Wednesday, November 16, 2005

Bernanke–What Happened to Humphrey Hawkins

Yesterday’s nomination hearing for Ben Bernanke, Fed Head to be, got me thinking about the Humphrey Hawkins Act (The Full Employment and Economic Growth Act of 1978) that expired a few years back. The act was meant to get the Fed to focus policy for the benefit of all Americans, not just the rich. The act also mandated that the Fed Head testify before Congress on a regular basis.

Clearly Bernanke’s myopic focus on inflation, he proposes inflation targeting (setting a target range for inflation), shows that he will not be much better than Greenspan on setting policy to help average Americans.

Greenspan focused almost exclusively on wage inflation. So he was always trying to snuff out any wage gains for average Americans. He ignored the rapid rise in PE ratios (Price Earnings, Stock Price /(divided by) Earnings), or stock market inflation under his tenure. The stock markets' PE has traded in the 30's, more than double the historic average, under Greenspan’s watch. This has lead to record wealth imbalance, made right wing think tanks and initiatives flush with cash as well as corporations. Democracy lost out.

Congress should reinstate Humphrey Hawkins and make the FedHead set policy with the interest of all Americans in mind.

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