan to do it. And now we should be doing it. But we’re not. Or, more precisely, Congress is not.
Somehow, it’s even worse than that. Instead of doing something sensible, or even doing something nonsensical but internally consistent, Congress pretended to turn against the idea of stimulus and against the idea of deficits and then — and this is the part that really pisses me off — passed $850 billion of ineffective stimulus in the form of deficit-financed tax cuts. And it was only $850 billion because the two parties couldn’t decide between the president’s $3.2 trillion in deficit-financed cuts and the GOP’s $4 trillion in deficit-financed tax cuts. So they passed two years of the Bush tax cuts and then some, and we all know that they’re going to pass trillions more in 2012. The total price tag of this will be incredible, none of it will be paid for, and it’s money we could’ve used to stimulate the economy when that stimulus was needed. And then you all have the audacity to whine about the deficit. It’s sickening.
So, in conclusion, the economy is terrible, we should be doing more, and Congress should be doing much more, but instead we’re going to pretend the economy isn’t that bad, I’m going to pull back so you guys don’t jail me and everyone who works for me, and Congress is going to do the exact opposite of what economic theory and evidence would suggest and cut spending immediately while passing deficit-financed tax cuts for later. Oh, and I haven’t even mentioned the debt ceiling, because if I start cursing and crying, the markets will really freak out.
With that, I’ll be glad to take your questions.