In defense of Ben Bernanke and the Fed
Federal Reserve Chairman Ben Bernanke is getting a lot of grief from abroad for his decision to buy an additional $600 billion of long-term Treasury securities as a way of stimulating the American economy. Bernanke is right, and his critics are wrong. It's just too bad our current politics don't allow Congress to do this the right way by injecting more fiscal stimulus into the economy.
Don't believe me on this. Check out an excellent column this morning by the Financial Times' Martin Wolf, a shrewd and thoroughly middle-of-the-road economic commentator. The headline says it all -- "The Fed is right to turn on the tap" -- but it's worth reading his careful reply to Bernanke's critics in its entirety. (And while I am praising economics writers, Steve Pearlstein is dead-on today in urging President Obama to focus his energies on rebuilding the industrial Midwest.)
In particular, the Chinese government, the world's greatest currency manipulator, has no grounds on which to accuse Bernanke of engaging in the sin it has turned into an art form. As The Post correctly editorialized this morning, the "mere fact" that both China and Germany "stand to lose from a cheaper dollar doesn't mean it's inherently bad policy. To compare the Fed's easy-money policy with China's systematic refusal, for years, to permit its currency to rise - or even to let it trade freely on international markets - is hyperbolic, to say the least."
In truth, Congressional action would be better than action by the Fed, and Congress should have passed a strong additional stimulus long ago. The House passed such a plan, but the Senate pared it back to what, in the current circumstances, amounted to a pittance. And in the wake of the election, the politics of additional stimulus spending are impossible. The right policy would be large additional stimulus spending now, coupled with a long-term plan for fiscal balance. But Republicans are pledged to block any tax increases that a sensible fiscal policy would require. You wonder if anything -- the reality of our situation, perhaps? -- will ever persuade them to change their minds.
Bernanke has to live in the world as it is. This may not be a perfect response to our economy's sluggishness, but it's far better than doing nothing. And I'm glad we have a Fed chairman who takes the history of the Great Depression and our currently high rate of unemployment seriously.
| November 10, 2010; 10:46 AM ET
Categories: Dionne | Tags: E.J. Dionne
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