Bernanke: Economic Improvement Frustratingly Slow

Charles Evans, President of the Federal Reserve Bank of Chicago has recently demanded “increased amounts of policy accommodation” in order to be proactive in reducing the current national unemployment rate which has hovered around and refused to drop below nine percent since 2009. In Caroline Salas Gage’s November 15th article on Bloomberg, Fed Chariman Ben S. Bernanke discusses the very real possibility that the current unemployment rate may not budge more than one percentage point in a positive direction within the next two years. For Evans, as well as many other national officials, this projection is unacceptable.

While current efforts to improve the economic climate and the current unemployment rate are seemingly ineffective, a few suggestions, all built around the idea of economic stimulus, have been brought to the table. Don’t worry, we’re not talking about free handouts. The latest suggestions include: a commitment to keeping interest rates as low as possible until the unemployment rate falls consistently below seven percent; increased purchasing of mortgage bonds; new communication methods to inform the public of the Fed’s policies and goals; and, additional asset purchases. While the suggestions are innovative and certainly proactive, the question still looms from the public voice, “Is it enough and will it work?” While the Fed declares that the economy is headed in the right direction, reports the national GDP will increase from 2.5 to 3 percent by the end of the fourth quarter are not the clean cut figures that the public wants to hear. Are we doing enough to get Americans back to work? Are our current efforts the most efficient ways to meet the nation’s needs? And, most importantly, are unemployed Americans going to have the patience to wait two years or more before we see any substantial improvements?


Dr. Tufte said...

Well ... I'm a macroeconomist ... I only do ManEc to pay the bills ... so you came to the right place for a comment. You may not like your answers though.

I know Chuck Evans personally, and we both work in the same area as Bernanke. I think if you sat all 3 of us down, we'd all agree that 1) the situation needs to be improved, 2) here's some ways that might do that, and 3) most of them probably won't work fast enough to make anyone happy. The problem is people's expectations about what is feasible.

Then we come to Bloomberg: his position is reasonable. It doesn't take a rocket scientist to go look at historical unemployment data and see that you're lucky to get it to come down by faster 1% per year. So I think Bloomberg is realistic.

None of this sounds fun, does it?

The bottom line is that recessions are like colds, flu and other infections. We can alleviate some symptoms, but a lot of the recovery is just letting those things run their course. And this time it was a big recession: so it wasn't a "cold", and it wasn't "the flue", it was "mono" this time. It's bigger, badder, and it's going to take a while to get over. Don't panic.

Lando said...
This comment has been removed by the author.
Lando said...

I liked Dr. Tufte's analogy of the cough, flu, and mono. It represents the situation well. Fifty years ago, a particular country could go into national recession and its ripple effect would not be felt so strongly across the globe. However, we live in an innovated world where I can go onto a web site and buy a TV out of someones living room on the other side of the world, and have it in my own living room in a week (eBay). We often hear the phrase, "The bigger they are, the harder they fall." I think this correlates with the scale of our global economy. Can our economy have chronic mono? Now, I have always been an optimist, and everyone must be optimistic no matter how bad things get, but is it realistic that we can get over this mono coupled with national debt without pulling the plug and flat-lining to bankruptcy?

Dr. Tufte said...

Thanks for the complement!