The U.S. economy is well positioned to weather its current challenges, Federal Reserve Chairman Ben Bernanke said Wednesday, because it is more flexible than it was a generation ago and policymakers know better how to respond.
In a speech at Harvard University’s graduation exercises, Bernanke compared the current state of the economy with that in 1975, when he graduated from the school.
“Then, as now, we were experiencing a serious oil-price shock, sharply rising prices for food and other commodities, and subpar economic growth,” he noted.
But he said the nation is better equipped in 2008 to deal with these problems. “Today’s situation differs from that of 33 years ago in large part because our economy and society have become much more flexible and able to adapt to difficult situations and new challenges,” Bernanke said.
In the past five years, oil prices have risen by about the same amount, in percentage terms, as they did in the early 1970s — but the economic consequences have not been nearly so severe, as joblessness remains low and economic growth has been slowing mainly because of the weak housing market.
One reason, Bernanke said, is that businesses and consumers have responded to higher fuel prices by becoming more efficient.
“The great improvement in energy efficiency was less the result of government programs than of steps taken by households and businesses in response to higher energy prices, including substantial investments in more energy-efficient equipment and means of transportation.”
By contrast, in the 1970s, the government intervened to try to keep gasoline prices from rising — leading to long lines at gas pumps and rationing.
