Former Federal Reserve Board Chairman Ben Bernanke, who helped steer a flailing economy through the Great Recession into recovery, is worried about congressional proposals to unwind Dodd-Frank regulations. Without naming the Financial Choice Act, which is making its way through Congress, Bernanke told NPR’s Morning Edition radio show that he’s “very concerned about the future” if the regulatory reforms put in place to prevent another financial crisis are taken away.
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The reforms include higher capital levels for banks, tougher oversight of financial institutions and tools needed to unwind a failing financial giant so that it didn’t bring down the whole economy.
“We did a lot of work following the crisis to improve our oversight of the financial system following the crisis to improve our oversight of the financial system to make sure the banks have more capital, and I’m a bit concerned that some of the proposals in Congress today would roll back a lot of those important regulations,” said Bernanke.
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Another development that worries Bernanke: potential budget cuts to agencies like the Bureau of Labor Statistics, which calculates the unemployment rate as well as other financial data. The bureau is part of the Labor Department, whose budget is cut 21% in President Donald Trump’s proposed budget outline, aka his “skinny budget,” but there are no details yet on those cuts.
“It’s really important that we have good numbers so we understand what’s actually going on in the economy,” said Bernanke. “Otherwise our policies are not going to be very effective.”
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When asked for his opinion about the tax cuts that Trump has proposed, which Treasury Secretary Steven Mnuchin asserts will pay for themselves, Bernanke noted that not much is known about the cuts because no details were given. But he added, “The proposal suggests there would be a big increase in the deficit.”
Bernanke would prefer to see a plan for tax reform, rather than just tax cuts, “to improve, simplify and clean up the tax code to make it more supportive of growth.”
He also favors “investment in infrastructure to make our economy more productive,” noting that Trump has spoken about an infrastructure plan but it doesn’t appear to be one of his priorities.
As for the overall economy, Bernanke said “things are going pretty well,” with unemployment down to 4.5% and inflation close to the Fed’s 2% target. But he acknowledged that despite the near-term improvement in the economy, “some long term trends” have reduced social mobility, increased inequality and stagnated wages for many people.
Those are not issues that “the Fed in its short-term focus pays attention to at least in terms of its policymaking,” said Bernanke, but “they are nevertheless real and have caused a lot of pain and disruption.” Trump was able to tap into that pain during the presidential campaign, said Bernanke.
The former Fed chair lamented the increased partisanship in Washington and the way it can distort one’s view of the economy.
“It’s quite striking that the day of the election that Republicans’ view of the current economy greatly improved and Democrats’ view of the current economy greatly worsened.”
Differences of opinion are to be expected in Washington, but those differences should not distort the facts, according to Bernanke. ”We can disagree on policies but we have to get the facts.”
— Related on Thinkadvisor:
- Bernanke: Americans Better Off Today Than 10 or 20 Years Ago
- Who’s Driving Fed Policy? Most Voting Seats Are Empty
- Trump’s Policies: Market Impact vs. Economic Impact
- Trump Issues Dodd-Frank Executive Order
- Financial Choice Act Hearing Date Is Set