If you are a real economics geek, you know that a bunch of people are getting together at a place called Jackson Hole at the end of this week to talk about the economy. Every year, the Federal Reserve Bank of Kansas City holds its annual symposium in Wyoming. Economists and central bankers fly in.
The reason a lot of people are paying attention to this year's Jackson Hole gathering is that Ben Bernanke, the chairman of the Federal Reserve, is speaking on Friday. And there is great interest in what he will say. Will Bernanke suggest that the Fed - which basically controls the supply of money in this country - will do something substantial to give the economy a boost? There is lots of speculation. Most of the speculation is that he won't say that because there are some big things happening, and he will want to wait for them before deciding if the Fed is going to engage in another round of what is known in Fed-speak as "quantitative easing." (In plain language, pumping out more money into the banking system in hopes that bankers might just possibly lend some out and spur some hiring.)
For one thing, Bernanke probably wants to see the next employment report, to see how many new jobs have been created this month. He probably also wants to see if Germany is going to move up closer to the plate in Europe. Bernanke probably does not want to step on the gas right now, given that we are very close to a presidential election, and the Fed would prefer not to be accused of trying to help out President Obama's re-election chances, which are tied to the fortunes of the economy. The Fed prizes its independence, which is one big source of its power.
The reason people are obsessing about Jackson Hole is a sign of the times, and a bad one. Bernanke is viewed as the only guy in Washington who has the ability to do anything that might have a prayer of a chance to help the economy.
Ideally, no one would care about the Fed chairman, and what he might or might not say. Ideally, the economy would be humming along, hitting on all cylinders, and creating jobs and wealth without any help from the Fed. Ideally, the Fed keeps out of the way and just tries not to screw things up. It is not good when so many people know the name of the Fed chairman, just as it is not good when the name of the guy who umpires first base in an important baseball game becomes known to people beyond the players and his wife.
But the economy is not humming along, and so lots of people want Bernanke to do something, anything.
There are a number of reasons why the economy is not humming along. In no particular order:
* In many parts of the country, housing prices are still below the mortgage. People feel much poorer, as a result, and when they feel poorer, they don't spend.
* And it is harder to get a mortgage. Bernanke can pump all the money into the banking system that he wants, but if a local banker doesn't like your looks, you ain't getting a loan. It used to be five or six or seven years ago, that if you fogged up a mirror, you were getting a loan. Now, it seems, lenders have gone in the other direction.
* The so-called "fiscal cliff" is coming at us like the iceberg to the Titanic. Congress created a doomsday machine to force it to come to some kind of deal to reduce the deficit. Deal never happened. So big, big cuts in the federal budget are set to happen next year. Tax cuts are set to expire. Happy New Year. Much less government spending. Less disposable income in the hands of consumers with the end of the tax breaks. If you're a car dealer in Fayetteville, you probably are wondering how many customers you're going to have in January if Ft. Bragg starts laying off a lot of civilian employees.
* Then there is health care. We have this presidential election in November. The two nominees have very different ideas on just about everything, but notably the role of government in health care. Health care is a huge part of the economy. Talk about uncertainty. If I'm a small business owner, I don't have a good way to predict what my employee benefit costs are going to be until I know who is going to be president and who is going to control Congress.
Some of the above will be taken care of by the passage of time. Housing prices seem to be headed back up. At some point, businesses can't avoid adding employees. Maybe the opportunities for expansion are so irresistible that they can't pass them up. Maybe the boss would rather pay straight time to a new employee than overtime to his currently very weary staff. And eventually, bankers will come out from beneath their desks and feel more comfortable making loans. Some of this is happening, which is the only reason the economy is still growing, albeit at a ridiculous (by recovery standards) 1.7 percent annually.
But some of the above will only be taken care of when the politicians decide what the policy should be regarding government spending, taxes, health care and the like. That's why this economy needs this election.
Until then, people are going to have to pay attention to Jackson Hole and Bernanke, because he is the only game in town for the next couple of months.
--Dan Barkin
