There is a lot of analysis out today on the Federal Reserve’s controversial plan to buy $600 billion in U.S. Treasury bonds to spur the economy. The program, the second round of quantitative easing (ergo QE2) since the start of the financial crisis, is scheduled to end in June. The Fed is likely to announce later this week that they plan to stick to that schedule. So that has sparked a lot of discussion about whether QE2 should earn Bernanke an A or an F.
So here’s my first question: Mr. Chairman, are you failing?
Maybe I should put it like this: Mr. Chairman, why are you failing?
This might get me kicked out of the tank, but the U.S. economy is still terribly weak, and it’s still Bernanke’s economy. The Fed has a dual mandate to stabilize prices and maximize employment; prices are stable, but 8.8% unemployment is just outrageously, tragically high. It’s a national emergency, an egregious waste of human capital, and Bernanke needs to explain why he isn’t doing more about it. Yes, he’s already done more than any chairman has ever done and then some. But he hasn’t fixed the problem, so he ought to do even more, or else say why he can’t.
My own feeling is that the lack of recovery is not a Bernanke failure but an Obama failure. Bernanke’s job as the central banker was to push to maintain an expanding money supply. That’s Milton Friedman’s playbook. And he has done about everything you can do to do that. He’s kept rates low. He’s lent money to the banks at low rates and against the bad mortgage assets. And he has pumped the Fed’s money into the system buying bonds. And since there has been no real signs of inflation, at least yet, I don’t think you can fault him for screwing anything up.
The real reason unemployment hasn’t fallen more in my opinion is because the stimulus package wasn’t big enough. It’s really a demand problem. So you could fault Bernanke for not pushing harder for more stimulus (in the same way you can fault Greenspan for not pushing harder against tax cuts), since Bernanke was clearly more aware than most of us how bad the recession was going to be. But it’s really not his fault. That’s the fault of Obama and Congress. Perhaps slightly more Congress because they would have had to pass the bill.