Elvis' 'birthday' and Bernanke's 'treason' By R.W. Hafer, special to the Beacon Posted 7:00 am Fri., 8.19.11
The presidential election campaign is in full swing. With slightly more than a year to the actual election, Republican hopefuls and President Barack Obama are canvassing the countryside. So, perhaps it is time for an initial installment in observations from the campaign trail.
My first one is that Rep. Michele Bachmann just can't seem to keep things straight. The other day she publicly wished Elvis a happy birthday. Unfortunately, the date she chose was the anniversary of his death. I am sure that she'll supply late-night comedians with material in months to come.
Texas Gov. Rick Perry gets a close second to Bachmann for weird comments when he referred to the policies of Fed Chairman Ben Bernanke as "almost treacherous -- or treasonous in my opinion." Even long-time Fed basher Rep. Ron Paul hasn't gone that far. Of course, the Perry camp has decamped on that utterance, but it is out there: A gaffe laid is a gaffe played in the game of presidential campaigning.
The Fed has gotten into the game. At its last meeting the FOMC -- the policy-making arm of the Fed -- let it be known that it would support a policy of keeping shorter term interest rates right where they are. What made this announcement of more interest was the time frame: Rates would be kept low or near zero in some cases, for the next two years. The Fed has never made that kind of promise.
Of course the two-year window raised eyebrows: Is the Fed engaging in a low-interest rate policy to help the incumbent president's re-election? After some 30 years of studying Fed behavior and policy, I would answer that it is unlikely. The only real, documented attempt by the Fed to help steer an election was when Chairman Arthur Burns gunned the monetary engine to help re-elect Richard Nixon.
In response to Perry's calculated and potentially damaging jab at the Fed, the obvious question that a reporter should ask the governor is "what would you have them do?"
Fed policy manipulates interest rates to achieve its dual mandate of low inflation and economic growth. With rates already near zero, there is little on that front -- other than keeping them there -- that the Fed can do. And it has already made huge purchases of financial assets and government bonds under the auspices of its quantitative easing programs QE I and QE II.
What the Fed -- and here I really mean Chairman Bernanke -- should start doing is engaging in some "moral suasion" of the banking community for not making loans. The bankers with whom I've spoken tell a story of struggling with increased uncertainty: What regulations will be in place? Will Dodd-Frank be undone? New regulations, and the threat of more, are what's slowing the lending business.
Facing this litany of defenses, the chairman should follow his predecessor's approach. Following the 1990-91 recession, another time when banks were awash with reserves, Alan Greenspan took bankers to task for not doing their job: making loans, increasing investment activity and helping a nascent, jobless recovery blossom. Bernanke is not treasonous by any stretch of the imagination, but he is perhaps too cautious, too academic in his handling of his constituent industry.
Also from the campaign trail, there is the president's yet-unveiled jobs plan. President Obama continues to think that the government creates jobs. His desire to extend unemployment benefits will help the unemployed, but it also reduces the incentive to take a job. Another component of the plan is to extend tax breaks to businesses. At least that creates the proper incentives for job creation.
It strikes me that we collectively are blaming others for our problems and waiting for the government to provide solutions. That is a sad state of affairs. Ask most foreign visitors what sets the U.S. apart from other countries and they often proclaim that it is our "get it done" attitude.
It is past time for government not to increase uncertainty but get out of the way to foster a rebirth in that spirit for which we are known. It is time for individual businesses and individuals to be the solution.
Sadly, the more I hear from our leaders in government and from the campaign trail, the less sanguine I am about restoring that spirit.
R.W. Hafer is a research professor of economics and finance at Southern Illinois University Edwardsville and a research fellow at the Show-Me Institute. To reach him, contact Beacon features and commentary editor Donna Korando .
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