A plague of economic locusts

The Federal Reserve chairman cites "numerous difficulties" facing the economy. And Ben Bernanke is not known for his hyperbole.

Published July 15, 2008 3:03PM (EDT)

From Ben Bernanke's testimony to the Senate Committee on Banking, Housing, and Urban Affairs on Tuesday morning:

"The economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and some other commodities."

Tell us something we don't know, Ben!

OK, that's unfair. The Federal Reserve chairman is by his nature a man who generally expresses himself with restraint. So we should pay attention when he leans pessimistic. What he chooses to call "numerous difficulties" those of us who are less composed might regard as the 10 plagues sent down by God upon Egypt, back when the Pharaoh was giving Moses and his people a hard time. Locusts? Check. Incurable boils? Check. Rivers turning into blood? Absolutely. Death to all first-born sons? Coming right up!

Investors are providing a somber counterpoint to Bernanke's testimony. In early morning trading, the Dow Jones industrial average fell 200 points, testing new lows for the year. Even the one economic bright spot in recent months -- the uptick in retail sales in May that reflected the economic stimulus fix -- lost some sheen. Retail sales in June grew only 1 percent, sharply lower than May's performance. And though President Bush maintained in a press conference on Tuesday that the Fannie/Freddie rescue plan was not a "bailout," there appears to be a growing consensus that the two troubled pillars of the mortgage lending system will ultimately be effectively nationalized.

Gerald Seib, executive Washington editor of the Wall Street Journal, turned especially gloomy, writing in his column Tuesday morning that "the newest outbreak of bleak financial news" represented a "boost" for Democrats.

To make matters worse for Republicans, the financial scares have reinforced the specific argument that government intervention in the economy, a natural inclination for Democrats, sometimes may be necessary. Even the Bush administration, resistant to intervene in markets, and reluctant to ride to the rescue of investors in the specific case of the housing mess, stepped up over the weekend to offer a virtual government guarantee that Fannie and Freddie would stay solvent.

It grows ever harder for Republicans to campaign against government intrusion in the marketplace the more Republicans themselves appear to be losing faith in letting markets work. And if voters want intervention in the economy, why not get the real deal with Democrats?

Some might argue that the Bush administration has been extremely solicitous of investor health since the very beginning of the run of financial troubles that has now been afflicting the nation for at least a year, but that's quibbling. I'm more amused by the formulation that Republicans are losing "faith in letting markets work."

Faith-based economics seems like an unsound management philosophy, for those of us without the power to part the Red Sea and make a getaway from a falling dollar, rising oil prices, and financially insolvent banks. Are Republicans really losing faith -- or are they just facing up to reality?

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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Ben Bernanke Globalization How The World Works U.s. Economy