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Ben Bernanke’s Speech

By Matthew Yglesias  

"Ben Bernanke’s Speech"

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There was good stuff and bad stuff in this morning’s speech by Ben Bernanke and there’s good analysis from Annie Lowrey and Brad DeLong.

The speech makes me wonder, though, about the extent to which these talks can become self-fulfilling. For example, suppose you’re running a small local retail chains in the suburbs of a medium-sized American city with an approximately average unemployment rate. Your business is profitable, and thanks to the profitability of your business you’ve accumulated some cash that could be invested in expansion of your business. Alternatively, you could just buy bonds and be safe. Then the Chairman of the Federal Reserve says “although output growth should be somewhat stronger in 2011 than it has been recently, growth next year seems unlikely to be much above its longer-term trend. If so, then net job creation may not exceed by much the increase in the size of the labor force, implying that the unemployment rate will decline only slowly.”

It seems to me that that’s not only analysis of the situation, it could also be a causal factor in your decision to delay expansion. Alternatively, if the Fed chair was saying “there’s a ton of excess capacity in the economy and I’m determined to mobilize it even if doing so will cause inflation” then suddenly expansion looks less risky and playing it “safe” looks not so safe. Right?

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