The More Ben Bernanke Talks, the Smaller He Becomes
Former Federal Reserve Chairman Ben Bernanke has a new book out. It's titled The Courage to Act.
Interesting about all this is that if Bernanke were more attuned to how the world actually works well outside the walls of academia, he would instead laud the few - if any - courageous politicians and bureaucrats prone to doing nothing. Politicians and bureaucrats, particularly ones backed by the U.S. taxpayer, can always act with the unlimited resources at their disposal. For government types, the act of "doing something" is the political constant, and it's the opposite of courageous.
Economies aren't living, breathing blobs. They're just collections of individuals. Sadly Bernanke sees economies as tangible objects to be tinkered with. We suffer his conceit, and that of others like him who crowd an economics profession that future history books will pair with astrology.
Back in the real world individuals make mistakes,and individuals learn from those mistakes. Recessions are a pure signal that individuals are learning from mistakes made. That's why an economy of individuals (realistically the only kind of economy) must be left alone when it's contracting. Recessions are a sign of individuals fixing what they're doing wrong. That's why recessions not meddled with gift us with major economic rebounds. Recessions are the wondrous economic cure.
Not so to the allegedly courageous Bernanke. In an interview with USA Today's Susan Page, Bernanke said "I think there was a reasonably good chance that, barring stabilization of the financial system, that we would have gone into a 1930s-style depression."
What should stagger readers is not just the arrogance behind a statement that says one academic can save an economy, but also the confusion within it. Remember, Bernanke is a self-proclaimed Great Depression buff. Yet his comment reveals someone who learned all the wrong lessons from a period about which he claims expertise.
Economies are once again a collection of individuals. Those individuals don't just suddenly stop producing for years and years. At the same time, individuals can often be rendered less productive, or operate in unproductive fashion. We see this all the time in our individual lives. We see it in people whose constant errors are enabled through bailout of those same errors. In the real world we agree that people need to be allowed to hit rock bottom, to fail. Only then will they fix what they're doing wrong. Broken down to the individual, recessions are healthy because they force the cessation of what is bringing the individual harm.
What this tells us is that Bernanke's very description of the ‘30s and 2008 defies simple logic. Recessions, while painful, are by their very name, short. That's because they're the cure. Individuals who hit bottom are forced to change their ways, and that's the point. That's why a recession in a free economy of individuals could never be a long-term concept. Long term could only result from government or personal (let's face it, some parents never let their errant kids hit bottom) cushioning of errors so that they're not learned from, or general economic meddling which erects barriers to production.
Looked at more specifically, Ben Affleck got so silly at one point in his career that he made Gigli. Was his "recession" that forced him out of acting and into directing on the way to a Best Picture Oscar for Argo bad? Was Hall of Fame wideout Cris Carter's "recession" after Buddy Ryan cut him (thus forcing him to clean up a drug-addled personal life) something he should have been shielded from? Apple Computer nearly went bankrupt in the late ‘90s. Thank goodness it nearly went under. Absent a recession for Apple the urgency among its board members to bring back Steve Jobs is probably quite reduced to all of our detriment.
Bernanke thinks "recessions" or "depressions" are what the Fed and politicians should fight? Well, of course he does. A Keynesian through and through, to Bernanke any kind of economic activity is always good (Gigli Part II the movie equivalent of digging holes only to fill them back in) even if it often occurs at the expense of other, more economy-enhancing work. To Bernanke, Gigli Part II would be "stimulative" simply because it would "create jobs." Unable to see beyond the "seen," Ben Affleck continuing to work is better to Bernanke than a recession that would greatly improve Affleck, along with Affleck's long-term output.
It's similarly apparent in light of Bernanke's fear of recessions that he's not terribly familiar with history. Figure the U.S. economy contracted substantially in 1920-21, the decline was greater than the 1929-30 contraction, so-called "money supply" predictably declined in both instances (Bernanke naively thinks central banks can increase "money supply" to fight recessions - they can't), but we never much hear about the first recession. We don't because it was so short, and it was short precisely because the political class did less than nothing. Basically, it allowed the Afflecks, Carters and Apples of that period to hit rock bottom, and the result was a major economic boom.
Applied to the "Great Depression," it was only great insofar as a political class led first by President Herbert Hoover, and later by President Franklin D. Roosevelt, decided to try and shield Americans from the near-term pain of recession. Basically Affleck got to make Gigli Part II, Ryan didn't cut Carter, and Gilbert Amelio stayed on as Apple CEO rather than being replaced by Jobs. In a preview of 2008, the federal government intervened in what was a healthy economic cleanse. In short, the "1930s-style depression" that Bernanke sought to avoid was almost wholly a function of the very government intervention that he advocated in 2008.
Goodness, countries like Japan and Germany have roared back economically from the utter destruction that is war within a few years, yet the U.S. couldn't survive the healthy failure of Bear Stearns, Goldman Sachs, and the Federal Reserve's most favored (5 times in 25 years) bailout recipient of all: Citibank? The alleged Great Depression expert in Bernanke missed in 2008 that a major recession was exactly what an economy of individuals needed in order to get back on track.
Perhaps not so remarkable in light of the delusions that define him, Bernanke thinks the recovery since '08 was gifted to us by the central bank he led. No. Not even close. The recession was the cure, yet Bernanke, revealing neither common sense nor a sense of history, helped rob the economy of the very failure that would have enhanced it, borrowed $4 trillion from banks in order to subsidize government spending and (you can't make this up!) more housing consumption, then he lowered the interbank lending rate the Fed sets to zero. What serious economist would commit any of the three errors listed; errors that deprived the economy of the kind of cleansing necessary for major liftoff? To read Bernanke is to marvel at the U.S. economy's resilience despite the confusion that defines those like him who scarily presume to plan the very same economy.
In 2008 Bernanke revealed neither courage nor fear in "acting." Instead, our mercifully departed former Fed Chairman exposed for all to see staggering incompetence that deprived Americans of a recovery that would make today's tiny by comparison. Yet as all former government officials do no matter the small size of their achievements, or in Bernanke's case the massive scale of their failures, he's written a book. His advisors did him a lousy turn in encouraging him to do so. With every word written this thankfully former central banker continues to shrink.