Bernanke Is Sending the Wrong Message

Yesterday, Federal Reserve Chairman Ben Bernanke told a U.S. House committee that we need to cut the federal budget deficit in order to maintain “the confidence of the financial markets.” The financial markets! He means the people whose reckless greed caused our current economic crisis. What we need is the confidence of the American people.

Over the past three days, we heard the economic truth at the America’s Future Now conference [1]in Washington, DC. We heard it from economists like Dean Baker of the Center for Economic Policy Research and Vice President Biden’s chief economist Jared Bernstein. We heard it from elected officials like Senators Sherrod Brown, Tom Harkin, Dick Durbin, Jeff Merkley and Bernie Sanders, and U.S. Representatives Donna Edwards, Raul Grijalva, Jarad Polis, Keith Ellison, Barbara Lee, Jerrold Nadler, Jan Schakowsky, Rosa DeLauro and Barney Frank. We heard it from progressive leaders like Rev. Jesse Jackson, John Sweeney, Anna Burger, Naomi Klein, Leo Gerard and Gov. Howard Dean.

No one at the AFN conference suggested that what we need is to make Wall Street happy.

To be fair to Chairman Bernanke, here’s what he said [2]:

Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth…. Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.

And this was the news analysis [2]:

Bernanke’s comments signal that the central bank sees risks of a relapse into financial turmoil even as credit markets show signs of stability. He said the Fed won’t finance government spending over the long term, while warning that the financial industry remains under stress and the credit crunch continues to limit spending.

It is true that the U.S. cannot sustain the current annual federal budget deficit over the long term. But in the short term we are living in the greatest economic downturn since the Great Depression. Economists of all stripes say that even if the economy starts to grow again later this year, unemployment will continue to rise. At best, it will be sometime in mid-2010 before average Americans feel like the economy is recovering.

In fact, we are likely to require another economic stimulus later this year—something that will take a lot of backbone to enact through Congress. So it is wrong to focus on the long term deficit. And it is certainly wrong to worry about how the stock market will react. That kind of talk only serves conservative interests in the crucial political battles ahead.

Besides, there is another long term budget problem facing our economy. We aren’t even planning enough spending. The truth is, we cannot build a new American economy without a great deal more direct public investment. America is falling apart: Bridges are collapsing, roads are crumbling, levees are failing, school buildings need repair. Our electric grid is obsolete, our water and sewer systems need upgrades, and our nation’s scientific research—to solve health, energy, and environmental problems—is underfunded. In the coming years, the U.S. cannot successfully compete in the global economy unless we lift our economic infrastructure into the 21st century.

So yes, we need to keep an eye on long term deficits, but we need to address those by reversing the conservative policies of the Bush Administration. Bush and his allies in Congress spent our money badly. It’s time to stop the corporate giveaways, tax cuts for the rich, and unnecessary wars. It’s time for Washington to change directions.

Mr. Bernanke, it’s time to repair what’s broken in America.