Mitt Romney said Thursday night that, if elected president, he would create millions of jobs. On Friday morning, the Federal Reserve chairman, Ben S. Bernanke, said that the Fed's policies may have helped create millions of jobs since the financial crisis.
So who actually has the most power to create jobs today â€" the president, or the Fed chairman? The answer to that question tells us whether we now live in the age of democracy, or the age of the central bank.
In an important speech at Jackson Hole, Wyo., on Friday, Mr. Bernanke explained why he thought the Fed's unorthodox policies had worked.
Usually after an economic shock, the Fed just cuts its key interest rates to revive the economy. But after 2008, it did far more. To help credit flow in the economy, it has also purchased $2.75 trillion of bonds, in effect printing money to do most of that buying.
The jobs impact from these may have been substantial, Mr. Bernanke said. The first two round s of bond buying may have increased private sector employment by two million jobs, according to a study he cited.
Sounds impressive. But it's nothing next to the 12 million jobs Mr. Romney said that he could create with a plan that includes skills training, school choice, trade agreements and lower taxes for business. “What America needs is jobs,†he said. “Lots of jobs.â€
Mr. Bernanke, in contrast, didn't sound at all confident about the near-term ability of politicians to generate economic growth, and as a result, jobs. The big disagreements in Congress over the budget constitute a daunting economic headwind, he said.
But Mr. Bernanke doesn't have to wait for democratic machinations to play themselves out. He said Friday that the Fed was ready to do more to support the economy and sustain job growth.
The important point is that he doesn't have to contend with matters like legislation and Congressional votes. Not only can he act more or less at will, he also has the freedom to act with unbelievable force.
It's something he did in the depths of the financial crisis. Almost single-handedly, Mr. Bernanke was able to get an additional $1 trillion pumped into the economy, something a politician can only dream of. This is how David Wessel describes it in his book, “In Fed We Trustâ€:
The Fed, it was increasingly clear, could and would act when the political system was frozen. Even in the face of strong political resistance to more taxpayer money to rebuild the banking system, Bernanke demonstrated that the Fed was neither paralyzed nor out of ammunition: he pressed the F.O.M.C., the committee of Fed governors and regional Fed bank presidents, to increase the cap on Fed purchases of mortgage-backed securities from $500 billion to $1.25 trillion and, for the first time in the Great Panic, to okay the purchase of $300 billion of longer-term Treasury debt securities.
In other words, if the study he cited Friday is correct, Mr. Bernanke himself was deeply instrumental in creating over a million jobs.
Something similar is now going on in Europe. The European Central Bank, under its president, Mario Draghi, has recently taken a more aggressive stance in its efforts to bring down the borrowing costs of nations like Spain and Italy. It has had a lot of success, perhaps more success than politicians' policies to do the same.
Mr. Bernanke and Mr. Draghi are no doubt uncomfortable about the power they now have in relation to politicians. And they probably cannot wait for the day when they can go back to tinkering with monetary policy at the margins. The danger, however, is that the economy becomes dependent on the huge central bank stimulus. The longer it remains, the more the power of the Fed increases, perhaps at the expense of democratically elected politicians.
For 100 years, the main cohesive force in most Western countries was the government people voted for. That cohesive force now has a rival - the central bank.
