Ben Bernanke Out-Miers Harriet Miers

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When George W. Bush partisans are asked what our previous president's worst pick for high office was, Harriet Miers' name is usually floated; Miers being the Supreme Court nominee who never made it to the confirmation process. Unable to comment knowledgeably on even the most famous of Supreme Court cases such as Griswold v. Connecticut, Miers is generally thought to be Bush's worst choice.

Consensus aside, it's long past time to highlight a much worse and far more consequential Bush appointee who did make it to his confirmation hearings for Federal Reserve Chairman, and who was confirmed to that position, Ben Bernanke. At the time of his nomination conservatives presumed that there was no way Bush could "Harriet Miers" the pick for Fed Chair, but Bernanke's utterances in Boston last week might make even the greatest of Bush partisans rethink their views.

In a speech meant to prepare markets for more in the way of economically harmful "quantitative easing", Bernanke declared that "There would appear - all else being equal - to be a case for further action." Specifically, Bernanke feels that falling prices for consumer goods are delaying consumption of same, and as such, it's essential for the Fed to aid the U.S. Treasury's destruction of the dollar in hopes that consumers will spend now rather than save for a rainy day.

That savings are what fund all economic innovation, and similarly are what fund all job creation does not seem to concern Bernanke. Captive to the Keynesian view that consumption is the driver of all economic activity, Bernanke remarkably believes that an even weaker dollar foretells prosperity for it creating incentives among consumers to exchange an increasingly suspect currency for real goods.  The future be damned.   

Worse, Bernanke's understanding of consumer prices is quite simply frightful. Similarly captive to the false view that falling prices are economically harmful, he seeks inflation to reverse their natural decline.

What he apparenlty doesn't understand is that irrespective of currency policy, consumer prices are always falling. From flat screen televisions to cellphones to global positioning systems, productivity enhancements regularly bring down the cost of most anything.

Adam Smith understood the above intimately in that not only would productivity lead to price reductions, but so would profits. Profits are what attract competition, so when we as individuals witness a desirable item that is out of our price range, we can usually rest assured that the profits gained from nosebleed retail prices will signal to other entrepreneurs that there's an economic opportunity to pursue.

To put it plainly, high prices foretell lower prices in the future, and while consumers are well aware of this reality, knowledge of lower prices does not deter consumption as Bernanke presumes.  As the impressive sales of Apple Computer have revealed time after time, consumers know that the cost of their amazing innovations will eventually fall, but they still line up to buy the company's products the minute they reach the market. 

Rich Karlgaard of Forbes has explained this process best. As Karlgaard wrote last August, "In the Cheap Revolution we find such companies as Apple, from which you can buy a new iPod, iPhone, iPad and a MacBook, all for less than $2,500. That's precisely what I paid in 1985 for my first Macintosh, with its small black-and-white screen, 512 kilobytes of memory and no hard disk."

Importantly, what Karlgaard describes is not evidence of deflation as Bernanke presumes. If the price of one item falls, this merely expands the range of goods that the average consumer can demand, thus driving up the cost of other goods. Prices are essential signals that producers rely on that lead to a more organized market economy, so for our Fed Chairman to target prices on the way to their distortion is for him to retard, not increase, output. Rising and falling consumer prices merely signal to producers what to produce more and less of. Neither is a monetary event.

Even worse, Bernanke's speech made plain what was obvious to anyone who'd read his editorials and talks prior to his appointment at the Fed. Put simply, Bernanke believes that economic growth is the cause of inflation, economic weakness deflation's cause, so with the economy weak, he blindly fears deflation despite a debased greenback that is screaming the opposite.

Of course what he misses is that economic growth can never be the cause of inflation mainly because during periods of actual inflation, productive investment dries up thanks to investors taking defensive postures with their capital.  True inflation is by definition anti-growth because inflation is always and everywhere an investment killer.  

Furthermore, Bernanke's deeply held belief that economic growth is inflation's health is belied by the certainty that American producers participate in what is a global economy.  That being the case, even if one bought into the illogical view that too many people working and producing is inflationary, this falsehood would be disproved by an interconnected global economy that possesses a great deal of what he defines as "slack."

Indeed, if demand for labor or capacity ever increases beyond what is available within these fifty states, producers can and will do what they've been doing for decades whereby they access labor and capacity overseas. Barring that, as anyone who's been to a Wal-Mart, CVS or Safeway grocery store could tell our hapless Fed Chairman, markets work around labor shortages all the time. In all three customers presently scan and pay for their items without ever dealing with a live individual if they desire.

To make basic what is basic, inflation and deflation aren't the result of too much or too little economic growth as Bernanke presumes, nor do they have much to do with consumer prices which change all the time for non-monetary reasons including, but not limited to, productivity and competition. Inflation and deflation are monetary concepts, and with the commodities most sensitive to currency error continuing to spike upward, it's clear that we've had an inflation problem for quite some time.

As it applies to our economy, Bernanke naively links slow growth with deflation, but the greater truth is that economy is weak precisely because the dollar is weak, and as such, inflationary. When we devalue, investors go on strike, and with the dollar once again testing all-time lows, the very investment that would author our recovery has gone into hiding.

Basically Ben Bernanke gets things backwards, and his confusion is our economic hardship. So while Bush's choice of Harriet Miers will fill most history books as his worst choice, proper economic history will finger Bernanke as much worse; his elevation to a job he's unequal to continuing to wreak havoc on what remains a fragile economy.

John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading ( He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015). 

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