Today, Federal Reserve Chairman Ben Bernanke gave a speech in Frankfurt asking the U.S. government to do more fiscal stimulus:
"A fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve," Bernanke said, adding that the Fed is "nonpartisan" and does not support specific tax and spending programs.
It's about time. Unfortunately, despite the fact that Bernanke is a Republican and was appointed by a Republican president -- and that he generally invokes conservative economist Milton Friedman as his example in all things monetary -- Republicans in Congress aren't likely to be swayed by this argument for a policy that looks something like Jan Schakowsky's deficit-reduction proposal, or the Bipartisan Policy Commission's similar effort: Both combine front-loaded stimulus with long-term deficit reduction.
Meanwhile, as Paul Krugman explains, the GOP, China, and Germany have all complained about the Fed's recent decision to begin a new asset-purchase program, and all for the same reasons: It looks likely to help the economy. As Bernanke points out, these effects would be enhanced by properly coordinated budget policy.
Still, it's nice to see Bernanke finally pushing publicly for the policies many assumed he held, given his past writing on economic crises. If the Fed is going to be politically independent, it needs to use that independence to do its job, not as an excuse for inaction.
-- Tim Fernholz
