Monday, June 24, 2013
What is Helicopter Ben up to?
The Chairman of the Fed has even Paul Krugman scratching his head and stroking his beard these days. Despite economic evidence that the economyis still depressed, Bernanke has been making noises that suggest he is easing up on efforts to spur it on.
Lately, Fed officials have been issuing increasingly strong hints that rather than doing more, they want to do less, that they are eager to start “tapering,” returning to normal monetary policy. The impression that the Fed is tired of trying so hard got even stronger last week, after a news conference in which Mr. Bernanke seemed quite happy to reinforce the message of an imminent reduction in stimulus.Krugman believes that Bernanke and his Fed colleagues are responding to political pressure from the right. I would suggest the pressure is being orchestrated from the White House who wants to appoint someone who would end the Fed's efforts and wants Ben to start the transition now rather than have it happen abruptly when the replacement takes over. Either way we can expect an extended "Japanese Decade".
The trouble is that this is very much the wrong signal to be sending given the state of the economy. We’re still very much living through what amounts to a low-grade depression — and the Fed’s bad messaging reduces the chances that we’re going to exit that depression any time soon.
The first thing you need to understand is how far we remain from full employment four years after the official end of the 2007-9 recession. It’s true that measured unemployment is down — but that mainly reflects a decline in the number of people actively seeking jobs, rather than an increase in job availability. Look, for example, at the fraction of adults in their prime working years (25 to 54) who have jobs; that ratio fell from 80 to 75 percent in the recession, and has since recovered only to 76 percent.
Given this grim reality — plus very low inflation — you have to wonder why the Fed is talking at all about reducing its efforts on the economy’s behalf.
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