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Wednesday, July 27, 2005

Bernanke Touts the Administration’s Economic Policy

Bernanke explains how the administration’s economic policies have resulted in robust output and employment growth and a generally sound economy.  But as noted here, Joseph Stiglitz sees the administration's economic policies a bit differently.  Would Stiglitz say that Bernanke drank the administration Kool-Aid, especially after the last sentence that throws in all but the kitchen sink of administration policies?  I hope Ben's reward is a shot at the short-list for Fed chair:

The Goldilocks Economy, By Ben S. Bernanke, WSJ Commentary (subscription): … The recent strength of the U.S. economy makes it all too easy to forget how difficult the economic situation was just a few years ago. … Fortunately, good economic policies helped to turn the situation around. President Bush's tax cuts provided much needed and remarkably well-timed stimulus. ... The Federal Reserve cut short-term interest rates sharply and kept them low. Together, these policies jump-started the U.S. economic engine. … The economy today is thus on a far stronger footing than it was two or three years ago. Where will we go from here? To consider the short-term situation first, economists are divided about what to expect for Friday's GDP release. … Friday's initial estimate of second-quarter growth may come in below the 3.8% growth rate achieved in each of the last two quarters. The good news is that slimmer inventories should set the stage for stronger subsequent growth in production, and many economists consequently would expect strong growth in the third quarter.

In the medium term, U.S. economic growth will depend primarily on two factors -- employment growth and productivity growth. .... So far this year the economy has created about 180,000 net new payroll jobs each month, well above the 130,000 to 140,000 jobs per month that economists estimate are necessary to absorb new entrants to the labor force. ... The amount of slack in the labor market is difficult, perhaps impossible, to measure with precision. The administration forecasts that job growth will remain elevated well into 2006 at least, supporting above-trend economic growth. … The faster productivity grows (the amount a worker produces in an hour), the faster the economy can grow without inflation. ... From 2001 through 2004, productivity growth in the U.S. averaged 3.7% per year, making this one of the strongest periods of productivity growth in modern U.S. history. Economists generally do not expect that very high rate to be maintained, with most forecasting a sustainable rate of productivity growth of about 2.5% per year. .... In the long run the most important issue isn't which experts are right about this week's estimates of economic growth. The U.S. economy is fundamentally strong. What's important is whether we continue to pursue good economic policies -- taking the actions necessary to increase the skills of the work force, keep our economy open to the world, increase our energy security, reduce the government deficit, keep taxes low, curb frivolous lawsuits, ease unduly burdensome regulations, and ensure that Social Security and other entitlement programs are placed on solid long-term footing.

    Posted by on Wednesday, July 27, 2005 at 12:24 PM in Economics, Politics | Permalink  TrackBack (0)  Comments (4)


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