Why Oh Why Are We Ruled by These Liars? (HSA Edition)
Covering the Economy: Greg Ip on Ben Bernanke's Humphrey-Hawkins Testimony

Why Oh Why Can't We Have a Better Press Corps? (Washington Post Nell Henderson and Neil Irwin Edition)

Nell Henderson and Neil Irwin of the Washington Post mischaracterize Ben Bernanke's testimony. Their article begins:

Bernanke: The U.S. economy is off to a strong start this year and is likely to perform well in the months ahead, despite the risks of a cooling housing market and high energy prices, Ben S. Bernanke told Congress yesterday in his public debut as Federal Reserve chairman. Bernanke's remarks, just two weeks after the retirement of his famous predecessor Alan Greenspan, suggested that Fed officials are increasingly likely to raise their benchmark short-term interest rate next month to keep inflation contained. "The economic expansion remains on track," Bernanke told the House Financial Services Committee, citing recent reports showing that factory production, job growth and retail sales all rose last month.

Bernanke renewed his pledge to maintain continuity with Greenspan's policies but noticeably broke with the former Fed chief's practice of using Capitol Hill appearances to advise Congress on taxes, spending and other fiscal issues. Greenspan, a Republican, urged Congress several times last year to cut federal spending, make the recent tax cuts permanent, reduce the deficit, create private Social Security investment accounts and lower the government benefits promised to future retirees. His past public comments helped win passage of President Bill Clinton's 1993 budget and President Bush's 2001 tax cuts. Greenspan's forays into such territory was criticized by Fed colleagues and others who worried that the public inevitably confused his personal opinions with the positions of the central bank, which is supposed to be politically independent. Bernanke, in response to questions on those and similar topics, begged off...

Reading this, you might think that Bernanke refused to advise congress on fiscal issues, no?

But Bernanke did advise congress on fiscal issues. Here's how the Washington Times puts it:

Washington Times : Mr. Bernanke was disappointing in his steadfast refusal to express an opinion on the proposed restoration of PAYGO budget rules.... Bernanke nonetheless held no punches in warning about the implications of the nation's rising federal budget deficit.... "Increased [budget] deficits are a negative for the economy, certainly," Mr. Bernanke candidly acknowledged. Earlier, he explained that he was "concerned about the prospective path of deficits" because "it does reduce national saving and therefore imperils, to some extent, the prosperity, the future prosperity of our country." Noting that the share of gross domestic product spent on Social Security, Medicare and Medicaid will increase from 8 percent today to 16 percent by the time his college-attending children will be contemplating retirement, he declared that it was "appropriate for me to talk about long-term government spending, taxes and deficits" because "that bears on economic stability and financial stability."... Bernanke warned that there may come a time "when foreigners are not willing to continue to add to their holdings of U.S. dollar assets, and that, in turn, will lead to perhaps an uncomfortable adjustment in the current account." If foreigners do continue financing America's excess consumption and budget deficits, Mr. Bernanke hypothesized, they would likely charge higher prices (i.e., higher interest rates), which "would feed back on the U.S. economy in ways that might be uncomfortable" -- to say the least. As the Fed's Monetary Policy Report to Congress argued, "If not reversed over the longer haul, persistent low levels of [national] saving will necessitate either slower capital formation or continued heavy borrowing from abroad."...

Bernanke is saying that whether the budget should be balanced by raising taxes or cutting spending and whether government spending should be a higher or a lower share of GDP are political and not technocratic decisions that should be made by elected politicians. But Bernanke is crystal clear that the budget should be (approximately) balanced over the course of the business cycle.

That's not Henderson and Irwin's "broke with the... practice of... advis[ing] Congress on... fiscal issues." That's the Washington Times's "Bernanke... held [back] no punches in warning about the... budget deficit."

Bernanke is not giving congress no advice on fiscal issues. He is giving congress different advice than Greenspan gave. A good story could have been written on the reasons for Bernanke's shift away from Greenspan's position: (a) Bernanke's wish to build non-partisan credibility; (b) Bernanke's greater respect for the limitations of the Federal Reserve's role; (c) Bernanke's lack of Greenspan's Randian certainty that a smaller government would be a better government; (d) Bernanke's wish to focus his advice on the most important task facing congress--that of restoring long-run fiscal stability.

But Henderson and Irwin did not write that article. Instead, rely on Henderson and Irwin, and you wind up believing something that is not true.

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