It is tantalizing to wonder, as Ben Bernanke did Wednesday afternoon, how much better the economy would be today, and how many millions more would have jobs, if Congress hadn’t done so much over the past few years to drag down growth.
Bernanke was giving his last news conference as Fed chairman, and it became a wistful valedictory. The news was good, overall: The economy is improving enough that the central bank is tapering its intervention. But again and again, Bernanke returned to musing about what might have been.
“Given the billions of dollars that the Fed has put into the economy over the years,” CBS’s Wyatt Andrews said, “do you see a leading reason why the economy has not created more jobs?”
Bernanke saw several of the usual reasons: the nature of the financial crisis, the housing bust and trouble in Europe. But he added one more. “On the whole, except for in 2009, we’ve had very tight fiscal policy,” he said. “People don’t appreciate how tight fiscal policy has been.” He noted that government employment is down 600,000 jobs from the trough of the recession, and after the previous recession, the government had added 400,000 jobs by this point.
Craig Torres of Bloomberg News noted that “the economy is still running way below the trend line that existed before the financial crisis,” and asked the Fed chairman, “Is there nothing more you can do?”
Bernanke said in his scholarly way that the monetary policy under the Fed’s control can only do so much to counter the “fiscal drag” created by budget cutters on Capitol Hill.
“It can’t do much or anything about fiscal policy, which is working in quite the opposite direction,” he said, pointing to a Congressional Budget Office estimate that the budget cutting took 1.5 percentage points of growth off the economy.
After eight years at the Fed, Bernanke deserves more credit than any other person for saving us from another Great Depression. His arrival on the job — after housing prices already were declining — was providential: A specialist in depressions, he threw everything in the Fed’s arsenal at the problem, and most of it worked.
But with Republicans winning back the House in 2010, budget cutting began prematurely, and the resulting austerity kept the economy from growing at a more rapid clip. On top of that, the constant brinkmanship roiled markets and sapped consumer confidence. Bernanke did all he could do to keep the economy afloat despite lawmakers’ best efforts to tank it.
In a Fed conference room, he trotted onto the stage for a final time and seated himself at the carved wooden desk. Although he spoke with a Fed chairman’s requisite restraint and blandness, he allowed himself a bit of celebration, noting that the unemployment rate, 7 percent, had been forecast to be near 8 percent before the Fed’s latest round of purchases. Invited by the Economist’s Greg Ip to discuss how historians would view him, Bernanke said that “the Fed was created to stabilize the financial system in times of panic, and we did that.”
But a dozen times he mentioned fiscal drag, fiscal head winds, tight fiscal policy and the like. In his opening statement, he noted that “despite significant fiscal head winds, the economy has been expanding at a moderate pace” and will pick up further, helped by “waning fiscal drag.”
The waning fiscal drag was apparently a reference to this month’s budget deal, which Bernanke praised because it cuts long-term spending but “it eases a bit of the fiscal restraint in the next couple of years, a period where the economy needs help to finish the recovery.”
CNN’s Annalyn Kurtz asked whether Bernanke thinks the Fed’s asset purchases aren’t getting “as much bang for your buck.”
Bernanke argued that Fed efforts had brought down rates for mortgages, car loans and corporate bonds, and that “again, this has been done in the face of very tight, unusually tight fiscal policy for a recovery period.” He singled out the “fiscal cliff deal, which created even more fiscal head winds for the economy.”
Bernanke, who will be replaced by Janet Yellen next month, can feel good about what he did to fight the twin menaces of his tenure: the Great Recession and the lawmakers whose policies made it worse.
DANA MILBANK is a political reporter for The Washington Post and has authored two books on national political campaigns and the national political parties.