Ben Bernanke: The Mad Hatter

It is always absurd to read anything that praises Federal Reserve Chairman Ben Bernanke. A panegyric to him inevitably puts one in mind of mad hares, grinning cats, and hookah-smoking caterpillars. In a recent Financial Times article, Edward Luce dubbed Bernanke “a good engineer who knows his limits.” Mr. Luce drags out all the well-rehearsed “jam tomorrow” Keynesian arguments in attempting to state the case that the Federal Reserve under Bernanke has been “the only serious economic actor” in Washington for the past five years.

According to Luce, Bernanke’s easy money policies are the reason that the American economy is not in even worse shape:

Without the Fed’s easy money, the stock market would be languishing and unemployment would be rising. Instead of “helicopter Ben” dropping reserves from the sky it would be “lawnmower Ben” shredding the green shoots of the recovery.

As always, when the Federal Reserve’s policies are ineffective – or even counterproductive – a Keynesian apologist always claims that without the Federal Reserve, an economic apocalypse would have been the result. This unsupported assumption is akin to a New York Mets apologist claiming that were it not for the brilliant leadership of Casey Stengal in 1962, the team would have lost even more games than the 120 it did manage to lose.

Luce credits Bernanke’s scholarly knowledge about the Great Depression with providing the insights behind the Federal Reserve’s recent maneuvers:

As a scholar of the Great Depression, he understood its chief cause was the extinction of credit: the US escaped the slump because it went off the gold standard. The New Deal had little to do with it.

These oft-repeated Keynesian talking points are too mad even for a hatter to believe. Easy money policies do not help the economy. It was the easy money policies of the 1920s that set forces in motion that would lead to the Great Depression. Even more absurd is the claim that going off the gold standard ended the Great Depression. President Franklin D. Roosevelt removed the United States from the gold standard on June 5, 1933, yet the Great Depression did not finally end in the United States until after the end of World War II. The only thing that the destruction of the gold standard did was to allow banks to maximize profits as the Federal Reserve “printed” money and quickened the destruction of the American dollar through inflation. Luce is correct in pointing out that the New Deal had nothing to do with the ending of the Great Depression in the United States. What did bring about the end of the Great Depression was the lifting of corporatist regulations and a return to a free market economy and the resultant unleashing of the productive capacity of the American economy against competitors whose factories lay in rubble.

According to Luce, the Federal Reserve under Bernanke has been the only force of good besides President Obama in working to fight against the Great Recession:

For the bulk of the past five years, the Fed has been the only serious economic actor in Washington – and remains so today. With the big exception of President Barack Obama’s 2009 stimulus, it alone has tried to find ways to keep the US economy afloat. Since 2011, fiscal policy has been a drag on the recovery. US growth is expected to hit about 2 per cent in 2013. Were it not for the fiscal cliff and the sequestration, it might be heading for 3 per cent.

The long debunked myth that a nation can spend and inflate its way to prosperity will just not die.  

Despite quantitative easing having no discernible effect on the unemployment rate, Luce rationalizes it and justifies the continuation of QE3 by claiming that inflation is not a problem:

At the open market meeting next week, Mr Bernanke is likely to come under renewed pressure to take his foot off the pedal. Last Friday’s strong jobs report will bolster those arguing that the risks are now tipping towards inflation. But they have been sounding the same alarm for four years. In the last year, US inflation has fallen to 1.6 per cent. And unemployment is still at 7.7 per cent. Mr Bernanke will get to keep QE3.

Luce – like many Federal Reserve apologists – refuses to let the facts get in the way of a good story. As far as the federal government’s inflation calculations go, the Emperor has no clothes. The government’s Consumer Price Index (CPI) calculation conveniently exempts food and energy prices in order to hide the actual alarming inflation rate. If the CPI were more honestly calculated – as it had been in the past – inflation would be calculated at closer to 10 percent. High inflation rates only further impoverish the middle class and the lower classes by redistributing wealth to banks, government, and government cronies.

The Federal Reserve is an unconstitutional bank cartel that should only exist on the other side of the Looking Glass. Unfortunately, it is very real. “No wonder you're late. Why, this watch is exactly two days slow.”