Federal Reserve Chairman Ben Bernanke exit the Federal Reserve Bank of Kansas City Economic Policy Symposium in Jackson Hole, Wyoming August 26. (REUTERS/Price Chambers)
Federal Reserve Chairman Ben Bernanke used his annual speech in Jackson Hole to indicate he may take more steps to stimulate growth. But at this point, neither he nor anyone else can really expect it to make much difference.
The Fed has already gone to extraordinary lengths to get the economy moving, and it hasn't had much luck. Driving down the cost of credit doesn't goose spending and investment when demand is so weak, and no one really knows how to revive demand.
The Obama fiscal stimulus was the biggest in American history, and it didn't work. Even if it were politically possible to get another package passed, there is no reason to think it would be any more helpful than the last one.
It's easy to blame the president or the Fed, but a new article from the conservative American Enterprise Institute suggests they aren't really the problem. Economist Vincent Reinhardt, a former Fed official, says this recovery has been different from the norm because the downturn was unusual. "We are not living through a typical cycle," he writes. "Rather, the United States experienced a wrenching financial crisis, and recoveries from those are lengthy and the subsequent economic expansions are tepid." In most such cases, unemployment doesn't fall to its original level for a full decade.
The problem is that having gone through a period of overleveraging, there is no way avoid an extended spell where individuals and firms cut back on borrowing. Excess housing stock and bad mortgages take a lot of time to get past. Rebuilding balance sheets is also not a rapid process.
In the meantime, there's not much the government can do to help. The best it can do is not make things worse. But that's not a message politicians or central bankers like to hear.
The Fed has already gone to extraordinary lengths to get the economy moving, and it hasn't had much luck. Driving down the cost of credit doesn't goose spending and investment when demand is so weak, and no one really knows how to revive demand.
The Obama fiscal stimulus was the biggest in American history, and it didn't work. Even if it were politically possible to get another package passed, there is no reason to think it would be any more helpful than the last one.
It's easy to blame the president or the Fed, but a new article from the conservative American Enterprise Institute suggests they aren't really the problem. Economist Vincent Reinhardt, a former Fed official, says this recovery has been different from the norm because the downturn was unusual. "We are not living through a typical cycle," he writes. "Rather, the United States experienced a wrenching financial crisis, and recoveries from those are lengthy and the subsequent economic expansions are tepid." In most such cases, unemployment doesn't fall to its original level for a full decade.
The problem is that having gone through a period of overleveraging, there is no way avoid an extended spell where individuals and firms cut back on borrowing. Excess housing stock and bad mortgages take a lot of time to get past. Rebuilding balance sheets is also not a rapid process.
In the meantime, there's not much the government can do to help. The best it can do is not make things worse. But that's not a message politicians or central bankers like to hear.