THE DIFFERENCE BETWEEN Ben S. Bernanke, the chairman of the Federal Reserve, and Bill Frist, the Senate majority leader, is the difference between an economist and a politician. One says what he thinks but no one knows what he means, while the other doesn't say what he thinks but everyone knows what he means.
On Wednesday, the House approved legislation that would cut taxes by about $70 billion. The plan, which is really an extension of cuts that are due to expire next year, would maintain reductions on dividends and capital gains taxes and would also exempt about 15 million middle- and upper-middle-class Americans from the alternative minimum tax. The Senate is expected to follow suit.
There are more than a few reasons not to like this bill. It is skewed toward the wealthy; average households (earning the U.S. median of about $44,000) would save less than $50 a year, according to the Tax Policy Center of the Urban Institute and the Brookings Institution, while those earning more than $1 million would save almost $42,000. The plan would also add to the deficit. When Frist and President Bush were promoting these cuts in 2001 and 2003, they dismissed concerns about the effect on the deficit by emphasizing that the reductions were only temporary. Just like their argument.
In defending the tax cuts, Frist said Tuesday: "With our tax policies over the last five years, Congress has spurred energetic economic growth and healthy job creation." Yet neither economic nor job growth began in earnest until a few years after the first tax cuts were enacted. And both had more to do with increased corporate profits and spending than any change in tax policy.
What Frist couldn't say, of course, is that cutting taxes is more important to the GOP than balancing the budget. But as the party hands out tax breaks and government money with equal abandon, its fiscal and intellectual bankruptcy is becoming obvious.
Compare Frist's statement with that released by the Federal Open Market Committee, of which Bernanke is chairman. On Wednesday, the committee raised the federal funds rate to 5%, the 16th consecutive quarter-point increase. Bernanke is wary of inflation and has said that fighting it is one of the bank's main tasks. At the same time, the Fed does not want to slow economic growth too much.
The statement reads in part: "The committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information." What this sentence means is open to interpretation, to put it mildly. On Wednesday, economists and grammarians were focusing their attention on the word "yet," which was absent from similar language in the committee's previous two statements.
What Bernanke giveth, Frist taketh away. (Or is it the other way around?) The two are not openly in conflict -- under the "Greenspan Rules," all members of Congress must pay deference to the Fed chairman, regardless of whether they understand him -- but they are at cross-purposes. While Bernanke aims to gently steer U.S. prosperity forward, Frist and his allies seem intent on recklessly placing it in jeopardy.