Ben Bernanke Gets it Wrong
From the New York Times online, at this very hour:
Bernanke Signals Intent to Further Spur Economy
The Fed chairman indicated that the central bank was poised to take additional steps to try to fight persistently low inflation and high unemployment.
By the great economist Allan Meltzer, writing in the Wall Street Journal just this past Monday:
The Federal Reserve seems determined to make mistakes..... Milton Friedman pointed out in 1968 why any gain in employment would be temporary: It would last only so long as people underestimated the rate of inflation. Friedman's analysis is now a standard teaching of economics. Surely Fed economists understand this.....
The most important restriction on investment today is not tight monetary policy, but uncertainty about administration policy. Businesses cannot know what their taxes, health-care, energy and regulatory costs will be, so they cannot know what return to expect on any new investment. They wait, hoping for a better day and an end to antibusiness pronouncements from the White House. President Obama could do more for the economy by declaring a three-year moratorium on new taxes and new regulation.
Meltzer's "better day" will arrive, of course, on November 2. But Ben Bernanke? His term as Fed chairman won't expire until 2014.
P.S. for Kenneth: Yes, I've had dinner with Allan Meltzer.
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Sep '10
Re: Ben Bernanke Gets it Wrong
This stuff is frightening. I heard Paul Ryan on a local show this morning where the host asked him about Bernanke and Fed policy. As you'd expect, Ryan is vehemently opposed to this "easing" approach. He said he's recently had private converastions with Bernanke where he expressed his concerns. The message from Bernanke? (paraphrasing..) "The Fed has tools available that will allow it to extract the excess liquidity once the velocity of money starts to increase."
Consider me unconvinced..
Aug '10
Re: Ben Bernanke Gets it Wrong
Speaking of extraction, whenever I hear Bernanke's name, I hear him saying:
"I'm Ben Bernanke, Spencer, and I want your teeth for the Federal Reserve. I'm cutting interest rates in half, Spencer -- and I need your teeth."
This passage comes from a song (of sorts) a friend shared with me once. And this musical experience, disturbing as it is, has permanently colored my view of the man. Strange how that happens -- a reminder of how even knowledge of propaganda techniques doesn't provide complete immunity. (Not that the lyricists were going for propaganda -- they were going for absurdity... I think.)
Though perhaps the resulting unease I have about Ben Bernanke is justified anyhow.
Re: Ben Bernanke Gets it Wrong
Peter, this recession was a product of the variety of Alan Greenspan. Like any good social scientist, he believed in the possibility of "rational administration." So does Ben Bernanke. The think that they can practice legerdemain with regard to the economy, and all that they achieve is a distortion of market signals. I would like to think that, between them, these two would undermine the respectability of the pretense to "rational administration." But such a supposition would be folly in the extreme.
Sep '10
Re: Ben Bernanke Gets it Wrong
I watched the first part of "Commanding Heights" earlier this week (which is available to watch for free online: http://www.pbs.org/wgbh/commandingheights/hi/story/index.html ), and I find it quite alarming that Mr. Bernanke is proposing to do exactly what this documentary shows is failed policy: increase the money supply in order to decrease unemployment. Does Mr. Bernanke not remember which government entity helped to cause Stagflation? Could it not be the entity he now chairs? Executing the same policy he now proposes?
Why don't we all buy copies of this documentary and send them to the Fed as a message? And if that doesn't work, we can all wrap dead fish with copies of Economics in One Lesson and send those to the Fed...
There is only one word to describe what afflicts Mr. Bernanke and his ilk: hubris. And what comes after hubris?...
Too bad those that suffer the most will be us and not elites like Mr. Bernanke.
Edited on Oct 15, 2010 at 4:40pmOct '10
Re: Ben Bernanke Gets it Wrong
Paul Ryan has written legislation that would repeal the Humphrey Hawkins Act, and get the Fed back to a single mandate of price stability (replacing the dual mandate of price stability and full employment). To measure price stability, he recommends measuring the value of the dollar against a broad based basket of commodities, although the bill does not require a specific methodology. It's a great idea, but unfortunately, I don't think it will ever happen.
Sep '10
Re: Ben Bernanke Gets it Wrong
I didn't know this, thank you for mentioning it; yet another reason why Paul Ryan is awesome. Was this bill ever officially proposed and issued an H.R. number? I'd like to read more about it if I can, and have something to refer to so I can more effectively promote it.
As well, this is going on my list of essential reforms to restore the Republic. Thanks again!
May '10
Re: Ben Bernanke Gets it Wrong
The bureaucrats keep saying "spur" - I do not think it means what they think it means.
Is it still "spurring" the economy if instead of spurs the government uses a lasso, and instead of the economy's sides the pressure is applied at the throat?
Aug '10
Re: Ben Bernanke Gets it Wrong
Five times in my lifetime the Federal Reserve - with prodding from the White House - has created asset bubbles by printing money.
Lyndon Johnson began the process in earnest by taking us off the silver standard to pay for his Great Society and the Vietnam War. Inflation eroded the extraordinary prosperity of the '60's, and Johnson effectively resigned from the presidency.
Richard Nixon perpetuated the policy into the '70's, which created infamous "stagflation", or high inflation and high unemployment.
Jimmy Carter replaced the relatively conservative Fed Chief Arthur Burns with the liberal G. William Miller, who deliberately fueled inflation in the late '70's.
Paul Volcker brought inflation to heel and Reagan's policies brought stability in the '80's; but Clinton appointed the loose credit guru Alan Greenspan, who fueled the dot com bubble of the late '90's, and the real estate bubble of recent years.
Can there be any doubt that we live under the tyranny of the Fed? And that connected families make billions by knowing the direction of Fed policies in advance?
Sep '10
Re: Ben Bernanke Gets it Wrong
There are still 30+ trillion dollars of bad debts that must be written down. While a loose money supply and a more sane economic policy in Washington might both help to make this process less painful, neither will make the process unnecessary. We have lived beyond our means for 25+ years. We are now paying the piper. If you think Nov 2 will change this, you need to think again. I think Bernanke has some grasp of this and could not/would not say so. I am not sure Meltzer has.
Oct '10
Re: Ben Bernanke Gets it Wrong
Here is a column by Paul Ryan on his Price Stability Act of 2008: http://www.ryanforcongress.com/site/Viewer.aspx?iid=10010&mname=Article
Oct '10
Re: Ben Bernanke Gets it Wrong
And it is called HR6053. http://www.opencongress.org/bill/110-h6053/show
Jun '10
Re: Ben Bernanke Gets it Wrong
Lets just hope that China and the rest of Asia do not develop debt markets. Think if we actually had to pay a real interest rate.
May '10
Re: Ben Bernanke Gets it Wrong
Dr. Meltzer is absolutely right that the regulatory and anti-business practices in Washington are the cause of the economy's failure to pull out of the recession.
But Bernanke loosening up the money to some extent is not necessarily wrong. Friedman's thesis was not the degree of monetary expansion, but the unpredictability of it. Some very credible economists have described how the aftermath of the mortgage meltdown was effectively an extremely tight money regime, for reasons such as the new regulations increasing reserve requirements on banks, etc. Go to EconTalk and listen to the discussions with Scott Sumner and with Doug Irwin. Both Russ Roberts and Doug Irwin agree that the gold standard, for example, a darling of conservative economists, is not only problematic, but was a major cause of the Great Depression.
The problem right now is that there is artificially tight money. Many agree that it would be beneficial to increase the effectively available money supply- the real concern is whether, after the economy starts to move again and the hoarders loosen the artificial purse strings, Bernanke will be able to squeeze the excess back out fast enough. Neither view is a slam-dunk.