Economists React to Bernanke Testimony



Our earlier comments were picked up by the WSJ. Its in the public (free) section, and has lots of other comments by lots of other commetators. It is definitely worth a look.

Here’s my blather :

No surprises today: He struck a hawkish tone, as expected. This is
consistent with what we heard from his warm-up acts last week. Chicago Fed Prez
Michael Moskow and Dallas Fed Prez Richard "8th Inning" Fisher struck similar
notes. Moskow suggested that rates are "historically low," that inflation was
"creeping into the core" CPI rate, and suggested that rates may need to "rise
further beyond neutral" to kill inflation. We listened hard as we could to the
new Fed head, but were unable to discern anything inconsistent with Moskow’s
speech. Bernanke stated that "resource utilization was rising, cost pressures
increasing, and short-term interest rates still relatively low." That hardly
implies a Fed nearly finished with their tightening cycle. — Barry Ritholtz,
Ritholtz Research; blog: The Big


Economists React to Bernanke Testimony
‘Greenspan Clone’? Inflation Hawk? And What About Housing and Jobs?

February 15, 2006 3:49 p.m.

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What's been said:

Discussions found on the web:
  1. pete Preissle commented on Feb 15

    Congrats, Barry, on the WSJ assigning a reporter to read the blog.

  2. muckdog commented on Feb 15

    Some of the commentaries have claimed Helicopter Ben was hawkish. Others have claimed he was less hawkish than feared. Just like everything else, people seem to have heard what they wanted to hear. I think Bernanke did a pretty good job of fence sitting today. On the one hand, the economy is growing, we’re at full employment, and wage pressures are increasing. On the otherhand, higher energy prices, health care costs, and declining real estate threaten to slow down consumer spending.

    I’m not sure he showed his cards, but I’d guess “status quo” is the right conclusion…

  3. Mr. Econotarian commented on Feb 16

    I couldn’t stand listening to it!

    Yes, raising the minimum wage might increase unemployment, especially among younger, lower-skilled, and ethnic minorities, which might explain the rising black unemployment rate for 18-25 year olds (now over 26%). But sure, if we want riots like they had in France, raise up that minimum wage!

    How can we tackle the deficit? If those idiots asking him questions stopped voting to spend more than they collect in taxes.

    I wished Ben would have countered all the nay-saying about wages with a reminder that total real compensation is rising just fine, it is just that health care benefits become expensive when the government subsidizes 50% of medical dollars.

    Also yes US labor force participation is down from the dot-com days when people were overpayed and overemployed at unsustainable businesses, but the US still does better than most OECD nations at labor force participation because of our lax labor regulations. Maybe we should shoot for French and German 10% unemployment rates!

    Poverty is up, but it should be kept in mind that the measure of poverty has become highly disconnected from actual food need as the percent of income spent on food decreases and creature comforts like indoor plumbing, air conditioning, TVs, microwave overns, and the like become affordable to almost everyone.

    That said, 28.4 percent of households headed by single women were in poverty, while only 5.5 percent of married-couple households lived in poverty. I think that suggests a great anti-poverty policy, don’t have kids until you are married or can afford them.

    Then he should have mentioned if we did not outsource low-skill manufacturing jobs to China, we would outsource them to robots. This is actually already happening, as US manufacturing output increases while US manufacturing employment decreases because of productivity-enhancing automation.

    People unwilling to obtain new skills that the market demands will be out of work either way. If someone didn’t make the most of our glorious socialist monopoly 12 grades of public school (not to mention federally guaranteed college loans), and took a job that a Chinese person with barely a sixth-grade equivalent is doing, perhaps they should re-evaluate their educational plans.

  4. Barry Ritholtz commented on Feb 16

    Mr. E wrote:

    “total real compensation is rising just fine, it is just that health care benefits become expensive when the government subsidizes 50% of medical dollars.”

    I don’t see how total comp is rising — real wages are negative, new jobs have a lower benefit package than the jobs they replace, pensions are getting frozen and slashed left and right.

    How do you figure the government subsidizes 50% of medical costs? Even with Medicare ands Pres drug plan, that seems like an awfully high number — whats your source on that?

  5. Sestina commented on Feb 16

    re: 50% subsidy. I think he’s talking about the deductibility of premiums as a business expense. That makes the subsidy the same as the business tax rate (which varies, but is a lot less than 50%).

    re: minimum wage. Real minimum wage has been falling, at least at the national level because the rate isnt indexed for inflation. Rising minimum wage doesn’t explain teenage unemployment.

  6. Mr. Econotarian commented on Feb 16

    Look at the graphs here:

    Real compensation, Nonfarm Business sector, has been fairly monotonically increasing for 20 years.

    Compensation encompasses the entire range of wages and benefits, both current and deferred, that employees receive in return for their work.

    Benefits have expanded tremendously as a percentage of total compensation.

    My source on the 50% recently is Paul Krugman, cited here:

    He claims that the US spent $5,267 on health care for each citizen. Of this, $2,364, or 45%, was government spending, mainly on Medicare and Medicaid. There is also VA care, independent state prescription discount plans, etc.

    Over the next ten years, the Medicare drug benefit will cost about $1 trillion (low estimate), so expect tens of billions to hundreds of billions of dollars per year in additional medicare spending, so I’m expecting the 45% number to easilly go to 50% shortly.

    If you are so sure the minimum wage doesn’t keep 18-25 year olds out of jobs, then would you support eliminating the minimum wage for them? Nothing would happen, right? Let’s give it a shot.

    France is currently doing a similar thing by reducing labor regulation on young workers to employ more of them and avoid future ethnic youth rioting.

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