Relevant and even prescient commentary on news, politics and the economy.

Bernanke Part 2 of 2: Leaders Lead, or Just Say No

The world would be a much better place if people had listened to Tom last August:

Now some elite opinion favors Ben Bernanke’s reappointment, but politicians are irritated over Fed stonewalling of bailout oversight and others (e.g. Dean Baker) point out that Ben Bernanke who put the Fed throttles to the firewall to save the world is also the Ben Bernanke who carried over Greenspan policy until it was too late. [links in original]

Not a strong enough source for you? How about the Internet’s Chief Bernanke Apologist? Brad DeLong last August:

I am surprised that he is being reappointed. I would have thought that the combination of people angry because he has given too much public money to the banks and people angry because he didn’t stop the recession would together make him damaged and that Obama would want to bring in a fresh face–never mind that Bernanke had no way to try to lessen the recession save by policy steps that inevitably involve giving money to the banks.

Tom also dealt with that:

To which the obvious response is, duh, who says it has to be one or the other? A reality-based critique of the bailouts allows them to be both effective at saving the world and unconscionable screw-jobs that kept an array of bad actors from paying for their greed and incompetence. (The latter clearly feeds a lot of the underlying sentiment of the tea partiers, even if it’s ultimately the greedy and incompetent who are marshalling it.) However, considering Team Obama’s political tone-deafness, it’ll be a pleasant but major surprise if they let Bernanke go back to Princeton for some R&R.

And DeLong himself (today) moves the goalpostsnotes where the problem is centered:

[Bernanke] is no longer the academic intellectual who advocates inflation targetting. He is, instead, the voice for the consensus of the Federal Open Market Committee–and a member of that committee who can, by his own internal arguments, move that consensus at the margin. So he is going to reflect that consensus….[A] Fed chair who doesn’t reflect the consensus in public has less power to move the consensus in private. From my perspective, I don’t think that there’s anything wrong with Ben Bernanke’s (private, intellectual, academic) analysis of the current situation. What is wrong is that the FOMC consensus is wrong—and Bernanke’s public statements reflect that wrong consensus. So here I tend to blame Obama more than I blame Bernanke for the recent character of Bernanke’s public statements–for the fact that Fed policy and rhetoric right now is not more Gagnonesque, because Obama could have done things over the past year to move the FOMC consensus that he has not done. [emphases mine]

This is a true statement—but it is no less true now than it was in August, and Ben Bernanke has been the ostensible leader of the FRB since then—and, indeed, since 2.5 years before then, as the crisis was unfolding.

In the past four years, Bernanke has “led” the Federal Reserve. And even those who are not sympathetic to Steve Keen’s interpretation of Bernanke’s flaws (h/t Yves and Naked Capitalism, who printed it themselves as well) would have to agree that the sounds coming from the Fishers* and Hoenigs, not to mention Bernanke himself, are more reminiscent of Morgenthau than Volcker.

Which should have been the death knell for his renomination. To turn Brad DeLong’s statement on its side: Ben Bernanke has been unable to lead and change the consensus of the Federal Reserve Board, even marginally, to be more in line with what Ben Bernanke, the skilled economist, knows would be a better policy.

Leaders lead. Ben Bernanke hasn’t and doesn’t.* For that alone, he should be replaced, and Janet Yellen nominated to replace him.

*This one was reprinted, without several of the cronyism acknowledgements, in the WSJ comics section today. I prefer the original.

**The similarity to the Canadian Liberal Party’s selection of Celine Stephane Dion as their leader should not be overlooked. That they had the good sense to replace him after one term is a sign of sanity the Obama Administration would have been wise to consider. (That they compounded the mistake by replacing him with a pro-torture American conservative is a mistake from which one would expect the Obama Administration could and presumably will learn.)

Tags: , , , , Comments (18) | |

Bernanke Interlude

Via David Wessel’s Twitter feed, the WSJ publishes a letter:

Ben Bernanke is a good person, a fine academic and a well-respected professor. But those traits have no bearing on whether he should be reconfirmed as Federal Reserve chairman….

Applying accountability principles, there’s no way Chairman Bernanke should be reconfirmed by the Senate, let alone reappointed by the Obama administration….He’s been at the helm from the very beginning of this Great Recession. That alone warrants a “no” vote on reconfirmation.

At this point, I feel obligated to note that if you’re going to declare this The Great Recession—i.e., if you are assuming the chance of having the third Depression is over*—then Bernanke deserves credit, not blame. (Even those of us who do not assume we’re out of the woods admit we aren’t quite sunk yet, though 17.3% unemployment is problematic at best.)

