Apparently Economists Still Take Ben Bernanke Seriously
In a piece published toward the end of last year, Wall Street Journal columnist Joseph Sternberg oddly contended that the ‘most important economic story of our day is that the Chinese Communist Party has run out of reliable ways to stimulate its economy of 1.4 billion consumers." It seems he miswrote. This is not how Sternberg thinks.
Implicit in his expressed analysis is that government, by virtue of it being the government, has the tools to improve things by pulling the proverbial strings of the economy in ways commensurate with progress. In particular, it can somehow boost the economy by engineering more consumption.
Except that it can do no such thing. Not in China, not in the U.S., not in Peru. Seemingly missed by Sternberg is that consumption is always and everywhere a consequence of production. In any economy products are invariably exchanged for products, which means production is the only way to stimulate consumption.
Given this basic truth, there’s no mystery as to how China’s nominally “communist” leadership could further “stimulate” its economy. More economic freedom to produce is the easy and obvious answer. More production that logically leads to consumption is as basic as reducing or removing the tax, regulatory, tariff, and monetary barriers to production. And while some will say that the response to Sternberg is a “supply side” response, the more reasonable way to think about barrier reductions is that the latter is a common-sense response. Consumption springs from production, so remove the barriers to production. End of story.
Sternberg’s arguably mis-communicated analysis yet again presumes that government has otherworldly powers that it can unveil in economically troubled times that will magically transform what’s bad into good. No chance. The more realistic truth is that freedom works. It’s very simple.
Addressing Sternberg’s analysis further, he’s at least vaguely giving into the false notion that China's wondrous economic advance in modern times has been a creation of government planning. Surely he knows better. Central planning was tried all over the world in the second half of the 20th century, and it failed all over the world. In China it cracked-up in murderous fashion.
China’s remarkable progress in recent decades is very much a consequence of less government, and exponentially less in the way of vain attempts by the country’s political leadership to “stimulate” anything. About this, conservatives more and more tie state support of China-based industry to the country’s prosperity, but they get it 100% backwards. The question few conservatives are asking is how much more prosperous China would be, and by extension how much more prosperous the U.S. would be (Chinese demand for U.S. plenty is already enormous, plus Chinese production has enabled much greater individual specialization stateside), if Chinese businesses and entrepreneurs weren’t burdened by government meddling, subsidies, and other childish attempts to create prosperity through the political allocation of resources.
No matter how much politicians and pundits may imagine otherwise, prosperity springs from economic freedom. Always. China’s growth has been a logical result of government there doing less, and the growth would be even greater if government did even less going forward.
Which brings us to former Federal Reserve chairman Ben Bernanke. Up front, it should be stressed that the Fed’s ability to stimulate the most dynamic economy in the world is quite a bit more theory than reality. The Fed projects its always overstated relevance through banks that logically can’t lend toward growth given the frequently razor-thin margins they operate under. A business model rooted in “Don’t.Lose.Money.” is hardly one that’s going to power the growth that usually results from surprise advances hatched by entrepreneurs that bankers eager to not lose money generally can’t touch.
Except that Bernanke truly believes the central bank he used to head can be the instigator of advance. It says here Bernanke is wildly incorrect, but that’s what he believes. And since he does, and since the economy was in such disastrous shape while he was at the Fed, one wonders why Bernanke would see fit to comment on anything related to the “U.S. economy” and “growth.” Luckily for the former Fed Chair, economists still take him seriously.
In a paper presented at an economic conference last weekend in San Diego, Bernanke not surprisingly made a case for an activist Fed approaching slow growth in (by his standards) inventive ways. As he put it, “The old methods won’t do. If monetary policy is to remain relevant, policy makers will have to adopt new tools, tactics and frameworks.” Translated, Bernanke argues that the Fed and other central banks should design new ways to intervene in the economy, particularly during slowdowns. Oh dear.
Predictably missed by a former Fed Chair whose tenure at the central bank was so very much associated with economic decline and “crisis” is that the “crisis” aspect of the decline was naturally a consequence of government intervention. We know this to be true because booming, progressing economies are always and everywhere defined by endless mistakes, bankruptcies, corrections of mistakes, and the growth-inducing knowledge that springs from mistakes, bankruptcies and corrections of mistakes.
Bernanke, having learned little from 2008 and seemingly even less from the 1930s he claims to understand in expert fashion, still believes government in a general sense and the Fed in a specific sense exists to fight recessions. No. He misses by a mile. The natural state of free people is growth, and failure is a certain aspect of the growth. All activist government meddling logically correlates with is slow growth because it's all about restraining the error realization without which progress slows: see the 1930s, see the economy post 2008.
Worse is when Bernanke’s proposed “tools” are contemplated. With serious rate cuts no longer an option (that they’re toothless is lost on Bernanke and his fellow economists), he calls for asset buying of the QE variety because it’s apparently the equivalent of 3 percentage points of rate cuts. You can’t make this up. Weak economy, so the Fed should buy Treasuries and other bonds with an eye on creating false rate signals? Talk about a non sequitur. And this intervention would boost the economy how?
Oh well, readers with a clue see where this is going. Freedom once again works. If growth is the concluding chapter, then economic freedom is the introductory chapter and everything in between. This is true in China, and it’s true in the U.S. If you want growth, the simple answer is less government, and less people empowered by government like Ben Bernanke.