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applegrove

(118,022 posts)
Fri Jan 3, 2014, 09:09 PM Jan 2014

"Bernanke's Explanation For The Weak Economy Will Infuriate Republicans"

Bernanke's Explanation For The Weak Economy Will Infuriate Republicans


by Joe Weisenthal at Business Insider

http://www.businessinsider.com/bernanke-on-fiscal-policy-2014-1

"SNIP....................................


In his final speech as Fed Chair, Ben Bernanke identifies the No. 1 thing that's caused the economy to be so slow: not enough government spending. He specifically calls fiscal policy "excessively tight."

To this list of reasons for the slow recovery--the effects of the financial crisis, problems in the housing and mortgage markets, weaker-than-expected productivity growth, and events in Europe and elsewhere--I would add one more significant factor--namely, fiscal policy. Federal fiscal policy was expansionary in 2009 and 2010. Since that time, however, federal fiscal policy has turned quite restrictive; according to the Congressional Budget Office, tax increases and spending cuts likely lowered output growth in 2013 by as much as 1-1/2 percentage points. In addition, throughout much of the recovery, state and local government budgets have been highly contractionary, reflecting their adjustment to sharply declining tax revenues. To illustrate the extent of fiscal tightness, at the current point in the recovery from the 2001 recession, employment at all levels of government had increased by nearly 600,000 workers; in contrast, in the current recovery, government employment has declined by more than 700,000 jobs, a net difference of more than 1.3 million jobs. There have been corresponding cuts in government investment, in infrastructure for example, as well as increases in taxes and reductions in transfers.

Although long-term fiscal sustainability is a critical objective, excessively tight near-term fiscal policies have likely been counterproductive. Most importantly, with fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be. But the current policy mix is particularly problematic when interest rates are very low, as is the case today. Monetary policy has less room to maneuver when interest rates are close to zero, while expansionary fiscal policy is likely both more effective and less costly in terms of increased debt burden when interest rates are pinned at low levels. A more balanced policy mix might also avoid some of the costs of very low interest rates, such as potential risks to financial stability, without sacrificing jobs and growth.


This of course flies right in the face of the GOP argument that government spending is way too high and that fiscal policy is too loose.



...................................SNIP"
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"Bernanke's Explanation For The Weak Economy Will Infuriate Republicans" (Original Post) applegrove Jan 2014 OP
He has discussed this many times. Lucky Luciano Jan 2014 #1
Yeah, I always wondered whether Bernanke's odd habit of speaking the truth came from the TrollBuster9090 Jan 2014 #3
I disagree. We spend plenty, mostly on the wrong stuff. Drones, data centers ... Scuba Jan 2014 #2
Very true. The sad part is that all that spending, admittedly on the wrong stuff, DID make our TrollBuster9090 Jan 2014 #4
Selective reading. Igel Jan 2014 #5

Lucky Luciano

(11,242 posts)
1. He has discussed this many times.
Fri Jan 3, 2014, 10:22 PM
Jan 2014

I guess that is why you get comments like the ones Gov Perry makes about him.

TrollBuster9090

(5,953 posts)
3. Yeah, I always wondered whether Bernanke's odd habit of speaking the truth came from the
Fri Jan 3, 2014, 11:22 PM
Jan 2014

realization that you have nothing more to fear after you try to be politically neutral, and high profile members of one of the parties STILL say they want to try you for TREASON just for doing your job. In which case, Perry and all the other teabag lunatics might have done us all a favor in forcing the hands of neutral wonks like Bernanke.

 

Scuba

(53,475 posts)
2. I disagree. We spend plenty, mostly on the wrong stuff. Drones, data centers ...
Fri Jan 3, 2014, 10:48 PM
Jan 2014

... aircraft carriers, subsidies for big oil, big ag, big pharma, big sugar, etc., etc., etc.

TrollBuster9090

(5,953 posts)
4. Very true. The sad part is that all that spending, admittedly on the wrong stuff, DID make our
Fri Jan 3, 2014, 11:26 PM
Jan 2014

economy prosper for several decades. ("Weaponized Keynesianism" as Krugman called it.) And when the Soviet Union collapsed, lots of politicians, starting with Bush Sr. and his committment to the Human Genome Project, tried to shift the Government Spending economic engine to some more constructive purpose. Obama tried it, too, by trying to shift the tax incentives from Defense spending, and fossil fuels to PUBLIC HEALTH spending, medical device research, and GREEN ENERGY. The fact that conservatives and other monied interests succeeded in blocking that is one of the biggest tragedies of our time. The 2008 recession was the PERFECT time to do it.

Igel

(35,197 posts)
5. Selective reading.
Fri Jan 3, 2014, 11:47 PM
Jan 2014

"tax increases and spending cuts"

(R) aren't going to be incensed because they're told they raised taxes. Nobody will be. That noun phrase just won't be heard.

The (R) will be upset that they're told they cut spending. Sort of upset.

And the idea that the deficit is too low will put a crimp in a lot of people's style. Hard to be proud of having the deficit fall at an incredible pace if it's something Bernanke says you should be embarrassed about because it hurt the economy. He'll make friends with pretty much nobody with that line.

It's really a three-edged sword.


Still, Hollande's getting the same grief. France may have re-entered a recessionary state. 'Spending cuts and tax increases are to blame' is what many economists are saying --"austerity", en bref. His supporters only hear "spending cuts" as the reason. Tax increases are a good thing, if they're targetting the "right" people. Even if they become convinced it hurt them, they'll consider it a moral thing to do, "altruistic punishment" doesn't rule out self-hurt in the interest of righteousness.


But the theory we all buy into is that you want deficits. Not higher taxes. Not reduced spending. But increased deficits.

Then again, the theory is also that you cut deficits when times are good and even pay down the debt. Hard to know exactly when "times are good" enough for that.

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