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Wednesday, July 17, 2013

'Fed Chief Calls Congress Biggest Obstacle to Growth'

I missed the Congressional hearing today, but glad to hear that Ben Bernanke delivered this message:

Fed Chief Calls Congress Biggest Obstacle to Growth, by Binyamin Appelbaum, NY Times: The Federal Reserve’s chairman, Ben S. Bernanke, said Wednesday that Congress is the largest obstacle to faster economic growth, and he warned that upcoming decisions about fiscal policy could once again undermine the nation’s recovery.
“The economic recovery has continued at a moderate pace in recent quarters despite the strong headwinds created by federal fiscal policy,” Mr. Bernanke said in the opening line of his prepared remarks to a Congressional committee.
Moreover, he said, Congress could make things worse later this year.
“The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery,” he said. ...

Barry Ritholtz is right, we need to spend more right now, not less:

...[We have a] once in a lifetime opportunity to finance [infrastructure] at historically low interest rates...:

“Thanks to the Federal Reserve’s zero interest rates and quantitative easing policies, borrowing costs are near generational lows. The costs of funding the repair and renovation of America’s decaying infrastructure are as cheap as they have been since World War II.

But the era of cheap credit may be nearing its end. And thanks to a dysfunctional Washington, D.C., we are on the verge of missing a once-in-a-lifetime opportunity.”

The thinking here is that all of these things will eventually occur — bridges are falling like dominoes — so we might as well do it when the costs are cheaper rather than expensive.

... We do not want to miss the historic opportunity to finance projects at unusually inexpensive rates. Indeed, dysfunction in D.C. has already impacted state and municipal financing vehicles like the Build America Bonds. Sequestration has eliminated most of their special tax credits, and their usage as a financing vehicle has slowed significantly. It is not surprising that the public works projects that these were funding have fallen off dramatically.”

We are fools if we let this opportunity slip by . . .

Very foolish. To add a few recent comments of my own:

...what I don't get is why conservatives have gotten away with opposing infrastructure spending to lift the economy. Infrastructure spending is inherently a supply-side policy, both sides acknowledge that, or should, and some of us believe it also short-run demand effects that are also helpful. But whether or not infrastructure spending impacts aggregate demand, it seems pretty clear given the state of our infrastructure that the benefits of this spending just in terms of the long-run effects more than cover the costs. And the argument that the private sector does it better doesn't hold since most of this spending is on public goods the private sector will not provide in sufficient quantities if it provides them at all. Finally, we can afford to borrow today to fund investment projects that have long-run benefits that exceed the costs.
But yet, here we are with an unemployment crisis, a huge output gap, and big infrastructure needs, record low interest rates, while Congress sits on its hands because conservatives will not agree to fund infrastructure, let alone government consumption spending.
I find it very frustrating.

    Posted by on Wednesday, July 17, 2013 at 09:44 AM in Economics, Fiscal Policy, Politics | Permalink  Comments (36)


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