Bernanke is wrong to be complacent

The long-term outlook for the US economy is not as rosy as he thinks

Financial markets were anxious to hear what Ben Bernanke, the Governor of the US Federal Reserve, had to say about the immediate future in his speech on Friday to the Federal Reserve Bank of Kansas City's Jackson Hole symposium. After the Fed's recent announcement that short-term interest rates in the US are likely to remain at near-zero levels until at least the middle of 2013, they hoped for a signal that Bernanke would also authorise another round of quantitative easing (QE) to boost the ailing US economy. In the event he simply reminded his audience that the Fed had a "range of tools that could be used to provide additional monetary stimulus".

It is unfortunate that this short-term focus has distracted attention from what the Governor had to say about the longer-term outlook for the US economy. Bernanke is an optimist, dismissing the prospect of a prolonged period of economic stagnation in the US and other western economies and expecting a return to the growth rates and levels of employment seen before the financial collapse and recession. And he thinks this will happen if policymakers stick to the same formulae they have been applying for many years. Thus, the job of the Federal Reserve is to ensure inflation remains low and stable over time and that of the Administration and Congress is to put in place a credible plan to stabilise and then reduce government debt. It is almost as if the financial crisis and recession never happened.

Bernanke must be aware of the studies, such as those by the IMF and Reinhart and Rogoff, which show recessions that follow periods of massive debt accumulation, asset bubbles and financial crises tend to be followed by long periods of economic pain and turmoil. In such circumstances, monetary policy, including quantitative easing, does not work because there are too few borrowers and lenders are reluctant to lend. Household and business confidence is low, making them reluctant to take on more debt, while banks are focused on repairing their balance sheets, rather than expanding them. Fiscal policy can be effective in supporting growth for a period, but eventually reaches a point at which further stimulus is impossible and pressures grow for a reversal of policy. This is a pretty good description of the state of affairs in the US right now. Spending cuts will detract from growth but monetary policy is largely impotent to offset their effect. Japan in the 1990s is the template for what happens next: disappointing growth for many years.

Bernanke should also be asking himself what the events of the last four years tell us about the underlying strength of the US economy. GDP growth rates during the period from 2000 to 2007 were not at all exceptional and yet it turns out that a significant proportion of this growth was generated by financial engineering, debt acquisition and asset bubbles, particularly in housing. Growth would have been very disappointing if all the unsustainable bits had not occurred. Did some combination of the emergence of China, the financialisation of the US economy, reduced investment in productive capacity and the stagnation in median wages hold back growth, or was it due other factors? Until this question is asked and answered, it is difficult to be confident that the US economy will grow at a healthy pace in the long-term. That's bad news for the global economy too.

Perhaps it is in the job description of the Governor of the Federal Reserve to be optimistic about the US economy. One can imagine politicians would be quick to accuse Bernanke of "running down our economy" if he was not. But from this side of the Atlantic, his speech sounds dangerously complacent.

Tony Dolphin is senior economist at the Institute for Public Policy Research (ippr)

Tony Dolphin is chief economist at IPPR

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Brexit would jeopardise the rights of working women

Europe isn’t perfect, but without it millions of women and millions of trade unionists would be at risk of Tory deregulation. 

One of the most important arguments in favour of staying in the EU is the protections that membership affords working people.

Whether it’s equal rights for part-time workers, the agency workers directive or limits on the length of the working week, we all owe the European Union and its Social Charter – campaigned for by a generation of trade unionists from across the continent – a great deal.

Outside of Europe British workers would find themselves worse off both in terms of their pay packets and the rights that they rely on. Add to that the reality that outside the EU risks being a place with lower public spending thanks to a troubled economy and rising privatisation of our public services, you can understand why the vast majority of British trade unions are recommending that their members vote to remain.

And for working women, the choice is starker still, because women have that much more to lose when rights and protections are stripped from the workplace.

Just think what EU law guarantees for all working people through the social charter, and how losing these rights (and putting the Brexit bunch in charge) would impact on things we’ve all come to rely on like maternity pay and guaranteed holiday pay.

Think about how much harder the struggle for equal pay will be if it’s not underpinned by EU law.

Think about how a Boris Johnson led Tory government – outside of Europe, on the fringes of global influence and under increasing pressure from UKIP to withdraw even further from the modern world – would attack your working conditions.

The Tory right – fresh from dragging our country out of Europe and away from regulations that help keep us safe at work aren’t going to stop there. Their next port of call will be other sources of what they deem “red tape” – like equal rights legislation that helps ensure women have all the same opportunities afforded to their male colleagues.

That’s something that matters to me as a trade unionist and as a woman.

It’s something that matters to me as Assistant General Secretary of a union with more than a million female members – UNISON, the biggest membership organisation for women in the country.

It matters to me as President of the TUC – when most trade unionists are women and when we have the first female TUC General Secretary in Frances O’Grady.

But most of all it matters to me because of the stories of all of the women I’ve met and am proud to represent who benefit every single day from Europe-wide protection of their rights.

What we face is the risk of losing those rights to a cynical and desperate campaign based around false promises and rhetoric from the Brexiteers. What we need in this campaign is some straightforward honesty. So here’s my position in a single sentence: Europe isn’t perfect, but without it millions of women and millions of trade unionists would be at risk.

I won’t stand for that. Neither should you. And neither should they either.

Liz Snape is Assistant General Secretary of UNISON and President of the TUC