If Bernanke Has a Great Inflation Record, Then Kim Jong-un Is the World's Tallest Man
In an exchange with Bob Corker on Tuesday in which the Senator called Ben Bernanke an inflation dove, the Chairman of the Federal Reserve responded that "my inflation record is the best of any Federal Reserve chairman in the postwar period." For the readers who presume this article to be satire, the link here will prove otherwise. Bernanke, the walking, tripping, living definition of systemic risk now views himself as a top level inflation fighter in addition to being the world's foremost Great Depression expert, bank savior, and so many other things. And it's President Obama who has the huge ego?
What's comical here, and to be fair, it's easy to misspeak when under the spotlight, is that by his very own economic illogic Bernanke implicitly acknowledged that in addition to having the best inflation record since WWII, he's also overseen the worst economic performance of any Fed Chairman since 1945. It should also be said that Bernanke implicitly acknowledged Tuesday the utter failure of his quantitative easing program. More on both later.
First, Bernanke's inflation assertion needs to be addressed. The Chairman says he has the best inflation record since the 2nd World War. Fair enough, but since he can say that, I'm now going to officially proclaim North Korea's Kim Jong-un the tallest person in the world at 10 feet, 10 inches. The latter was easy to do as I simply shrunk the inch to half of its former length. While Kim used to be 65 inches, he's now 130 inches long and over 10 feet tall. Alert the Guinness Book of World Records.
Back to reality, however I redefine the inch and foot in order to put Kim in the record books, no one is fooled. To see North Korea's "dear leader" is to see someone who stands roughly 65 inches in length. Bernanke's howler about his record on inflation is as credible as Kim claiming that when he stands, he looks down on a regulation basketball rim.
Inflation is all in how you measure it. As John Williams' Shadow Stats reveals, if we measured inflation the way we did as recently as the early ‘90s, it would be running at 6% presently. Surely the CPI would be even higher today if we not only included inputs like gasoline and food, but increased their weighting in consideration of how much gasoline alone eats up the budget of the average earner.
Gold, the most objective measure of money in existence, could be had for roughly 1/480th of an ounce when Bernanke was nominated to run the Fed, but now a dollar only buys 1/1600th. Oil was around $50 barrel, yet today is $93. Thanks to a very generous measuring process for inflation that resembles mine for length whereby Kim Jong-un dwarfs Yao Ming, Bernanke has a "great" inflation record. But no sentient being is fooled anymore than readers would believe that Kim is almost two Nate Robinsons.
Returning to Bernanke's implicit acknowledgements about his tenure at the Fed, very explicit in his crafting of the adolescent lie that is quantitative easing was the view that it would generate inflation. By Bernanke's demand side, Keynesian illogic, inflation is good because it forces savers (lost on our hapless Fed Chairman is the most basic of truths that money saved in no way detracts from demand) into the shopping malls, eager to spend dollars rapidly losing value thanks to the printing of them.
Let's be clear that even a 10-year old could see through the absurdity of such a policy that presumes the mere creation of paper in excess would lead to the founding of more Microsofts and Intels, but this is Bernanke. Apparently our Fed Chairman believes that treating the very savers and investors whose capital commitments drive economic growth badly is the path to growth. That the latter policy has never worked going back to Pericles in no way concerns the world's most powerful central banker, and as such he made it plain with quantitative easing that his explicit goal was inflation. If so, as in if he's got the best postwar record when it comes to inflation, then it's also true that his QE program has failed impressively. Time to unwind?
Moving to economic growth, in an August 2005 op-ed he wrote for the Wall Street Journal (months before George W. Bush's ill-conceived nomination of him to the Fed's top job), Bernanke observed that there is a "highest level of employment that can be sustained without creating inflationary pressure." There Bernanke plainly revealed what anyone who'd read his past speeches already knew well, that he was and is a Phillips Curve adherent. In short, Bernanke believed and still believes that inflation results from too much economic growth thanks to labor and capacity shortages.
Ok, so Bernanke thinks economic growth's downside is inflation. For readers scratching their heads, fear not, Bernanke is incorrect. Lost on our maximum central banker is the simple truth that America is not an island. Assuming economic growth leads to shortages in terms of labor and capacity, U.S. companies can and do access the world's labor and capacity such that the Phillips Curve model has long been rendered worthless. Here it should also be said that thanks to the Internet, ATMs, and self-checkout stands at grocery stores, most of us never deal with a live human being when purchasing airline tickets, going to the bank, or when buying ground beef, the cost of which has soared under the Bernanke dollar. In short, even if the Phillips Curve were real, and it's not, markets and a globalized economy have made it irrelevant.
Still, Bernanke believes economic growth is the cause of inflation, yet he protests that he's got the best inflation record of "any Federal Reserve chairman in the postwar period." If so, Bernanke has implicitly acknowledged by his own models of growth and inflation that he's presided over the worst economy of "any Federal Reserve chairman in the postwar period."
Back to reality, Ben Bernanke gets it backwards. Economic growth doesn't cause inflation; rather economic growth is most powerful in the absence of inflation given the simple truth that inflation drives the very investors and savers whose funds would boost economic growth into hiding. Looking at our economy today, inflation is low only insofar as the headline measurement of it has been altered to obscure the economy-smothering inflationary errors of a self-regarding Fed Chairman. Kim Jong-un would doubtless be impressed.