Bernanke: cut spending, but not now

Federal Reserve Chairman Ben Bernanke spoke yesterday at the International Monetary Conference in Atlanta, and generally stuck to a predictable script. He realizes the recovery is “frustratingly slow”; he doesn’t intend to do anything about it; and he expects stronger growth in the second half of 2011, as Japan recovers and gas prices come down.

But it seems many of the reports on Bernanke’s remarks buried the lede.

The Fed chairman stressed the importance of putting “the federal government’s finances on a sustainable trajectory,” but quickly added that “a sharp fiscal consolidation focused on the very near term could be self-defeating,” and would likely “undercut the still-fragile recovery.”

In other words, Bernanke would like to see cuts, but he doesn’t want them now. Indeed, here we have a Republican Fed chairman effectively arguing that the congressional Republican agenda is putting the economy in jeopardy. As Michael Grunwald put it, Bernanke “may be a Republican, but he’s no Tea Party Republican.”

He didn’t quite come out and say that Washington’s current mania for short-term deficit reduction makes no sense — his job description doesn’t call for much come-out-and-saying — but he came close. […]

[Bernanke] showed his Keynesian colors on Tuesday, noting that spending cuts and layoffs by cash-strapped state and local governments are holding back the recovery, while the bipartisan payroll tax cuts passed in December 2010 are helping. He also said the economic “impetus” provided by President Obama’s 2009 stimulus package is waning as the spending peters out.

This is not to say I loved Bernanke’s remarks. He rejected the notion of additional Fed intervention, and made no effort to urge Congress to consider another stimulus.

But I was nevertheless glad the Fed chairman stuck up for sanity and made clear that pulling money out of the economy when it’s struggling to recover — the entire GOP agenda in a nutshell — is a spectacularly bad idea.

We are, however, in 2011 — a period in which a radicalized Republican Party dismisses wise warnings from a Fed chairman of their own party. It’s also worth noting that Bernanke’s remarks come just a few days after former Fed Chairman Alan Greenspan announced he thinks his party is wrong about taxes, and he’d like to see a return to Clinton-era tax rates for everyone.

The GOP’s descent into extremism has gone so far, Bernanke and Greenspan are seen by their fellow Republicans as center-left.