BERNANKE SPEAKS….Speaking of Ben Bernanke, note the following from the his congressional testimony today:
A fiscal initiative at this juncture could prove quite counterproductive, if (for example) it provided economic stimulus at the wrong time or compromised fiscal discipline in the longer term….To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next twelve months or so.
….Any fiscal package should also be efficient, in the sense of maximizing the amount of near-term stimulus per dollar of increased federal expenditure or lost revenue. Finally, any program should be explicitly temporary, both to avoid unwanted stimulus beyond the near-term horizon and, importantly, to preclude an increase in the federal government’s structural budget deficit.
This is remarkably clear and direct, especially for those of us used to 18 years of impenetrable Greenspanese. Bernanke is saying, as clearly as he can, that a temporary economic downturn shouldn’t be used as a cynical excuse to pass new long-term tax cuts or to make existing tax cuts permanent. Not only would that have no effect on the economy right now, but it would likely make future economic problems even more intractable.
In other words, Bernanke isn’t nuts: he thinks tax cuts reduce revenue and make long-term deficits worse. What’s more, unlike Alan Greenspan, he has the guts to say so in plain English instead of disingenuously tap dancing around the issue and then pretending later that he had done as much as he possibly could have to endorse fiscal discipline. That’s progress.