Ben Bernanke spent part of the past week defending the Fed’s policy of not upping its target inflation to something about its current level of two percent or even less, telling Dr. Paul Krugman – who loudly called out his one-time mentor and Princeton colleague in the school’s vaunted economics department – in print that to do so would risk damaging the central bank’s “hard won credibility.” The chairman didn’t exactly say what credibility he was afraid of tarnishing nor did he address the more central issue of how the Fed is ignoring one of its two crucial mandates: Keeping employment high.
To bowlderize something my paternal grandfather used to say, “With any more credibility, we’ll all drop dead.”
Dr. Bernanke is at least tacitly stating that what Dr. Krugman unaffectionately calls “the confidence fairy” is more important to the health of the American economy than actual policy that would spur growth, and the unemployed be damned.
But this is the same faulty logic and policy that has plunged Europe into a cataclysmic economic catastrophe. At least Europe has an excuse because Germany’s Angela Merkel steadfastly refuses to let saner ideas prevail despite evidence as piled high as the Eiger that inflation isn’t the problem right now – and won’t be until the economy is much, much stronger. Lack of demand by consumers is at the heart of our problems, not confidence or debt, and until more people are working, demand will never pick up.
No Job, No Spending
Bill Cauwley is a 43-year old, third-generation construction worker in Florida with two kids he’s taken care of on his own since his wife died of ovarian cancer in 2008. Except for jobs here and there, none lasting more than a few weeks, he’s not worked construction in more than two years, getting by on unemployment benefits that Florida Gov. Rick Scott is taking away from him, moving back into his parent’s home and picking up odd jobs for which he gets paid in cash.
“There are a lot of things the girls and I need,” Cauwley tells me, “and if I was working steady I’d buy them. I’m not talking about an X-Box but shoes, underwear, school clothes and that kind of stuff. Necessities.”
For example, one of the girl’s was distraught when her laptop crashed last month. The only way he could get the computer, which she needs for school, repaired was to ask his parents to foot the bill until he gets on his feet.
“But they live on Social Security and a small pension,” he explained, “so fixing the computer meant my folks didn’t go to any movies or out to eat last month.”
Add up the lost spending from the Cauwley family and then multiply it by the total number of unemployed Ben Bernanke cares less about than he does the Fed’s precious – but never threatened – credibility. The total soars quickly into the tens of billions of dollars each month and translates into reducing jobless numbers by at leastone percent – maybe more.
Chairman Bernanke may well be boxed in by the Fed’s much-to-cautious ruling board of bank presidents but there’s no reason why he cannot use his very public platform to jawbone the governors into action. No doubt, The White House feels stymied, as well, and President Obama has to tread carefully ‘lest it look as if he is trying to apply outside political pressure on an independent arm of the government.Still, the country needs someone who will take a strong, public stand and push back against the confidence fairies, bond zombies and inflationista’s – all terms coined by Paul Krugman who is as witty as he is correct – who still have an undeserved lock on policy debates, both in Washington and Wall Street.
The president has done this occasionally but what the country needs from him is a full-time, full-throated, full-throttle attack on inertia, conventional thinking and those who have no one’s interest, other than their own, at heart. Ben Bernanke needs to feel the kind of heat those who don’t have any money to spend feel every waking hour.