When Ben Bernanke speaks, shouldn't we listen

Income gap is increasing danger to U.S. economyPublished February 14, 2007
When Federal Reserve Chairman Ben Bernanke finishes his opening statement before the Senate Banking Committee on Wednesday, I wouldn't be surprised if Democrats now in control of the committee say, in the words of Peggy Lee, "Is that all there is?"Commentators in the financial markets do not expect much news from Bernanke's semiannual monetary policy report to Congress. He will bang the drum slowly on behalf of fighting inflation and portray a resilient U.S. economy.Beyond that, there's not much to say."There was remarkable complacency about most global economic issues," economic consultant David Hale told clients after attending the recent global economic conference in Davos, Switzerland."The conference was remarkably sanguine,," Hale said. "There was no tremendous concern about the global business cycle."Worries about the U.S. housing market and the looming U.S. trade and fiscal deficits are old news. Instead, the Davos elites talked about other issues: global warming and the prospect that President Bush will launch another war."Other issues" might well be on the minds of the Senate Banking Committee and the House Financial Services Committee, which he will speak to Thursday.Indeed, Bernanke has opened the door to questions beyond the usual ones about economic growth and inflation. Last week he devoted an entire speech to the Greater Omaha Chamber of Commerce to the problem of the growing income gap that divides Americans."No one should be allowed to slip too far down the economic ladder, especially for reasons beyond his or her control," he said. "Like equality of opportunity, this general principle is grounded in economic practicality as well as our sense of fairness."The speech received scant press coverage. The financial press ignored it, because he didn't give any hints about the next blip in interest rates. Political reporters don't cover the Federal Reserve.Between 1979 and 2006, those in the bottom 10 percent of wages saw their wages increase just 4 percent, while the wages of those in the top 10 percent rose 34 percent, Bernanke said. After-tax income of those in the top 1 percent of household income increased to 14 percent of total household income in 2004 from 8 percent in 1979.These statistics are not new. Neither is the subject of the income gap, which President Bush acknowledged recently.Bernanke's predecessor as Fed chief, Alan Greenspan, expressed concerns in congressional testimony in July 2004."This issue has regrettably been going on for 15 years or thereabouts," he said. "I think the effect of increasing concentration of incomes is not desirable in a democratic society."Last week Bernanke said, "If we [do] not place some limits on the downside risk of individuals affected by economic change, the public at large might be less willing to accept the dynamism that is so essential to economic progress."The statutory role of the Federal Reserve does not give it much power to address directly the issue that Bernanke raises.But in Washington, where leadership on economic matters is hard to find, the fact that Bernanke and, before him, Greenspan, felt the need to speak out on the divide between the super-rich and everyone else means the problem, like global warming, is real.----------bbarnhart@tribune.com
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