In what is expected to be one of his last visits to the Hill as Federal Reserve Board chairman, Ben Bernanke has some helpful words for Congress. It just took an unusually long time for him to get them out, due to a series of microphone and audio mix-ups. Once he finally got there, Bernanke hit on one of the biggest problems of the economic recovery: Even while the private sector has made strong gains in recent months, the public sector is hemorrhaging jobs.
As the chairman noted, this recovery has been unique in that "in previous recoveries, usually the public sector has been adding jobs." This hasn't at all been happening during the current recovery. In June, total nonfarm payroll employment increased by 195,000 but lost 7,000 government jobs. Public-sector employment is down 64,000 jobs over the last year.
What is there that Chairman Bernanke can do about that? Not all that much. But he did have this suggestion, prompted by a question from Rep. Maxine Waters, D-Calif.: In terms of fiscal policy, Congress should have "somewhat less restraint in the near-term, and more action to make sure we're on a sustainable path in the long run."
The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery. More generally, with the recovery still proceeding at only a moderate pace, the economy remains vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated.
This all isn't so different from what Bernanke told the House Budget Committee in June 2010. When asked about Congress's focus on balancing the budget, the chairman said:
Right now I don't think is the time--this very moment is not the time--to radically reduce our spending or raise our taxes because the economy is still in recovery mode and needs that support.
Back then, Congress responded with sequestration. We'll see how it works out now.
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