Bernanke wants consumers and businesses to spend towards a recovery
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Bill Radke: Alright, consumers, alright, businesses — the recovery is in your hands. That’s essentially what Fed chair Ben Bernanke said today in Jackson Hole, Wyo.. He declared the Federal Reserve is ready to do whatever it takes to support the recovery, but that central banks can’t do it alone.
Marketplace’s Alisa Roth explains what that means.
Alisa Roth: What Bernanke’s saying is that we need to start spending money again. Businesses, too.
Mark Thoma’s is an economics professor at the University of Oregon. He says the idea is that monetary policies — for example, lowering interest rates — can only do so much.
Mark Thoma: And so at some point, you have to see people willing to take investments, start new businesses, expand, do all sorts of things, which will start to bring employment back and start to bring confidence back.
That sounds like a circular argument. We have to spend money to improve the economy. So we’ll feel more confident and spend more money. The argument may make economic sense, but a lot of people, including Thoma, think it’s going to be a hard sell. Businesses already have lots of capacity they’re not using. So why should they invest in more? And regular people, they’ve lost their jobs or are afraid they’re going to. Or they want to pay off the debt they’ve been running up for years.
Robert Frank is an economics professor at Cornell’s business school. He says it’s the government that needs to start spending money. He suggests something like a national project to repair the interstate highway system. It’s work that needs to get done, and it’s big enough to get the economy going.
Robert Frank: The construction workers would get salaries, they would spend them in stores, the merchants would stock new merchandise, they’d place orders to refill depleted inventories, factories would start producing again.
And that in turn would give other businesses — not to mention the rest of us — the confidence we need to restart the economy.
In New York, I’m Alisa Roth for Marketplace.
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