MY VIEW: Maya MacGuineas August 26 2014

Maya MacGuineas, President of the Committee for a Responsible Federal Budget, wrote a commentary that appeared in the Wall Street Journal Washington Wire. It is reposted here.

A few years back, Federal Reserve Chairman Ben Bernanke gave a speech at the annual Fed gathering in Jackson Hole, Wyo., that devoted a good deal of attention to U.S. fiscal policy.

The speech was important not only because it was on target – Mr. Bernanke recommended reforming U.S. tax and spending policies in a gradual way to control the debt without creating “fiscal headwinds” on the recovery (translation: a Simpson-Bowles-like plan) – but also because he stepped beyond the world of pure monetary policy to address legislative issues. This only made sense since the economic recovery so clearly depended on both rational Fed and fiscal policies. Even then, Mr. Bernanke held back from being overly prescriptive because there is such strong a firewall between policies from the Fed and those on Capitol Hill.

It seems likely that as Fed Chairwoman Janet Yellen gave her keynote address at Jackson Hole last week focused on labor markets, she, too, would have liked to be able to give lawmakers a gentle nudge—or a shove—in the right direction.

Efforts from the Fed alone will not be sufficient to stimulate growth and ensure that growth translates into more and better jobs. The larger lift will have to come through sensible federal policies. We need a medium-term debt deal that focuses not on short-term deficit reduction – where we have already done too much in the wrong areas of the budget – but on gradual changes to spending related to aging and health care. We need immigration, energy, and infrastructure reforms. We need to update and improve our unemployment and worker-retraining programs. And we need tax reform.

As beneficial as these changes would be, in a divided, polarized and broken Congress, they are exceedingly unlikely to happen. So while Chairwoman Yellen laid out the nuances of the labor market and a variety of considerations for how the Fed might react, one can only imagine she must have wished she were able to forgo the Fed-speak to tell lawmakers the critically important role they are neglecting in getting the economy back on track.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.