Has Washington Given Up on the Economy?

Washington Post columnist Neil Irwin stopped by to discuss his book, The Alchemists: Three Central Bankers and a World on Fire. It's a great read on the history of central banks, including how they responded to the financial crisis and the challenges they face in the future.

In this video segment, we look at the Federal Reserve's efforts to turn the economy around, and what Congress is -- or isn't -- doing to help make a difference for average Americans. A full transcript follows the video.

Morgan Housel: We have rising stock markets, rising debt markets, rising housing prices, but to the extent that the median American consumer doesn't own a tremendous amount of stocks, doesn't own a lot of corporate bonds; to the extent that that doesn't help them, what do we need to get middle American consumers back in the game?

Neil Irwin: It's funny. We have this debate around what the Federal Reserve should be doing and is doing, and are the policies that are currently in place, are they only supporting financial markets, not the real economy?

I would say it this way. It's the job of Congress and lawmakers. If they don't like the distributional aspects of what's happening in monetary policy, or in credit policy in the banking system, that's a job for politicians and elected leaders to say, "Well, we have different priorities."

"We acknowledge that these rising financial market prices are really benefiting the upper income people above the middle class. Well, we're going to deal with that through the tax system, through other methods, to try and make sure that there's a broad participation in whatever economic improvement we see."

Morgan: Ben Bernanke talks a lot about how he wishes Congress was doing more to take pressure off the Fed, from having to drive the recovery. What can you say about that?

Neil: This is deep-seated within the Fed, and certainly Ben Bernanke has said it in a number of settings, including just this morning.

Look, it's amazing the degree to which the Fed has been the only game in town, in terms of policy trying to drive the economy. My colleague Jim Tankersley just wrote, yesterday, a piece in the Washington Post saying, "Washington has given up on the economy."

If you go to Congress, they're talking about long-term entitlement reform and tax reform, and some different things they might want to do that would have economic impacts -- immigration reform -- and you can debate the merits of those policies one by one, but what they're not doing is saying, "You know what? We still have 7.5% unemployment, and that's unacceptable. We're going to look at what we can do in the short run to try and change that and enhance job growth."

That being the case, the Federal Reserve has been the only game in town on trying to deal with the cyclical problem in the economy, and they've done that by round after round of buying bonds and printing money to do it. 

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