Fall Of The Economic High Priests
Governing: Federal Reserve Chairman Ben Bernanke admits he doesn't "have a precise read on why this slower pace of growth is persisting." He is only our latest economic emperor revealed as having no clothes.
At a press conference Wednesday, Bernanke said he believes that economic "growth is going to pick up going into 2012, but at a somewhat slower pace" than the Federal Open Market Committee had anticipated.
Elaborating, Bernanke conjectured that "maybe some of the head winds that have been concerning us, like, you know, weakness in the financial sector, problems in the housing sector, balance sheets and deleveraging issues, some of these head winds may be stronger or more persistent than we thought."
Is this the Air France flight 447 approach to economics?
Recovered two years after the disaster, that doomed jet's black boxes revealed that its pilots' response to an aerodynamic stall brought on by malfunctioning instrument readings was to lift the aircraft's nose, which led it to plummet into the Atlantic with 216 passengers in three and a half minutes. The pilots should have instead used the tried-and-true procedure of lowering the nose to increase speed and regain control.
Our economy isn't flying right not because the wind is wrong but because policymakers have undertaken the wrong maneuvers. Bernanke was exceedingly confident that enough aggressively loose monetary policy would save the dire employment picture from the Democrats' unprecedented spending spree.
It apparently takes a tenured Princeton economics department chairman not to understand what the average Joe knows only too well - that an $800 billion-plus stimulus that didn't stimulate on top of Washington turning the mortgage industry into a welfare program isn't something the jobs market can easily recover from.
But Bernanke is in fashionable company. The long-lived legend of his predecessor, Alan Greenspan, was another casualty of the 2008 financial crisis. Ludwig von Mises Institute economist Antony Mueller has described how Greenspan's almost mystical reputation as Fed chairman led financial markets to adopt "a quasi-official charter, which says that the central bank will protect its major actors from the risk of bankruptcy."
As economic historian Thomas Woods points out in his book on the financial crisis, "Meltdown," a few bankruptcies of too-big-to-fail firms would do more to jolt the financial sector "into being sensible and cautious instead of reckless and irresponsible than all the regulatory tinkering in the world."
As Steve Forbes points out in his book with Elizabeth Ames, "How Capitalism Will Save Us": "Greenspan's low-interest, weak-dollar policies as head of the Federal Reserve Bank undermined free markets" as he fell prey to the temptation of believing a government agency "could fine-tune the American and global economies."
In the late 1990s, the trio of Greenspan, Clinton Treasury Secretary Robert Rubin and his then-deputy Lawrence Summers were bestowed with the title "the Committee to Save the World" by Time magazine for engineering the bailouts of Latin-American, Russian and Asian financial markets. Goldman Sachs alumnus Rubin in particular enjoyed an aura of economic policy wizardry during the 1990s expansion.
But there's little Rubin did that helped bring us the technological boom of those years. His role in the bailouts likely exacerbated the poisonous too-big-to-fail culture, and somehow, during his post-Treasury years of helping run Citigroup, the financial firm ended up with more than $300 billion in toxic assets - most of which the taxpayers would be forced to make good on.
A free economy doesn't need an elite of government high priests named Bernanke or Greenspan or Rubin or Summers to reach and maintain the greatness that has marked most of U.S. economic history. It needs protection from such arrogant figures.