The Ben Bernanke show hit prime time Sunday night.
The Federal Reserve chairman played warm-up act to Facebook’s chief executive Mark Zuckerberg on CBS’ 60 minutes, continuing his recent profile-raising efforts and his polite offensive against QE2 critics.
There was – unsurprisingly – nothing earth-shatteringly new in the interview but a few musings are perhaps worth highlighting.
Bernanke seemed more pessimistic on unemployment in the wake of Friday’s disappointing payroll figures. From the interview:
Scott Pelley: We lost about eight million jobs from the peak. And I wonder how many years you think it will be before we get all those jobs back?
Bernanke: Well, you’re absolutely right. Between the peak and the end of last year, we lost eight and a half million jobs. We’ve only gotten about a million of them back so far. And that doesn’t even account the new people coming into the labor force. At the rate we’re going, it could be four, five years before we are back to a more normal unemployment rate. Somewhere in the vicinity of say five or six percent.
Interesting that Bernanke is now openly talking of 2016-17 before unemployment returns to near-normal rates and that he made no mention of expecting unemployment to come down next year — as he did in his most recent speech.
Bernanke also (rightly) chose to stress the dangers of scarring and hysteresis amongst the 40 per cent of the unemployed that have been without jobs for six months or more.
The chairman did though, later, argue that without massive intervention, unemployment would’ve been at 25 per cent. Then came the now traditional defense of QE2:
Bernanke: Well, this fear of inflation, I think is way overstated. We’ve looked at it very, very carefully. We’ve analyzed it every which way. One myth that’s out there is that what we’re doing is printing money. We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we’re doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And that’s what we’re gonna do.
In other words, inflation risks are exaggerated (a point the evidence seems to support) and, besides, this is not quantitative easing!
Bernanke’s argument is that the quantity of bank reserves is not being directly manipulated. Rather, ‘QE2′ is manipulating yields and taking advantage of investors’ substitution decisions.
In contrast to his European Central Bank counterpart, Bernanke was clearer, too, on the potential for additional interventions:
Pelley: Do you anticipate a scenario in which you would commit to more than $600 billion?
Bernanke: Oh, it’s certainly possible. And again, it depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks.
(Incidentally, this US/EU contrast was picked up on today by former British Chancellor Alistair Darling in an op-ed for the NYT.)
Bernanke also continued his flirtation with fiscal policy, offering implicit support for the headline proposals contained in the Deficit Commission’s Friday report:
Bernanke: We need to pay close attention to the fact that we are recovering now. We don’t want to take actions this year that will affect this year’s spending and this year’s taxes in a way that will hurt the recovery. That’s important. But that doesn’t stop us from thinking now about the long term structural budget deficit. We’re looking at ten, 15, 20 years from now, a situation where almost the entire federal budget will be spent on Medicare, Medicaid, Social Security, and interest on the debt. There won’t be any money left for the military or for any other services the government provides. We can only address those issues if we think about them now. Cleaning up the tax code, for example. The tax code is very inefficient. Both the personal tax code and the corporate tax code. By closing loopholes and lowering rates, you could increase the efficiency of the tax code and create more incentives for people to invest.
And, then, he even came over a bit Disraeli:
Bernanke: It’s a very bad development. It’s creating two societies. And it’s based very much, I think, on educational differences. The unemployment rate we’ve been talking about. If you’re a college graduate, unemployment is five percent. If you’re a high school graduate, it’s ten percent or more. It’s a very big difference. It leads to an unequal society and a society which doesn’t have the cohesion that we’d like to see.
One shouldn’t read too much into these interventions (even central bankers have to answer the questions asked) but it’s increasingly clear that Bernanke is now the face of the Administration’s entire economic policy – whether deservedly or not. Contrast this with two years ago, when Summers, Geithner, Romer, Volcker, Orszag et al were all jostling for position.
So, has this preeminence translated into a sense of contented reflectiveness and self-criticism? Um, not yet:
Pelley: Is there anything that you wish you’d done differently over these last two and a half years or so?
Bernanke: Well, I wish I’d been omniscient and seen the crisis coming, the way you asked me about, I didn’t. But it was a very, very difficult situation. And the Federal Reserve responded very aggressively, very proactively.
Related links:
Fed Chairman Ben Bernanke’s Take On The Economy – CBS
Bernanke says QE2 could exceed $600bn – FT
Bernanke: it’s not me, it’s you – FT Alphaville