TIME's Managing Editor Richard Stengel talks with Federal Reserve Chairman Ben Bernanke during an interview in Washington, DC
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So, by keeping interest rates low, including both short-term rates and long-term rates, like mortgage rates, by supporting a flow of credit to small businesses, consumers and the like, that is our primary effort. Those are the tools that we have. We can always do more, if necessary, but those are the tools that we are applying trying to get job growth going again. And we have seen, obviously, the labor market is still very weak, but the last report we saw shows that we're now coming closer to the point where we'll stop seeing job losses and start seeing job gains.
We've talked about a lot of those extraordinary things you've done. But is that it? Like now do we have to — because there's still really bad numbers, even your forecasts are like what, 10% [unemployment] this year, 9% going forward, I think like 8% in 2012. Do we just have to kind of now sit back and take it?
Well, the Federal Reserve will continue to see what other policy actions we can take. And we've really been very aggressive, thus far. And the additional steps aren't as obvious or clear as the ones that we've already taken. A lot of the scope now is on the fiscal side of the house. As you know, the government passed a major fiscal program earlier this year, and I think it was just today the President announced a number of individual — a package of programs to try to address unemployment. So, [there are] a lot of new initiatives probably coming from the fiscal side.
Did they ask you for your opinion of those before...
Well, our staffs confer frequently with the Treasury and other parts of the Economic Advisory Groups that advise the President. And we often give our views. Our views are solicited. But, of course, they are responsible for their policy choices.
Have you said before, or are you prepared to say now, that a second stimulus, a round of incentives, is a good idea, on the fiscal side?
So, my domain is monetary policy and financial stability. And we have done, of course, a lot of aggressive things to try to support the economy, try to support job creation. I generally leave the details of fiscal programs to the Administration and Congress. That's really their area of authority and responsibility, and I don't think it's appropriate for me to second guess.
You have said that there's a long-term deficit program that needs to be dealt with. You said health care costs ought to be cut back, so it's not like you won't talk at all about the fiscal situation. Regardless of the details, which I understand that you don't want to tell them how to do it, do you think that the fiscal side ought to do something?
Well, let me say this, I think that it's very important that whatever actions that Congress and Administration take on the fiscal side, that they begin soon, or even sooner, to develop a credible medium-term interest strategy for fiscal policy, one that will persuade the markets and the public that over the medium term, the next few years, we will — we, as government, we, as a country — will be able to bring our deficits down to a level that could be sustained over a period of time. If we can do that, which will increase the confidence of the markets in American fiscal policy, that would give us more scope to take action today, because, again, there would be confidence that we have a way out, a way back towards sustainability.
In your testimony the other day, one Senator talked about here's the money that the federal government takes in, here's what we spend on entitlements. It's basically the same. Everything else we have to borrow for. I mean, there are a lot of people saying that it's not sustainable, as you have said. And they said one of the only solutions is some kind of tax, a sales tax, value-added tax, something other than an income tax. But would you be in favor of any of those alternatives?
So, the way I put this before Congress before is that the one law that I strongly advocate is the law of arithmetic. (Laughter.) That law of arithmetic says that if you are a low-tax person, then you have to — you are responsible for finding ways on saving on expenditure, so that you don't have enormous imbalances between revenues and spending. And by the same law of arithmetic, if you were somebody who believes that government spending is important, and you are for bigger and more spending, and bigger programs, then it's incumbent upon you to figure out where the revenues are going to come from to meet that spending. So, again, I think that's, again, Congress' main responsibility.
I have spoken about deficit, and I think deficits are important, because they address broad economic and financial stability. We need to talk about that. But in terms of the specifics about how to get to fiscal balance, that's the elected officials' responsibility.
Do you think Congress is fiscally illiterate? Economically illiterate?
No, of course not. But what they have to deal with is not just a question of understanding. It's a question of making very, very tough choices, and in a political environment, where people understandably are resistant to cuts in programs or benefits, or increases of taxes. So, there needs to be tough choices made, there needs to be leadership. And I don't envy Congress those choices, because they're very difficult ones to make.