Posted Wednesday, July 18, 2012, at 9:41 AM
Photograph by Karen Bleier/AFP/Getty Images.
I get tired of writing the same thing every time the Federal Reserve does something destructive to the lives of millions of jobless Americans and their loved ones, but there's something very frustrating about the way these economy-killing actions get covered in the press. Here's a Wall Street Journal joint that's typical, and noteworthy for the fact that the WSJ's reporters have a solid handle on the underlying issues once you delve deeper into their coverage:
The thing that can't be repeated enough here is that a Federal Reserve forecast is not like a guesstimate from a Moneybox blogger or a projection from an investment bank research staff. The Federal Reserve is the single most important institution for determining the short-term growth path of the United States.
Under the circumstances, the Fed doesn't get to just observe that the economic outlook is darkening. They are making it darker. It is true that central bankers aren't wizards who can just make anything they want happen. The U.S. economy faces real supply-side constraints.
So sometimes a central banker needs to say "hey, we're running up against real restraints so unless someone else does something to solve those problems we're going to need tighter money and slower growth to head off inflation." But that's not what Bernanke is saying here. Nor is he offering a forecast. He's stating a policy preference—namely a preference for a short-term slowdown in demand growth—and members of Congress aren't really challenging him on why that's his preference. Maybe he really thinks that 8 percent unemployment is a small price to pay for cheap gasoline. Maybe he thinks Mitt Romney being elected president would be better for the long-term health of the country so he's trying to help out. But whatever he thinks, it's not that the economy is slowing down and then separately he's considering what to do about it. Demand growth is slowing because he and his colleagues are refusing to stabilize it.