It's Time for Ben Bernanke to Resign
Newspaper headlines last week and over the weekend pointed to a vote on Fed Chairman Bernanke's re-nomination that is increasingly dicey. Rather than achieve the lame-duck status that will come with a near-miss vote, Bernanke should step down.
The irony in all of this is that absent the happy bonus situation on Wall Street which revealed a healthier banking system, Bernanke likely would have sailed through to re-nomination. The bank bonuses, while arguably correct, reminded voters of the bailouts of those same banks which were incorrect, but that Bernanke helped engineer.
Bonuses aside, Bernanke should step aside for the simple reason that the Fed which he oversees has failed miserably. Indeed, while in a rational world the Fed's sole mandate would involve it overseeing a dollar-price rule in terms of gold (thus making it largely irrelevant) to the exclusion of all other policies, it is presently charged with maintaining full employment, low inflation and a sound banking system. It has done none of those things.
Though unemployment was in the 4.8% range at the time of his nomination, the government's calculation of unemployed Americans has more than doubled since he took over. The dollar price of gold has similarly more than doubled on the Bernanke Fed's watch, and while Treasury policy under Presidents Bush and Obama is not given nearly enough credit for the dollar's collapse, Bernanke certainly didn't bolster the greenback with his frequent suggestions that inflation was quiescent. As for the banking system, its decline while under the allegedly watchful eye of the Bernanke Fed is well documented.
Perhaps worst of all, Bernanke is captive to the impoverishing notion that economic growth itself is inflationary. No evidence supports such a claim, and with good reason: in an economy comprised of individuals, it would be hard to find one who feels there's such thing as prospering too much. A top-down economic thinker at best, Bernanke's view of the world learned on campus has made him blind to inflation's true nature, while in thrall to mere theory that's never jibed with reality.
The arguments in favor of a second term for Bernanke are charitably weak. Top Obama advisor David Axelrod observed on CNN's "State of the Union" that "Bernanke offered very strong and steady leadership during this crisis, without which we also may have slipped into the abyss."
What Axelrod misses is the previously mentioned point that as opposed to entities unto themselves, economies are nothing more than a collection of self-interested individuals working in order to save and consume; savings and consumption one and the same. Broken down in this fashion, we can see that individuals fail stupendously all the time, and that their personal economic failures frequently author future success for telling them what not to do in the future.
In that sense, the notion that our capitalistic economy would have been irretrievably harmed had banks and other businesses been allowed to go bankrupt does not measure up to the most basic of scrutiny. In truth, we'd be much better off had the economy been cleansed of non-economic practices, much as the individual is always better off when forced to pay for his or her mistakes.
Some would say that the government's various interventions pre-crisis helped create these commercial mistakes such that bailouts were warranted, and while true in the sense that government error is always at the heart of downturns, it's not a proper defense of the bailouts. Simply put, not all banks bought into the weak-dollar "money illusion" in such a way that they made horrific housing loans to those unable to pay them back, not all banks housed mortgage-backed securities set to wither in value, and not all insurance firms failed to properly account for looming credit defaults. No matter the government's role here, the prudent shouldn't be forced to subsidize the imprudent.
Regularly suggested as another reason for keeping Bernanke around is that as "a student of the Great Depression", our present Fed Chairman knows what to do so that we can avoid repeating the same mistakes of the 1930s. A more laughable defense of Bernanke would be hard to find.
Indeed, if Bernanke were the depression expert that so many assume, he would know well that any understanding of the 1930s downturn must be measured against and include an understanding of the economic collapse of the early 1920s. The brutal 1920-21 recession was of course met with spending cuts, a commitment to the dollar's soundness and the very kind of non-intervention that made it so short, and which led to a huge economic rebound.
Looking at the 1930s, it's increasingly understood that Washington's failure to follow the non-interventionist ‘20s playbook gave us the Great Depression for the ‘30s economy suffering from all manner of mandates, currency devaluation, heavy spending/taxation and broad "regime uncertainty" such that the individuals who comprised the ‘30s economy were production averse. Bernanke's plan to fix that which he helped break shows that far from an expert on the Great Depression, he learned nothing from that decade as evidenced by his desire to repeat many of its same policy mistakes.
Of course it is due to "uncertainty" as to who might replace Bernanke that some who aren't pleased with his tenure say he should be kept around. No doubt they have a point, but by this logic every failed CEO and coach in business and sports should be retained to maintain the same failed certainty.
Back in the real world, failures should be replaced. Bernanke was a flawed choice as Fed Chairman right from the beginning, and now it's time for President Obama to put his stamp on the Fed so that he can be held accountable for future policy emanating from the world's most important central bank.
Of course Ben Bernanke could speed this process along by simply resigning. His resignation would ultimately serve as a big boost for the global economy, not to mention that it might actually achieve for him a level of sympathy that will never be gained so long as he stays in a role for which he's unsuited, and in which he's increasingly unwanted.