- - Tuesday, September 25, 2012


Has Federal Reserve Chairman Ben S. Bernanke gone all political on us? Very unlikely, though it may look that way. But he does seem deeply worried about the sliding U.S. economy under President Obama’s policies.

The Fed’s recent announcement of the third round of bond-buying stimulus known as Quantitative Easing 3 (“QE3”) was criticized by some as appearing to be intended to boost Mr. Obama’s re-election prospects. Nothing like a little Fed-driven stock market boomlet just before an election. Now that’s Chicago-style politics big time! Money pumping beats dead people voting every time.

The opposite is far more likely. Mr. Bernanke almost surely launched QE 3 despite grave reservations about the timing coinciding with the hyper political season. The Fed, and likely anyone who’s ever thought about monetary policy and monetary history, know that politicizing a central bank is a major no-no. Central bank independence of political pressures is essential to its credibility as an inflation fighter.

The Fed’s counterpart in Europe, the European Central Bank, knows this all too well. It regularly succumbs to the “Desperate Housewives” version of European policymaking in defense of a failed monetary union. Mr. Bernanke wouldn’t risk the appearance of playing politics if he thought he could prudently avoid it.

So if they are so deeply reticent to inject the Fed into a political environment, why did Mr. Bernanke & Co. launch QE3 now? The answer is plain enough: Mr. Bernanke and his colleagues are so worried about the sliding, stumbling, suffering U.S. economy they felt they couldn’t wait just two short months to get past the election.

There is no clearer affirmation of the weakness of the U.S. economy than that Mr. Bernanke and the Fed couldn’t wait before taking actions they think will help the economy. Never mind that the Fed’s actions will almost surely prove more harmful than helpful in the short run, and even dangerous to the real recovery when it finally, belated gets under way.

The Fed’s revealed message is clear: Mr. Bernanke thinks QE 3 will help. And he thinks the danger to the U.S. economy of stalling altogether was simply too great to wait.

The economy, which should be growing upwards of 3.5 percent a year, grew at half that rate in the latest quarter. Job growth, which should be averaging at least 200,000 a month, or more, has been running at less than half that rate. And worrisome signs are accumulating that the economy is slowing further.

Worse, Mr. Obama’s willingness to sit back and let “Taxmageddon” strike taxpayers on Jan. 1 will further dampen hiring at least through December. And if Congress and the president can’t act to prevent Taxmageddon and the rest of the “fiscal cliff” in a lame-duck session after the election (hardly a long-shot proposition), then the economy is almost sure to stall altogether.

It should come as no surprise that a belief in a government-dominated economy and society, in trillion-dollar-plus deficit spending, in rapidly building government debt, in more and heavier regulations, and a general antipathy to all things entrepreneurial (“You didn’t build that”) would lead to economic malaise.

Give him this much credit: Mr. Obama has a fairly clear economic philosophy, which is on full display in his policies from higher spending to Obamacare. The nation’s Capitol is full of all-hat, no-cattle politicians who talk a good game, but wilt and run for a cowering compromise at the first sign of opposition. Not Mr. Obama.

For all his faults, this fault cannot be found in the president. He has an economic philosophy. He has pursued it vigorously. And now we know, for sure, that his government-centric economic philosophy was badly flawed. We know because it failed.

Did the Fed inject itself into the political discussion? Yes, but not in the way its critics suggest. The Fed’s QE 3 may or may not produce a lasting bump in the stock market. But inescapably it stands as an independent, profound indictment of the president’s failed economic policies. To avoid spotlighting this clear conclusion, Mr. Bernanke would have waited, if he could.

J.D. Foster is the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at the Heritage Foundation.

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