Federal Reserve Bank Chairman Ben Bernanke spoke to the Economic Club of NY this morning. In the speech and the followup questions, Bernanke staked more of his credibility on the green shoots recovery that is rocking the USA; offered some fun unemployment breakdowns; and reiterated the call for a resolution authority over large institutions—not limited to financial institutions—that will ensure taxpayers, rather than willing signatories of money-losing business deals, suffer private sector losses.
I watched a live feed which doesn't seem to have been archived yet, so it's worth noting that in their public statements both Bernanke (the most courageous American since Audie Murphy) and Treasury Secretary Tim Geithner project an air of haggard, panic-plagued exhaustion that contrasts with the guarded optimism of their words. Today's performance was no different. Some highlights:
Recover, dammit, recover:
My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely…
I expect moderate economic growth to continue next year. Final demand shows signs of strengthening, supported by the broad improvement in financial conditions. Additionally, the beneficial influence of the inventory cycle on production should continue for somewhat longer. Housing faces important problems, including continuing high foreclosure rates, but residential investment should become a small positive for growth next year rather than a significant drag, as has been the case for the past several years. Prospects for nonresidential construction are poor, however, given weak fundamentals and tight financing conditions.
When will somebody think of the adult males?
The best we can say about the labor market right now is that it is getting worse more slowly….
Different groups of workers have been affected differently. For example, the unemployment rate for men between the ages of 25 and 54 has risen from less than 4 percent in late 2007 to 10.3 percent in October–nearly double the rise in unemployment among adult women. This discrepancy likely reflects the high concentration of job losses in manufacturing, construction, and financial services, industries in which men make up the majority of workers. From the perspective of America's economic future, the effect of the recession on young workers is particularly worrisome: The unemployment rate among people between the ages of 16 and 24 has risen to 19 percent–and among African American youths, it is now about 30 percent.
Productivity is defined as output per hour of work. Thus, essentially by definition, a jobless recovery–in which output is growing but hours of work are not–must be a period of productivity growth. In the jobless recoveries that followed the 1990-91 and 2001 recessions, productivity growth was quite strong. It may seem paradoxical that productivity growth–which in the longer term is the most important source of increases in real wages and living standards–can have adverse consequences for employment in the short term. But, when the demand for goods and services is growing slowly, that may be the case.
Bank lending and Cavanaugh's Parable of the Leaking Corpse:
I have discussed two of the principal factors that may constrain the pace of the recovery, namely, restrictive bank lending and the weak job market. Banks' reluctance to lend will limit the ability of some businesses to expand and hire. I expect this situation to normalize gradually, as improving economic conditions strengthen bank balance sheets and reduce uncertainty; the fallout for banks from commercial real estate could slow that progress, however. Jobs are likely to remain scarce for some time, keeping households cautious about spending.
We need to make sure that too big to fail is a relic of the past, that we don't do that anymore. To do that we need Better regulations, we need to strengthen institutions, we need to make sure all systemically significant firms are strong… Top of the priority list: An alternative to bankruptcy or bailout. Another way to dispose of firms, so that in the future a failing firm will be allowed to fail.