Bernake Warns of 'Two Societies'
It seems that S&L doesnt think its a problem
In Interview, Bernanke Backs Tax Code Shift
By SEWELL CHAN
Published: December 5, 2010
WASHINGTON — The Federal Reserve chairman, Ben S. Bernanke, said in an interview broadcast on Sunday evening that rising inequality was eroding social cohesion and that Congress could help economic growth by making the tax code more efficient.
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The statements, in an interview with “60 Minutes” on CBS, were a rare foray outside the strict boundaries of the Fed’s mandate, to which Mr. Bernanke has typically confined his remarks.
In the interview, which was taped last week during a visit to the Ohio State University, Mr. Bernanke was unusually blunt in defending the Fed’s decision last month to inject $600 billion into the banking system to jolt the flagging recovery.
“This fear of inflation, I think, is way overstated,” Mr. Bernanke said. “We’ve looked at it very, very carefully. We’ve analyzed it every which way.”
On fiscal policy, a topic he has largely avoided, Mr. Bernanke repeated his point that the government should avoid an immediate contraction that could jeopardize the fragile recovery, while at the same time starting to address “the long-term structural budget deficit.”
But he went slightly further when asked how Congress might help the economy grow.
“The tax code is very inefficient — both the personal tax code and the corporate tax code,” Mr. Bernanke said. “By closing loopholes and lowering rates, you could increase the efficiency of the tax code and create more incentives for people to invest.”
That statement seemed to be an endorsement of one proposal from the fiscal commission appointed by President Obama. Among the ideas it put forward last week was reducing personal income tax rates but eliminating a number of popular deductions.
When asked about rising inequality in the United States, Mr. Bernanke offered a response that was likely to be embraced by liberals.
“It’s a very bad development,” he said. “It’s creating two societies. And it’s based very much, I think, on educational differences. The unemployment rate we’ve been talking about. If you’re a college graduate, unemployment is 5 percent. If you’re a high school graduate, it’s 10 percent or more. It’s a very big difference.”
Mr. Bernanke added: “It leads to an unequal society, and a society which doesn’t have the cohesion that we’d like to see.”
During the interview, Mr. Bernanke reiterated his view that a double-dip recession was unlikely, but added, “We’re not very far from the level where the economy is not self-sustaining.”
The chairman also left open the option of going beyond the $600 billion of Treasury securities the Fed plans to buy through June 2011.
“It’s certainly possible,” Mr. Bernanke said, adding: “It depends on the efficacy of the program. It depends on inflation. And finally, it depends on how the economy looks.”
Mr. Bernanke offered a retort to critics, saying, “We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way.”
Mr. Bernanke’s remarks suggested that the Fed was highly unlikely to change course when it meets on Dec. 14 for the final time this year.
The Fed has made it clear that its implicit long-run target for inflation is around 2 percent or slightly less, and Mr. Bernanke said that “we’ve been very, very clear that we will not allow inflation to rise above” that level.
Pelosi and Co. Still Don't Get It
By David Asman
December 10, 2010 FOXBusiness
When Nancy Pelosi and other Democrats describe unemployment insurance and other government handouts as more important than tax cuts, they reveal a lot about how they think our economy works.
Americans do spend a lot of money on things. But our economy's health is judged by how much we produce, not by how much we buy.
We talk about the gross domestic product; not gross domestic consumption. The more Americans work and produce, the stronger our economy grows. And that's what gives us the wealth to buy and consume. So we need economic policy that encourages work and production much more than we need policies meant to encourage consumption.
That's why any tax increase is insanity right now. If you want to put more people to work, you want to make it easier for companies to produce, by lowering their cost of production.
A tax increase on the job producers is exactly the wrong way to go. Nancy Pelosi doesn't get that. But most Americans do.
And apparently so now does the president.
He finally appears to recognize that tax increases will slow down an already anemic economy. Here he is speaking about his deal with Republicans to prevent a tax increase: “You've just had economists over the last 24, 48 hours examine this and say this is going to boost the economy, it is going to grow the economy, it is going to increase the likelihood that we can drive down the unemployment rate."
We still don't think that the president's giving up his big government agenda…his whole life has been devoted to that. But at least he gets something that Pelosi and other Democrats do not: that incentives matter. With unemployment stuck at the horrendous rate of 10%, you don't do anything to hurt the incentives that create job growth. Increasing production is the key. Pelosi and other Democrats are putting the cart before the horse by focusing on consumption before they focus on production.
Still it seems Pelosi wants to go down in flames. After getting slapped around by the president in the past couple of days, she slapped back today, getting House Democrats to vote down the President’s tax deal with Republicans.
Our colleagues at Marketwatch today described Democrats as "acting like angry drunks at the bar." That sounds about right to us.
