Bernanke Nomination Brings Out Media’s Economic Concerns
Newspapers list housing bubble,
deficits, inflation confronting next Fed chairman – but issues
aren’t as dire as they suggest.
By R. Warren Anderson
Free Market Project
Oct. 25, 2005
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Media coverage of Ben Bernanke, nominated to head the Federal
Reserve, has been mostly positive and focused on his credentials.
However, some outlets have used the nomination to exaggerate
economic issues and even to take political swipes at President
George Bush’s nominee to the Supreme Court.
Â Â Â Â On the front page of its October 25 business section,
The Washington Post listed a housing bubble, among rising prices,
and the trade balance as challenges that Bernanke will inherit if
confirmed. Likewise, The
New York Times on the same day stated that “if energy prices and
broad inflation both do fall next year, the housing market and the
federal budget deficit could be the next items confronting Mr.
Bernanke.” Yet, Fed Chairman Alan Greenspan has downplayed concerns
of a national “housing bubble,” noting that real estate is a
localized market. That means it’s not a liquid stock market that
could come crashing down. And as for the federal deficit, the Free
Market Project has
reported that the media tend to work from the assumption that
deficits are inherently bad – which isn’t true.
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USA Today on October 25 also summed up the over-hyped issues:
“The next Fed chairman will quickly face a number of difficult
issues, including growing inflation and high energy prices, the
forecast slowdown of the red-hot housing market, and historically
large trade and budget deficits.”
Â Â Â Â Though the media turned their attention to those
issues, the economic facts don’t give cause for such great concern:
• Inflation: Current inflation is
not as big a problem as stated.
Alan Reynolds of the Cato Institute explained in an October 25
post that “There is no evidence that energy price spikes have ever
led to higher non-energy inflation.” Reynolds pointed out that a
vigorously growing economy does not necessarily lead to inflation.
Other economists have noted that global competition keeps prices
relatively low and stable.
• Energy prices: While energy prices are high compared to a
year ago, gasoline and crude oil prices are falling. Gas prices as
of October 25 are only a penny higher than the day Hurricane Katrina
• Housing: Fed Chairman Alan Greenspan has said he did not
believe in a national housing bubble, only “froth” in local markets.
The downturn of the housing market has been predicted since June of
2002 and has yet to occur. Writing in The Wall Street Journal on May
31, Brian Wesbury said that between 1992 and 2003, average housing
prices have increased 43.5 percent, with the Consumer Price Index
increasing 27.2 percent over the same period. That means that
housing prices have only increased 1.5 percent faster than overall
prices. Wesbury called this “a sign of strong demand and rising
commodity prices, but hardly a bubble.”
• Deficits: While federal deficits are high, the federal
deficit as a percentage of gross domestic product was 3.6 percent in
2004 – lower in percentage terms than nine of the last 40 years,
according to the Congressional Budget Office.
• Trade balance: Trade deficits aren’t necessarily a bad
Cato’s Dan Griswold wrote on February 25 that “analysis of
economic data from the last quarter century shows that a growing
current account deficit (as a percentage of gross domestic product)
is associated with faster, not slower, economic growth, as well as
rising manufacturing output and falling unemployment.”
Â Â Â Â The Times, the
Post and NBC News also used the opportunity to undermine the latest
Bush nominee to the Supreme Court by slipping in mentions of
The Times compared Bernanke to the new chief justice, John
Roberts, “a candidate with sterling academic credentials and little
or no taint of cronyism, and a sphinx on significant political
issues.” NBC “Nightly News” on October 24 called Bernanke the
“anti-Harriet Miers.” And the
Post quoted former White House officials as saying that
President Bush picked Bernanke because he had “unassailable
credentials and enough distance from the White House to blunt
charges of cronyism or ideological motivations.”