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Bernanke Speech Was Only a Minor Footnote to Enduring Crisis

Saturday, 27 August 2011 12:57 By Richard D Wolff, Truthout | News Analysis
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Bernanke Speech Was Only a Minor Footnote to Enduring Crisis

Ben Bernanke, chairman of the Federal Reserve. (Photo: Philip Scott Andrews / The New York Times)

If Americans expected some sign of dramatic policy initiatives from Federal Reserve Chairman Ben Bernanke, they were disappointed in Friday's speech. If they expected a serious assessment of the costs of the failed "recovery program" to date as the basis to argue for a change in approach, they were disappointed. If Europeans hoped for a strong signal that the US would coordinate policies with them and provide some tangible supports to their struggles with this same economic crisis, they were disappointed.

Instead, Bernanke repeated how confident he was in the basic strengths of the US economy while acknowledging that the recovery so far had been less than he had hoped for and that eventual recovery would continue to be "slow." He chided Congress and the president for not using more expansionary fiscal policy and leaving too much of the burden of overcoming crisis on the Federal Reserve. He reiterated promises of very low interest rates for banks to borrow from the Fed for the next two years.

This all amounts to more of the same policies we have been seeing. The Fed has evidently decided not to change course, despite those policies' poor performance since the crisis hit in 2007. "Trickle-down" is indeed the right name for this program: shovel help to the financial top of the economic pyramid and hope it trickles some of its loot down to the mass of businesses and individuals. The immense cash hoards now accumulating in US banks and corporations stand as strong testimony - alongside so much other evidence - that "trickle down" economics is failing yet again.

Bernanke admitted what every observer knows, that the US housing market's current double dip into a second downturn is making economic matters worse. Yet nothing was offered there except ominous references to things eventually improving. They are ominous because "eventually" is a euphemism for the following: let housing prices drop until they are so low that even the falling wages of the US working class will enable some uptick in housing purchases and, so, an end to falling home prices. Meanwhile, the millions of US citizens who invested their only wealth in their homes will have lost a major part of that wealth and, thereby, both hobbled their economic futures and further stalled economic "recovery."

Bernanke's words amount to condemning the housing market and, thus, the economy as a whole, to enduring a rough economic cycle in the usual capitalist way. That is, let the system cut wages enough (by lasting high unemployment, above all else) and cheapen the material costs of business enough (bankrupt businesses must unload tools, equipment, space, etcetera, at fire-sale prices) to make it once again profitable for capitalists to hire workers and set up or expand businesses. Then, those workers may earn enough to afford the cheapened homes, and so on.

The policy options that Democrats and Republicans so loudly debate function mostly to distract people from the ongoing capitalist cycle's social costs. Their debates - like most media coverage of them - are wordy displays that blow smoke above the hard reality. What we are actually doing is waiting for economic destruction to cut deeply enough so that the profit motive can revive the economy it first knocked down.

The economic crisis that exploded in the US spread destructively via the market system that links the US to Europe. Now the economic problems inside each area have become mutually aggravating. Bernanke might have proposed more or better collaboration among central banks to manage their common problems and risks. Some concrete initiatives might have calmed capital markets at least a bit. Instead, silence: another opportunity was thus missed.

Europe's government debt problems are intertwined with its dysfunctional private banks as they try to impose counterproductive austerity regimes on European populations. They want the heavy costs of failed trickle-down policies to be borne by those populations.  European leaders hope their masses will not explode in revolt before the profit motive can kick in to revive the system and "grow European capitalism's way out" of the looming dangers. Bernanke's speech suggests that he and the Fed share the same hope for the United States. His speech reveals the underlying plan: everyone should wait patiently and suffer the losses until a genuine recovery "eventually" arrives.

Richard D Wolff

Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.

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