With Congress mired in the silly season of an election year, Fed governors squabbling and President Barack Obama’s approval ratings sagging, some say Washington needs a grown-up to tell it what needs to be done to get the U.S.’s fiscal and economic houses in order.
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While he’s largely following historical precedence and his own resume, Ben Bernanke’s reluctance to weigh in on fiscal matters like tax cuts, stimulus spending and deficits despite Americans' lack of faith in Congress has some asking for the Federal Reserve chairman to assume a leadership role that seems to be lacking in Washington.
“My view is these are very bad economic times. We thirst for leadership. The chairman of the Fed should be leading, not following,” said Bill Bartmann, CEO of Bartmann Enterprises and author of Bailout Riches. “Give us some certainty.”
Specifically, some say Bernanke should exert pressure on Congress to make a decision on whether or not to allow the Bush tax cuts to expire for the wealthiest of Americans despite the stalling economic recovery. Lawmakers are greatly divided on the issue, which Bernanke’s predecessor, Alan Greenspan, was not shy in throwing his weight behind during his tenure as Fed chief. (Greenspan now supports repealing the 2001 and 2003 tax cuts for all Americans, not just the wealthiest as the White House has proposed.)
Likewise, the White House is mulling new measures, including tax breaks and additional infrastructure spending, aimed at pushing the flagging recovery into 2011 and avoiding a double-dip recession.
Meanwhile, Obama’s debt commission is mulling what the U.S. should do to lower its soaring deficits and fix its long-term budgetary issues, which Bernanke has called unsustainable.
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These contentious fiscal matters are likely to create further deadlock in the coming months and years in a Congress that has already bitterly squabbled over TARP, the stimulus package and the overhauls of the health-care and financial-regulatory systems.
“There is such a lack of certainty from the administration, from Treasury, from the Federal Reserve -- it’s creating its own malaise,” said Bartmann.
Maybe it’s not really fair to compare Bernanke to Greenspan, who Congress frequently asked to weigh in on matters traditionally viewed as outside the Fed’s responsibilities, due in part to Bernanke's prior experience on policy and fiscal matters. For the most part, the current Fed chief'’s work has focused on monetary policy, especially the Great Depression.
“Alan Greenspan really departed from past practice in really interjecting himself in virtually every economic topic,” said Dean Baker, co-director of the Center for Economic Policy and Research, a left-leaning organization.
Bernanke has his own hands full with the Fed’s twin mandates of price stability and maximum employment. While inflation doesn’t appear to be a near-term headache, fears the U.S. could face a deflationary spiral have risen in recent months amid the stalling recovery, and few would argue the August unemployment rate of 9.6% represents anything close to full employment.
“Bernanke is very lucky he has a job because we really are in a horrible situation today. Here we are sitting at 9.6% unemployment and rather than worrying about unemployment – which is Mr. Bernanke’s job –we’re expecting him to talk about the deficit? Worry about your job,” said Baker.
It’s possible Bernanke feels burned from his highest-profile endorsement of a fiscal policy: TARP, which received crucial support from Bernanke and then-Treasury Secretary Henry Paulson before narrowly passing Congress (on its second attempt) in 2008.
That bank bailout has been credited with helping to stabilize the crumbling financial system, but the disparity between profits and bonuses on Wall Street and the troubles facing everyday Americans has made the program about as popular as the body that passed it.
“It was important in a crisis for the head of the central bank and the Treasury Department to be presenting a united front,” said L. Douglas Lee, president of consulting firm Economics From Washington. The current high unemployment rate, he noted, “is not a crisis.”
Bartmann disagrees, rejecting the arguments of historical precedence and the lack of an apparent crisis just because the recession is likely over.
“These times have never been replicated in our history. Therefore, we ought not to be looking back in history to say how the Fed (chairman) should conduct himself,” said Bartmann.
Perhaps there is a middle road where Bernanke strongly pushes Congress to act on critical issues like the expiring Bush tax cuts, but doesn’t necessarily endorse a position.
“The current state of uncertainty about tax policy is undermining the private sector’s willingness to take risks and is having a negative impact on the economy. It would be quite appropriate for him to advise that it is in the best interest of the country for Congress to make its decision quickly and remove this source of uncertainty,” said Lee, who supported Bernanke’s approach of avoiding taking a specific position.
Bartmann echoed those concerns saying, “What the business community needs is a sense of what the future looks like. Right now, in the absence of information, most businesses are in standstill mode.”
It’s not clear if Bernanke will become more vocal on fiscal matters in the coming months, but the Fed chief did have a subtle message for policymakers in last month’s high-profile speech at Jackson Hole, Wyoming.
“A return to strong and stable economic growth will require appropriate and effective responses from economic policymakers across a wide spectrum, as well as from leaders in the private sector. Central bankers alone cannot solve the world's economic problems,” Bernanke said.