In today’s post on his blog, Scott Sumner writes that this is all one huge monetary policy error.
Some argue that monetary policy “errors,” are intentional, as policymakers cater to various special interest groups. I’ve never understood that argument. If, as I claim, most academic economists are very misguided about monetary policy, and obviously have no axe to grind, why would we expect a bunch of government bureaucrats to do better? Are government employees that much smarter than economists?
I don’t believe the crash of 2008 or the immediate aftermath of plunging NGDP that lasted through most of 2009 was intentional. On those, the benefit of the doubt is in order as they likely were the result of short-sighted good intentions. I do not think that Bernanke, Mishkin and crew intended to end up with the result they got.
I have said a lot of colorful things about Bernanke and Mishkin here on my blog; and I am not sorry for any of it. I am not sorry for it because while I believe the monetary disaster was the result of a policy regime carried out with good intentions, none of them were interested in cleaning up the mess as millions of people were robbed of the ability to be self sufficient, a means of survival, and were shoved onto public assistance just to eat.
I can say that I don’t like what Bernanke and Mishkin did as I look at a simple AS/AD model that predicts what happens to inflation during a negative supply shock with plenty of evidence around that is, indeed, exactly what happened. And we can pretty well understand what happens to income if the Fed has a ceiling on inflation. Now I don’t have 10 bachelor’s degrees, or 5 master’s, or a double PhD. I don’t need any of that to understand this; it isn’t hard. Why is it so inexplicably hard for them, and other die hard inflation targeters to understand what inflation targeting inclusive of headline inflation does to average Joe? It is worse than inflation itself. It makes inflation far more harmful than it ought to be. They don’t understand it because they DO NOT WANT TO understand it. They DON’T even HEAR YOU DR. SUMNER.
And that is where the stupidity argument stops and the negligence (at best) argument begins. There is no other way to explain the “taper” talk while the chosen target, a bad target at that, is neglected. Bernanke’s latest testimony on Capitol Hill was nothing but a whine-fest – and the really funny thing is that no one even bothered to ask him when the Fed plans on hitting the target that the FOMC adopted unanimously. Bernanke is one lucky dude that I wasn’t sitting in any of those chairs. The FOMC “clown car” is no laughing matter to people who have lost everything they’ve worked for all their lives over the last few years only to have it replaced with a food stamp. Sometimes I wish I had a PhD so I can conveniently ignore things that I wish I didn’t know. All those years of college must flush the humanity right out of people.
There is simply no excuse for any of this to have gone on as long as it has – stupidity or otherwise.
PS: Here’s the wikipedia entry for the word hubris – which I believe is applicable to this discussion:
Hubris /ˈhjuːbrɪs/, also hybris, from ancient Greek ὕβρις, means extreme pride or arrogance. Hubris often indicates a loss of contact with reality and an overestimation of one’s own competence or capabilities, especially when the person exhibiting it is in a position of power.