Ben Bernanke, the Federal Reserve Chairman, believes that the Recovery Act helped the economy, and that Congress needs to pass another stimulus to help the economy more. How do we know? It's not because he said so publicly -- he hasn't. Instead, he shared his thoughts privately with a New York Times reporter.
To which stimulus-advocates will respond: What!? They have cause for exasperation. With unemployment sticky and further monetary policy unlikely to super-charge the economy, the case for more fiscal stimulus is clear-cut, and Bernanke has an obvious platform to call for it. He is, after all, something like our economy's Wizard of Oz.
But don't expect the man to emerge from behind the curtain. Karen Dynan, a former Federal Reserve economist who works at the Brookings Institution, explained that the Federal Reserve is historically loathe to tear down the implicit wall between Congress and the Fed.
Here's the distinction. Congress passes laws, collects money, and spends money. The Fed does none of those things. It is unelected body that sets monetary policy and moves interest rates. Its dual mandate is to control inflation and monitor employment, but outside the bounds of politics. Today, employment is a key political football in the midterm elections. Bernanke might feel like any suggestions on spending and taxing could encourage the public to see his suggestions as political, which would hurt the Fed's perceived independence.
But as Sewell Chan points out, "[Bernanke's] predecessor, Alan Greenspan, did not display such hesitation, advocating for the Bush tax cuts of 2001 and 2003 ... [and] past chairmen like Marriner S. Eccles in the 1930s, Arthur F. Burns in the '70s and Paul A. Volcker in the '70s and '80s at times broke" the unwritten code that Fed Chairs can't tell Congress what to do.
But let's not go back to the 70s and 80s. Let's go back to the 2000s. During the financial crisis, the Federal Reserve and the Treasury worked together to rescue Wall Street, inject fresh capital into the banks, and clean the gunk off their balance sheets. The credit crisis bred fruitful cooperation between the Fed and Congress.
One must ask of Mr. Bernanke: Are we not still in a crisis? Is the case for fiscal/monetary collaboration dead? And if not, why isn't Bernanke bold enough to make his case for short-term stimulus and medium-term consolidation?
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