The Big If

Andrew Leonard reacts to Ben Bernanke’s remarks on the economic outlook:

Ben Bernanke makes the case for strong government, by Andrew Leonard: The headline for the Wall Street Journal News Alert Tuesday morning reads “Bernanke Says Recession Should End This Year.”

But the text of the message, summarizing the news from the Federal Reserve Chairman’s testimony before the Senate Banking, Housing, and Urban Affairs Committee Tuesday morning adds a big “if”:

“2010 ‘will be a year of recovery,’ if actions taken by the government lead to some stabilization in financial markets.”

And the actual text of his prepared remarks reveals further qualification: (Italics mine.)

If actions taken by the Administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability — and only if that is the case, in my view — there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.

That’s not just a big “if.” That’s a giant, honking, humongous, get-down-on-your-knees-and-pray-for-salvation “if.” Ben Bernanke predicts that we can hope for an economic recovery next year, only if government action is effective — and that includes, in his view, Treasury Secretary Tim Geithner’s plan to bring stability to the banking system, the details of which are still unknown. …

So let’s retitle that WSJ News Alert: “Bernanke Warns That Without Aggressive FDR-Style Strong Government Action to Boost the Economy, We’re Doomed.”

The belief that policy will work is important too, and Andrew’s comments reveal how much lack of faith there is right now that policymakers can do anything to turn things around. We’ve gone from giving policymakers – the Fed in particular – credit for helping to bring about the Great Moderation to wondering if they can moderate anything at all. I still believe policy can help, but given how this has been handled to date, the general loss of faith is easy to understand.

Originally published at the Economist’s View and reproduced here with the author’s permission.