Now that he’s heading out the door, Federal Reserve chairman Ben Bernanke feels free to say that the Republicans have been completely wrong about how to fix the economy.
Bernanke, wrapping up his final month on the job, said in a speech Friday that the nation’s fiscal course in recent years has been overly restrictive. As lawmakers looked to cut into the deficit by cutting spending and increasing taxes in recent years, Bernanke argued against that penny-pinching.
“Excessively tight near-term fiscal policies have likely been counterproductive,” he said in remarks before the American Economic Association.
Ever since the financial crisis and recession, the Fed has entered uncharted territory in its efforts to prop up the economy. Bernanke argued that Washington’s obsession with the deficit over the last few years may have missed the mark, and that if the two institutions had worked together to improve the immediate economy, everyone would have been better off.
“With fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be,” he said. “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.”
Yes, of course. Why borrow money when it is nearly free? Why increase aggregate demand when there is high unemployment?
All the deficit scolds have accomplished is to weaken the economic recovery and create a bunch of financial and budgetary illiterates.
