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July 15, 2005

Saying the D-Word More Loudly

Ben Bernanke gives a speech as Chair of Bush's Council of Economic Advisers. It contains only one mention of the word "deficit": "One consequence of the strong income growth we are enjoying is higher than expected levels of tax collections so far this year, which if maintained with spending control will reduce the government's budget deficit for this year well below its projected level." It does not contain the phrase "national savings" or the phrase "current account" or the phrase "fiscal policy."

If Ben is going to be a success at CEA chair, he needs to say the D-world more often and more loudly than this. Bush plans to extend his tax cuts and fix the AMT are grossly inconsistent with any form of budget near-balance. Permanently and grossly unbalanced budgets lead, in the long run, to slow growth and high inflation. And in the short run our chances of solving our trade deficit problems by ourselves--and if we don't solve them by ourselves the market will solve them for us via deep recession or major financial crisis--are greatly increased if we balance our budget soon.

Here's his opening:

Council of Economic Advisers: Speeches and Statements: SKILLS, OWNERSHIP, AND ECONOMIC SECURITY: By Ben S. Bernanke, Ph.D. Chairman, Council of Economic Advisers, at the American Enterprise Institute, July 12, 2005: Thank you for inviting me to speak today. I would like to begin with a few words on the state of the U.S. economy....

In brief, the economic recovery continues to be strong. With real GDP growth at 3.8 percent in both the fourth quarter of 2004 and the first quarter of 2005, last December's forecast of 3.4 percent real growth during 2005 appears to be on track, despite the challenges created by high oil prices. Professional forecasters outside the government take a similar view. The job market continues to strengthen as well. Payroll employment has increased by about 181,000 jobs per month during the first half of 2005.... The unemployment rate has been declining for two years and has now dropped to just 5.0 percent, the lowest since September 2001. Estimates of growth in wage and salary income have been revised upward substantially, raising the possibility that the labor market may be even stronger than we thought. One consequence of the strong income growth we are enjoying is higher than expected levels of tax collections so far this year, which if maintained with spending control will reduce the government's budget deficit for this year well below its projected level.

Inflation remains low by historical standards... core inflation remains stable. We expect the United States to continue to enjoy price stability over the next few years.

The market for residential housing has been remarkably strong.... While speculative behavior appears to be surfacing in some local markets, strong economic fundamentals are contributing importantly to the housing boom. These fundamentals include low mortgage rates, rising employment and incomes, a growing population, and limited supply of homes or land in some areas.... [O]ur best defenses against potential problems in housing markets are vigilant lenders and banking regulators, together with perspective and good sense on the part of borrowers.

In all, we are in the midst of a healthy and sustainable economic expansion. Aided by the President's policies and low interest rates, the economy has recovered from an investment bubble, recession, corporate scandals, terrorism and war. Perhaps most importantly, these developments re-confirm the importance of having a flexible, market-based economy...

Posted by DeLong at July 15, 2005 12:26 PM