The Widdershins

Trickless ponies…

Posted on: December 20, 2013

Good afternoon Widdershins. Given that it’s the Friday before Christmas, I hope your tinsel’s trimmed, your nog is eggy, and your Yule logs are aglow.

Too often we find ourselves all worked up in a froth about government employees who aren’t doing the jobs we hired them to do. We crave scandal-ridden stories of government misbehavior. It’s an exercise in confirmation bias — wanting to believe what we have been conditioned to believe.

Sorry to disappoint, but today’s post isn’t about that. It is about a government employee who has performed Happy Ben Bernankeadmirably in the face of momentous opposition. It is about someone who has been innovative despite withering criticism. From a perch many want to abolish, he’s been respectful of the deliberately ignorant. He’s been open and more transparent than any before him. And by the way, he might be the person who saved the country from sliding into the abyss of another Great Depression.

Ben Bernanke’s term as Chairman of the Federal Reserve is coming to an end. The financial world over which he presided came close to a cataclysmic collapse in 2008, but he acted by shoring up failing banks and then using innovative monetary techniques. He did the best he could with the limited tools he had. One observer said, “Each time the market felt the Fed was out of bullets, Bernanke would pull out a bazooka.”

Bernanke is not without critics, but even those critics have understanding words to say about him. Paul Krugman said, “Bernanke will be remembered as innovative, but was hamstrung by institutional concerns.”

Pained Ben BernankeOf the mechanisms Bernanke employed, he has been criticized as enriching Wall Street, but such criticism focuses on a result of having limited tools at his disposal. The Fed has only two statutory duties — to aim for maximum sustainable employment and to stabilize prices. In other words, to fashion policies that promote employment and that foster a healthy rate of inflation. The arrows in his quiver were few, but he drew and fired even the dullest of those arrows in order to aid an anemic economy.

In his last press conference, the always soft-spoken Bernanke leveled a rather barbed salvo by saying, “Fiscal policy is restraining economic growth.” In economic speak, that is the equivalent of “yer mama.”

What do those words mean? Simply put, it means the people who set fiscal policy are hurting economic growth and in turn, hurting Americans. The people who set fiscal policy are none other than the inglorious bastards who go to work in the Capitol — our improvidently elected Congressional critters.

The damage inflicted by Congress this year is a loss of $700 Billion in economic activity, 2 Million jobs, and 3% of GNP. All of this was self-inflicted just like the $24 Billion government shutdown pony show was.

In apportioning blame reporters too often draw a moral equivalency between the two parties in order to foster a patina of fairness. In this case, that charade is a big pile of horse hockey from the aforementioned show ponies.

For instance, let’s look at Conservative economic policy. In a weak economy Conservatives promote less taxes, less Bored Ben Bernankeregulation, cutting government spending, more energy production, free trade, and low inflation.

Now let’s look at the policies Conservatives promote during a strong economy. In a strong economy, Conservatives promote less taxes, less regulation, cutting government spending, more energy production, free trade, and low inflation.

As discerning Widdershin readers, you noticed Conservatives trumpet the same exact policies no matter whether the economy is weak or it is strong — whether unemployment is high or when it is low.

In short, Conservatives don’t have an economic policy because they don’t believe government has a role other than to promote Darwinian corporate feeding frenzies.

Case in point, cutting 1.3 million Americans and their families off unemployment benefits three days after Christmas. The advice of Conservatives — get a job. It’s lost on these pandering Conservatives that as a precondition to qualifying for unemployment, you MUST already be actively seeking employment.

Praying Ben BernankeBen Bernanke set the stage for an alternate world. Bernanke kept interest rates low, almost zero, in order for the government to engage in deficit spending to compensate for lackluster demand and through that demand — hiring. Interest rates were purposefully low in order for the government to rebuild crumbling infrastructure while creating good paying construction jobs. Interest rates were low in order to foster mortgage modifications to reduce foreclosures and enhance consumption ultimately meaning more jobs. Congress would have none of it.

Bernanke led the Conservative show ponies toward the water, but he couldn’t make them drink. A scholarly expert on the Great Depression, Bernanke appreciated the terrible, unrelenting effects of unemployment. He understood it isn’t just about jobs, it is about productivity being lost forever. In terms of productivity, a month, a year, or even a day lost can never be recaptured since there are no do-overs where time is concerned.

We should be thankful Ben Bernanke understood this. Too bad Congress doesn’t.

This is an open thread.

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6 Responses to "Trickless ponies…"

I really can’t comment much on this because econ is a subject I know very little about. I know he was criticized about the AIG thing and folks have blamed him for keeping interest rates low (for the banks) and the banks taking advantage of that and yet still not turning lose any money, i.e. loaning it out, to stimulate the economy. All I know is that I’m for the “new lady” there at the Fed and don’t ask me specifically why that is.

Yes, he’s been criticized, but given the 2008 mess almost anyone would be. He was dealt a crap pie and had to serve many masters. The alternative he had was simple — do nothing or do something with what he had. What he did was to keep interest rates low hoping that would help employment. He did and for the past four years, his was the only game in town in terms of stimulus. As for the outfall from his acts, it has stoked the stock market and helped banks. Not the best outcome, but an unintended consequence. His alternative was to do nothing. He chose to do something. Can’t fault him there — more than Congress did.

Prolix@2: If I remember correctly and correct me if I’m wrong, the banks were “borrowing” from the Fed at like 0.12% and in some cases using the money to buy Treasury Notes that the Fed then had to pay something like 2% interest on? Was it something like that? Oh here ya go:

http://www.pbs.org/newshour/businessdesk/2010/05/are-banks-borrowing-from-the-f.html

As I said, this is not my forte.

@3, yes, you are correct. But that is the exact conundrum, either do nothing or do something. Attacking interest rates in keeping them low was in hopes of stimulating demand. The resultant opportunity it opened for banks was an unintended consequence, but that was the quandary. With his limited tools, interest rates through quantitative easing was what he had to play, so in hoping to help, he made the Solomanic decision. The alternative, to withhold an unintended consequence from the banks would have left him with no tool to use thus everyone would have been a loser. Not a good choice.

Prolix@4: Well, that’s why I say the entire thing is waaay above my lowly pay scale. 😉

My tree is finished, the purchased eggnog in the fridge, and I need to get my fanny in gear and make these cookies.
A fantastic post. You will yet teach me economics, Prolix.

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