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|Peter Boettke|
As you no doubt know, Ben Bernanke gave an interview tonight on CBS 60 Minutes. Let me stress once again, as I have in the past, that I consider Ben Bernanke one of the most genuinely nice guys among elite economist I have had the good fortunate to meet. He has no reason to remember me, but we actually spoke several times when he visited NYU and he answered my questions about his studies on the Great Depression and monetary policy. He tolerated my questions and always talked to me, not down to me. And I certainly don't view him in his capacity as the Fed Chairman as engaged in some grand political conspiracy to make his friends rich and the rest of us poor. I view his "mistakes" as a result of intellectual error. His scholarship on the Great Depression is rigorous and carefully done. But his focus was on the 1930s, not the policy errors of the 1920s that caused the problems. He read Friedman, perhaps he would have been wise to have read Hayek.
I have increasingly come to the opinion that the data that individuals are pointing to as an example of the down-turn in 2008 is merely the manifestation of the market correcting for the previous distortions caused by the policy error of the manipulation of money and credit of the previous period. The claims that we must be pro-active as the system adjusts translates into a demand to be pro-active to prevent the market correction. In short, the demands to engage in monetary expansion to counter-act the downturn are in effect a demand to reinflate the previous credit induced boom.
But that is not what I want to focus on, though I know my position is controversial even among my peers in Austrian economics. Instead, I want to focus on the segment of Bernanke's interview where he dealt with the question of inflation and deflation. Bernanke --- as a good student of Milton Friedman --- wants to be known as an inflation fighter but ultimately he fears deflation far more than he worries about inflation. At one point in this segment of the interview he actually says in response to a question about inflation that he could stop inflation in 15 minutes.
His intellectual framework minimizes the costs of inflation, and his understanding of public administration minimizes the difficulties of policy making. Bernanke doesn't see the point of Hayek's "tiger by the tail" analogy with regard to inflation, and I don't think he buys the political difficulties that the legacy of Lord Keynes left us that Buchanan and Wagner identify in Democracy in Deficit. Bernanke's emphasis in the interview was the costs of doing nothing, but he doesn't really address the costs of what was done. I don't expect a man in his position to do so in an interview on CBS. But he is such a sincere man, that I actually think his private views and his public views are not so divorced from one another. His is not an error of malfeasance, but one of intellectual error. That intellectual error includes an overconfidence in the ability of Fed powers to keep inflation in check with a single policy decision that takes 15 minutes to implement, as well as his assessment that in fighting the deflationary spiral the tools of monetary policy can be used optimally to keep an economy from collapsing. He has read Miltion Friedman on the Great Depression in depth, I suggest a close reading of Friedman's review of Abba Lerner's The Economics of Control, where he warns about thinking about public administration and policy making as if it was in a vacuum. Bernanke insisted in the interview that the Fed was completely independent of politics, and was in fact an institution of benevolent social control with the public interest as its only purpose.
But what if this form of sincere but ultimately arrogant progressivism is the ultimately source of policy errors?
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Isn't this an example of what Sanford Ikeda calls "radical ignorance" in his Dynamics of the Mixed Economy? In other words, Ben Bernanke doesn't know the consequences of his actions because he doesn't know the relevant theory. Ikeda, if I recall correctly, makes the point that this is one of the main destabilizing errors of the interventionist state.
At one point Bernanke states flatly that buying treasuries on the open market will not effect the money supply, and is not tantamount to "money printing". Now will one of the monetary scholars who frequently comment here please explain that statement. It was made with a great deal of confidence, and I did not see Bernanke blink as he said it. If those $600B in securities are purchased on the open market, where does Dr. Bernanke think the money will end up? He must calculate that it will mostly go straight under the matress??
Saying that he is dishonest doesn't necessarily mean that he's an evil grabber part of a big conspiracy or something as cooky. Even good intentioned politicians sometimes choose arguments that are easier to sell to describe their policy, but not necessarily the honest truth.
I do believe the majority of men to be honest and sincere, at least most of the time. This belief has never made me any more optimistic regarding mankind. The evils of politics would be more or less the same without corruption and sadism: antisocial politicians are not required to obtain antisocial policies.
"In short, the demands to engage in monetary expansion to counter-act the downturn are in effect a demand to reinflate the previous credit induced boom.
But that is not what I want to focus on, though I know my position is controversial even among my peers in Austrian economics."
Really? Who are the Austrian defenders of QE2? Scott Sumner is not an Austrian. :)
Steve,
Have you seen this? .... http://macromarketmusings.blogspot.com/2010/11/would-fa-hayek-favor-qe2.html
Pete
One of the things I've learned from traveling to various parts of the world over the years, and from my reading of history, is that the most dangerous men (in terms of implementing policies that have disastrous consequences) is that they were and are "sincere."
That is, they actually believe what they say and do.
For example, the "problem" with people like, say, Hitler and Stalin is that they actually believed in what they said. In other words, Hitler was a Nazi and Stalin was a communist.
Those who view individuals like them as "mere" thugs and power-lusting people, and argue that their ideological arguments were just smoke-screen to hide their desire for control, miss the real harm in their desire for power -- they want to do "good". However perverse that "good" may seem to us.
If people like them were "only" after power some of them could have been "bought off." Nothing is worse than an honest bureaucrat, who you can't bribe to look the other way, or to do something different than he is planning.
(If only Hitler could have been bribed not to kill millions of Jews. Or Stalin not to kill millions of peasants who resisted collectivization of the land.)
And, if Pete is right, that is part of the problem with Bernanke: he really believes in what he says. He considers himself wise and able enough to be an monetary central planner. That is what Hayek meant by "the pretense of knowledge" and Wilhelm Roepke referred to as the "hubris of the intellectual."
And one should recall Adam Smith's words:
"The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it."
Clearly, Bernanke fits into that last part of the passage: ". . . would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it."
Richard Ebeling
To follow up on Richard's wonderful comment, this is why in Sovietology, I have always found -- despite my great respect -- Richard Pipes to miss an essential element in understanding that history in a way that Martin Malia, let alone Robert Conquest never did.
And for those who want to understand the history of the 20th century, reading these historians is essential. But the way economists have tackled these ideological movements (say Alec Nove among the best) falls way short of dealing with ideology in an acceptable way.
BTW, Richard recommended to me a great work along these lines back when I was a student --- Tony Smith's Thinking Like a Communist -- http://www.amazon.com/Thinking-Like-Communist-Tony-Smith/dp/0393956911
I think your really bending over backwards to give this "THIEF" the benefit of the doubt! The lesson learned is that saving and following the rules are for suckers.Bernanke is using debasement as the tool to bailout institutions that are bad actors that screwed up at the expense of savers and more productive good actors! I know your a nice guy Pete but did you lose your Jersey straight talking ability. As people on fixed incomes have to do with less due to "Helicopter Ben's"debasement, I'm sure they'll be comforted by the fact that the power elite can still fill and heat their pools and theirs yachts will sail!
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