My original Matters of Principle piece was more or less of a rant, my version of shooting from the hip about what I see in a world full of contradictions that are called principle. by the well-spoken. It may be true that there are no do-overs, but I am trying nonetheless.
Ben Bernanke’s following is a good example of intelligent people overlooking the plainness of events. Bernanke is the inflation targeter’s inflation targeter, having authored or co-authored much of the scholarship on inflation targeting for the US, while also assuming the role of inflation targeting thought leadership within the profession. When one considers the generalized body of thought about inflation targeting, it’s hard to miss the possible downsides of the Phillips Curve reasoning regarding the tradeoff between inflation and employment combined with the situation immediately prior to the crisis, when supply side inflation had begun to seep into the core. Even in the hypothetical, it would be somewhat rational for someone of Bernanke’s particular conviction to do what had to be done that might include tightening policy and leaving it that way regardless of the ensuing circumstances. It’s a tough job to do. But I suppose that from an inflation targeter’s point of view, someone’s got to do it. To assume otherwise is to assume that Bernanke did not know what he was doing, and consequently lacks credibility.
I have, in the past, been particularly tough on Bernanke, in my view as holding him accountable for being wrong. Some have suggested that because his policy was wrong, but well-intentioned, it does not make him evil, and I’ve been wrong to suggest any other intent. I have to admit that my passions carried me away and some of my suggestion were over the top, but not the body of rhetoric. From Bernanke, we have never heard, “I was wrong, “or, “Inflation targeting is the wrong approach because it is not worth the cost. We need a different way.” No, and I doubt we will ever hear it because of the sort of view of the world it takes to be able to consciously implement the basics of IT, the view of indifference like all of us are not really human beings, just dots on a chart. It is a job that I could never do, not just because I don’t agree with the approach, but because of the moral hazard revolving around the predictable effects. IT is wrong in the most profound sense of the word “wrong.”
My critics have also been partly correct regarding my harsh treatment of Bernanke, because for all of his faults, Bernanke isn’t really where the buck stops for the economic calamity of the Great Recession. The most obvious source of the root cause in my view is that we had two oil men in the top posts at the White House for eight years, the President and VP. We had legislation favorable to the involvement of financial institutions in black gold, oil markets and storage. Oil prices went into the stratosphere with calls of, “Drill, baby, drill,” unheeded, only to be permanently lowered again with a provision in Dodd-Frank that forced the financial institutions to divest oil assets and now ramped up domestic production. Poor oil market policy was then compounded by appointing proponents of a strict inflation targeting monetary regime to the Fed to deal with the resulting inflation, which they did. It might be said that Bernanke’s role may have been as completely unwitting.
If my generalized speculation about policy mistakes that lead to economic crisis is anywhere near the mark, the world of politics then looks entirely different than the view one might get from media outlets. And indeed, to me, it does look entirely different. The Obama administration doesn’t look as bad as organizations such as Breitbart paint it. After all, we ramped up domestic drilling, we did do some QE, not enough, but we did, Timmy and Jeremy Stein were asked to resign, AND we had financial institution divestiture from oil markets.
Therefore, when I hear talk of Donald Trump as being self-interested, with implications that others are perhaps not, though it is difficult to imagine Hillary as purely public service-minded given available information concerning her foundation; or talk of Trump’s rather bold stupidity and inability to support him because he says he wants to follow the law rather than manipulate it to his advantage, I wince because it is difficult to make sense of evil called good when the purveyor of it is well spoken. Comparatively, any damage Trump might inflict through bumbling mishap, could genuinely be called bumbling mishap, to which many commentators of which I am aware, especially Bernanke followers, out of a well of good will, have seemingly not been opposed.
Perhaps for those commentators, it might feel more rewarding to be correct in characterization of policy mistakes as bumbling stupidity, because the reality of the choice we face in politics is not one about what is good for society. Sometimes we get lucky and the choice we make works out that way. But the choice is and has mostly been about which way bestowing perks of office might do the least bit of damage (or for the more cynical, which way being screwed by abuse of power hurts the least).
I look at the current menu for that choice and I see huge flaws in all of them. Johnson with his pool of goldbug support and unfounded insistence that hyperinflation is around the corner, Hillary with her aversion to printing money and preference for social programs as the cure for poor monetary policy, and Trump with his attacks on trade and immigration while indicating that loose monetary policy is the order of the day when necessary.
In making the choice among the parade of terribles, it comes down to the lesser risk to me personally, because my true desire during these years since the crisis has been to be able to go back to just living life without fear. I don’t like having to be on guard and attacking ideas on a daily basis with no end. But I can’t go back to life as I once knew it knowing the powers that be view my personal interests as a dot on a chart, or view people like me as their personal piggy banks when they possess far more than I ever will, and even in the worst of times will not have to worry about feeding their own families. I do have to worry about that every day as do the majority of people in the nation, and neglect of that worry cannot be any kind of moral governing principle to which I can subscribe, even when minimal compensation is involved. Well-spoken neglect is still neglect.
Donald Trump has made this worry central to his campaign and talks about it at every single rally. Yes, Donald Trump is a total jackass, and it is uncomfortable imagining myself in the same room with him in public. But the social discomfort is entirely superficial when compared to the discomfort of my personal experience of the Great Recession. If I had to choose right now, and since I have to hold my nose no matter which box I mark, I would choose the Donald checkbox. During the campaign, he has demonstrated an ability to rethink his positions, admit error and change his mind, a quality that is entirely lacking in the establishment and among other candidates, and one that I believe is absolutely critical to any policy formation and implementation effort. If it’s wrong, produces bad results – fix it – and fix it now – because people need to feed their families. The jackass has humiliated himself, shown humility by changing his mind and gotten right back on the horse.
Perhaps Jeb Bush was correct in insulating that my real worry is ignorance. But my guess is that the concept of ignorance is entirely relative.
PS: Here is an interesting open letter from Mr. Icahn.
Trump is right on about our economy
A capitalistic system cannot exist if government is at war with business. CEOs rightly so are afraid to invest in new equipment, etc. to make our manufacturing competitive. It is no surprise that today it was announced growth in productivity was down for the 3rd straight quarter and is at an all-time low. Our workers cannot be productive with “worn out tools”. I never thought I would say this but we cannot blame even mediocre CEOs for not investing when they have to face regulators that are scaring the hell out of them. Instead they borrow at near zero interest rates and buy back stock. This will increase the value of their options and vested stock and their workers’ productivity be dammed. Democratic pundits say it is OK not to manufacture because we are a “service economy”. But what does this mean? Taken to its logical conclusion all we will be producing in the near future are more text messages and more tweets to send to each other. But no problem that all the decent paying manufacturing jobs will disappear. The Fed will just keep lending money at zero interest rates until the bubble bursts and we go over the proverbial cliff.
Of course Icahn isn’t a monetary theorist, but as someone who attempts to make success stories out of struggling companies, he obviously knows a thing or two about business.
Disclaimer: Icahn owns a near majority stake in my employer’s largest corporate customer. I have no other choice but to trust that he knows what he is doing.