This NYT article explains the parallels between the state of our current economy, and that of the late 1970's, and mid 1930's depression era. The article suggests that Bernanke needs to make bold decisions, as well as bold promises, just like Chairman of the fed Volcker did in 1979, as did FDR in during the 1930's.
This article explores the Reagan-era inflation drop due to Volcker's firm choices as chairman, as well as the Great-Depression era fiscal policies which effectively did away with deflation. Many could agree that these two past events in history easily rival what is happening right now in the economy (perhaps we are currently undergoing our third "depression" ? Although, we are technically in a "recession", nowhere near an economic depression.)
We live in an era where politics overshadow, and control most of our monetary policy. While power is still held by those in the top positions (president, chairman of the fed), it seems that any move one of the top-dogs make always lands as much praise as it does criticism. What this article is suggesting is that Bernanke use all the power he has to sway the financial decisions of both everyday Americans, and big-time investors.
This is an interesting article because not only does is call for Bernanke to take a risk like Volker did in the late 70s, it also implies that for things to get better, they may have to get worse first. This is what happened when Volker decreased the money supply, even though the policy succeeded in the long run. In this political climate, I fear that voters will choose candidates based on the current economic situation, and not look long term. If it gets worse before it gets better, the politicians who are enforcing these policies could be voted out of office before the economy has time to improve all the way, making the improvement stop and leaving us worse off than before.
ReplyDeleteI also really enjoyed the article. I am a big believer that actions aimed at raising peoples' moods is a good starting point in helping this economy. I do realize this is not the only way to get us to the point where our GDP should be, pre recession, and liked how the article touched on the fact that more short term goals should be addressed. People will see the changes soon and hopefully it will keep going up from there.
ReplyDeleteWe have studied in class some effects that are required for things to get better. For example, when we increase the private ( and public) savings rate things will get better, but not before they get temporarily get worse. I agree much of the pressure and responsibility lies on the shoulders of Bernanke (who, i would argue, faces just as much pressure as the president) But all to often we expect the government to make up for private consumers mistakes. the level of personal financial accountability needs to be raised in America.
ReplyDeleteThis article is nice. I disagree that Bernanke hasn't taken a risk like Volker because Bernanke has made interest rates lower than they EVER have before. He is trying to change things and is taking HUGE risks. It's just no one is willing to act upon them like when Volker was in control. Bernanke is increasing the money supply and it's just no one is willing to spend at all. What is he supposed to do? Is he supposed to make interest rates less than 1? Get off Bernanke's back he's doing what he can.
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