Federal Reserve chairman Ben Bernanke sat down for a a wide-ranging and candid discussion at University of Michigan's Rackham Auditorium Monday evening that touched on topics from the fiscal cliff showdown to his pet dog.
With many in Michigan more preoccupied with the state's economic health than national monetary policy, Bernake also shared his thoughts on the local recovery. He said the diversifying of the economy bringing in more high tech industry as well as health care and educational service jobs are helping to relieve pressure on the manufacturing sector.
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“It’s a good sign to see that America still has a strong industrial base, but that it’s also diversifying.”
More than 1,000 students and Ann Arbor community members packed the auditorium to hear the discussion, which was part of the Policy Talks @ The Ford School series. Bernanke was interviewed by Dean Susan Collins and then took questions from the audience and Twitter.
Throughout the discussion, Bernanke focused on what he referred to as the dual mandate of the Federal Reserve Bank, to achieve price stability and low unemployment.
“Price stability means low inflation. We’ve taken that to mean 2 percent, and it’s been there and is on track to remain there so we’re doing well,” he said.
“Unemployment is still quite high. It’s been coming down very slowly, and the cost of that is enormous in terms loss of revenue, personal hardship, and in terms of talent and skills being wasted.”
Bernanke emphasized that by lower the federal interest rates close to zero percent, the Fed is already in the world of “nonstandard monetary policies.” He said he was prompted take aggressive action by studying the bank’s actions during the Great Depression.
“There’s two things we learned from the depression, the first was don’t let monetary policy get too tight. In the 30s there was deflation and that was very damaging to the economy,” he said.
“The Fed also didn’t do very much in the 30s to stabilize the banking system and a third of the banks in America failed.”
While he admitted that his policies have come under criticism, he said he believes that things are moving in the right direction and that he is “cautiously optimistic about the next couple of years.”
Freshman Santash Mohan attended the talk hoping to get a glimpse into Bernanke’s economic crystal ball. He said he enjoyed the talk and agreed with the chairman’s assessments.
“There’s just a lot of uncertainty out there,” he said. “Like Bernanke said, we have to hope for positive news.”
As the discussion and questions progressed, Bernanke seemed increasingly exasperated with Congress.
“We will follow our mandate which is to help the economy be strong, Congress should do their job which is to address fiscal issues,” he said at one point.
He echoed Presdient Barack Obama’s statements at a news conference earlier Monday calling on the House of Representatives to raise the country’s debt ceiling.
“If Congress is approving spending and approving taxing, and those two things are not equal then it's logical that something has to make up the difference. And that’s going to be borrowing,” he said.
“I’m not saying deficits are good or bad, but there has to be a sensible plan for spending and a sensible plan for revenue This is like a family saying ‘well we’re spending too much, let’s stop paying our credit card bill.’ It’s not the way to get into good financial condition.”
The talk had lighter moments as well. When the first question from Twitter contained multiple clauses, Bernanke’s initial response was, “Are you sure that was only 140 characters?”
The chairman revealed that while he believes the Internet is “an important source of intellectual exchange,” he also follows a number of baseball-related blogs.
Ben Freed covers business for AnnArbor.com. You can sign up here to receive Business Review updates every week. Reach out to Ben at 734-623-2528 or email him at benfreed@annarbor.com. Follow him on twitter @BFreedinA2