It’s what journalists call burying the lead. More than halfway through his speech on Friday to central bankers meeting in Jackson Hole, Ben Bernanke said the recession would not cause lasting damage to the economy “if — and I stress if — our country takes the necessary steps to secure that outcome.”
President Obama? Senator? Congressman? The chairman is talking to you. He is saying that wrong priorities and policy missteps are the biggest threat facing the economy today.
Mr. Bernanke said that the Federal Reserve would do “all it can” to promote the recovery and hinted that it would approve additional stimulus measures at its policy meeting in September, if the economy showed further signs of slowing. The signs are already grim.
On the day of the speech, the government reported that in the second quarter the economy grew at an anemic 1 percent annual rate. That is not nearly enough to lower unemployment or push the recovery forward. In the first quarter, growth was a mere 0.4 percent. Two consecutive quarters below 2 percent usually portend recession.
The problem is that the Fed’s options, basically easing credit by various means, cannot by themselves turn things around. Lower interest rates can help homeowners with equity to refinance, or small businesses with strong sales to borrow cheaply. But they do nothing for underwater homeowners or businesses where sales are poor because of paltry consumer demand.
The real value in Mr. Bernanke’s speech is that he explained what really ails the economy — and made the case for a better fiscal response to address those ills. “Good, proactive housing policies” would speed recovery, he said, as would “putting people back to work.”
If Mr. Bernanke advocated specific policies to achieve those aims, he would be violating the etiquette that requires Fed chairmen to leave fiscal details to Congress.
So allow us. The best, proactive way to revive the housing market is to help bankrupt and delinquent borrowers rework their mortgages through principal reductions. It is also important to ease refinancing rules so underwater borrowers who are current in their payments can trade in their high-rate mortgages for lower-rate loans. The Obama administration is considering new refinancing rules, but mortgage investors are sure to resist.
One of the best ways to put people back to work is to fully reauthorize the highway trust fund, a big job creator and vital source of money for improving the nation’s infrastructure. Job creation also requires that federal funds are made available to repair and renovate schools, and to rehire teachers, police officers and firefighters who have lost their jobs in budget cutbacks.
Again, President Obama is expected to include such ideas in his jobs program to be unveiled next month. He will have to — finally — be ready to fight the Republicans’ relentless demands for even deeper spending cuts.
Mr. Bernanke stressed that the best path was to nail down a credible plan for reducing deficits over the longer term, while promoting stronger economic performance through tax and spending measures. It would help, he said, if Congress and the administration could manage all that like professionals.
“The negotiations that took place over the summer,” he said, referring to the debt ceiling debacle, “disrupted financial markets and probably the economy as well.” Mr. Bernanke is right. The weak economy cannot tolerate any more political antics, policy mistakes or inaction.
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