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Home Publications Blogs Beat the Press Michael Gerson Doesn't Like Quantitative Easing and Misrepresents Bernanke's Statements to Make His Case

Michael Gerson Doesn't Like Quantitative Easing and Misrepresents Bernanke's Statements to Make His Case

Friday, 09 August 2013 05:14

Michael Gerson used his column today to warn of the bad effects of quantitative easing, telling readers that it is concealing structural problems. To make his case, he completely misrepresented statements from Federal Reserve Board Chairman Ben Bernanke.

After referring to comments from Mario Draghi, the President of the European Central Bank, urging governments take steps to increase potential growth, Gerson tells readers:

"Outgoing Fed Chairman Ben Bernanke has been gently suggesting there are limits to what the Fed can accomplish and warning against counterproductive fiscal policies and confidence-shaking political confrontations. Jeffrey Lacker, president of the Richmond Federal Reserve, argues that economic growth is limited 'in large part, by structural factors that monetary policy is not capable of offsetting.'"

In this context readers would naturally believe that Bernanke was also warning about structural obstacles to growth, which is the theme pushed in the rest of Gerson's column. This is not true.

Bernanke was very clearly warning about the negative effects of the sequester and ending of the payroll tax cut, both of which reduced demand. Gerson is being dishonest when he is trying to enlist Bernanke as an ally in his assertion that the obstacles to economic growth at the moment are primarily structural. He quite clearly believes the opposite, which is what he told Congress in arguing for expansionary fiscal policy and also the reason why he would pursue his quantitative easing policy.

It is also ironic that Gerson cites Germany as a success story that has effectively dealt with its structural problems. Germany's growth since 2007 has been no better than growth in the United States. (Part of this is explained by its lower population growth, which means that it has lower potential growth.)

The main reason why Germany has an unemployment rate of just 5.4 percent, compared to 7.5 percent at the start of the downturn, is measures such as work sharing which encourage employers to keep workers on the job but with fewer hours. The average work year in Germany is almost 20 percent shorter than in the United States. This is a huge factor in explaining its high employment levels. Unfortunately Gerson neglected to mention this fact.

Comments (4)Add Comment
It's really the editor
written by Ryan, August 09, 2013 8:58
Krugman wrote a piece that in part discussed the process he goes through to submit a column (link below). It seems a shame this is not standard practice. Perhaps Bezos can bring facts back to the Post.
The Other Side of the Coin
written by Ellis, August 09, 2013 11:03
What Baker ignores is how much QE contributes to dangerous speculative binges by the banks, like in commodities, real estate and stock prices. What were the banks profits last quarter? How much was that financed by QE?

As for the supposed German unemployment miracle so often cited by Dean Baker, please consider that over 8 million German workers are paid less than 450 euros a month, among whom many receive 1 euro an hour -- without any social welfare coverage. So, Dr. Baker, what is the real difference between working for next to nothing and actual unemployment?
Ellliis uncovers German slaves
written by Kevin O'Neill, August 10, 2013 9:18
The Other Side of the Coin, written by Ellis

"... consider that over 8 million German workers are paid less than 450 euros a month, among whom many receive 1 euro an hour -- without any social welfare coverage."

It must be difficult to go through life with a defective B.S. detector. Do you really believe Germany doesn't have a social welfare system? I'm sure you read it somewhere - so it must be true, right? There's always the Google. Try "german social welfare system" ... and you really do need to invest in a B.S. detector.
written by Ellis, August 12, 2013 4:22
Sorry I wasn't able to respond to Kevin O'Neill's post earlier, but I was away for the weekend.

Obviously you are not familiar with the Hartz reforms, passed under the administration of the Social Democrat, Gerhard Schroeder. These reforms were enacted in stages, starting in 1999, and completely upended the system of benefits for unemployment, health insurance and retirement. So, today, the millions of low paid workers with the "mini jobs" that I referred to earlier, will get little or no retirement benefits because their current income is too small. And workers who turn down an offer for a mini job lose their unemployment benefits completely.

Germany now has one of the highest levels of low wage workers of any country in the Euro zone, according to a very large study sponsored by the Hans-Böckler Foundation. Only six countries (the three Baltic countries, Poland, Rumania, and Cyprus) have a higher proportion of low wage workers.

Kevin, thanks for letting me share this with you.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.