In addition, the Fed’s behavior over the past 15 months has put America on a very dangerous path. The Fed has increased the monetary base (high-powered or wholesale money) by the largest amount ever, from colonial times to the present, times 10. Without an exit strategy, inflation is a virtual certainty over the coming decade, while an effective exit strategy virtually assures a further weakening of the U.S. economy. [emphasis mine]

This is Gospel for the WSJ editorial page, and a logical confusion of the first order. Any “exit strategy” assumes that the conflict is primarily over, so any exit strategy would, by definition, not weaken—let alone “further weaken,” which suggests that the writer’s faith that “the Great Recession” is accurate is wavering—the economy. (We can, and will, discuss where All That Money Has Gone; suffice to say, it’s not exactly producing a Multiplier Effect.)

But the writer saves the best for last.

And lastly, on a more personal note, [Bernanke] doesn’t have the gravitas of a Paul Volcker, Alan Greenspan or William McChesney Martin. In this day and age of crisis management, gravitas is essential. Almost anyone would be better than Mr. Bernanke.

Well, at least Arthur Burns is conspicuously excluded. It’s nice to know that Arthur Laffer believes in gravitas, while his best-known disciple believes “deficits don’t matter.”

*Yes, I could 1873-77 as a Depression in the United States. Looking at the evidence, it would be difficult not to.

Tags: , , , , Comments (6) | |

Bernanke Apologist Watch

by Tom Bozzo

Shorter [1] Jim Hamilton (via [2] Brad DeLong):

Ben Bernanke’s record leaves nine links’ worth of things to be desired, but considering the zombie ex-Fed Chair alternatives (plus Brett Fav-Paul Volcker), he deserves to be confirmed for a second term.

I am almost not kidding. Here’s what Hamilton actually asks Bernanke’s critics:

I wonder which of [sic] previous Fed Chairs critics think would be better for the job than Bernanke. Surely you don’t think we’d have been better off bringing Alan Greenspan back? [touché] G. William Miller [deceased] fumbled badly with much simpler problems. Arthur Burns [also deceased] is a case study in how not to conduct monetary policy.

Would DeLong accept this sort of argument from a Berkeley undergrad seeking a decent grade? The question of far greater interest is why critics should have preferred Bernanke to prospective candidates who might have the combination of background and metabolic function to carry out the job — say, Janet Yellen or Alan Blinder — and might also do better than Bernanke in a pop quiz on the Fed’s dual mission.

Nor does Hamilton impress in reviewing the (admittedly odd) politics of Bernanke’s reappointment:

I shake my head when I look at the list of senators who say they’ll vote “no.” How could there possibly be an alternative whom Barbara Boxer (D-CA) and Jim DeMint (R-SC) would both prefer to Bernanke?

Obviously an alternative candidate need not be preferred by both Boxer and DeMint. An SDJ commenter rightly notes that DeMint’s opposition is in the nature of a political stunt, that is rejecting the rightmost potential nominee for Fed Chair to try to help along the development of the Obama political suicide machine. (They may not need the help.) As little as they act like it, the Democrats hold a sizeable majority of Senate seats, and a reasonable choice of a Democratic monetary policy technocrat ought to have little trouble lining up at least 59 votes. As for the sixtieth, I’d have liked to see the Republican Senate caucus hold ranks in preventing a Yellen nomination from receiving an up-or-down vote.

[1] ‘Shorter’ concept created by Daniel Davies and perfected by Elton Beard. We may not be aware of all Internet traditions™ but try to keep abreast of the popular ones.

[2] Econbrowser’s feed has a high-attention place in my feed reader, and it should be in yours; this piece, though, gets emphasis largely via DeLong’s apologist-in-chief blogging.

Tags: , Comments (3) | |

Not the Cheeriest Way to Start the Day: Bernanke Part 1 of 2

It’s bad enough to violate Brad DeLong’s first rule (which, I hasten to rationalize, was posted when DeLong himself was disagreeing).

It’s worse when the opposition to Krugman is coming from…the WSJ editorial page. (Or, as Barry Ritholtz correctly describes it, “the comics section.” Just less funny, and more likely to make the two-drink minimum unnecessary.)

This seems to be a direct violation of reality.

But compare the Krugman “endorsement”:

But — and here comes my defense of a Bernanke reappointment — any good alternative for the position would face a bruising fight in the Senate. And choosing a bad alternative would have truly dire consequences for the economy.

Furthermore, policy decisions at the Fed are made by committee vote. And while Mr. Bernanke seems insufficiently concerned about unemployment and too concerned about inflation, many of his colleagues are worse. Replacing him with someone less established, with less ability to sway the internal discussion, could end up strengthening the hands of the inflation hawks and doing even more damage to job creation.

with the WSJ:

No matter how it plays out, Ben Bernanke’s bruising confirmation battle has damaged the U.S. Federal Reserve’s clout and perceived independence.

Mr. Bernanke is more than the Fed’s chief decision maker. Fed officials see him as their brand, a smart, honest and stoic voice best able to defend decisions of the past two years to a skeptical Congress and public. Even if the Senate backs Mr. Bernanke this week, he won’t speak with the same authority, and the Fed will have a harder time casting itself as above partisan politics.

Fortunately for the Fed, the hard call about when to raise interest rates doesn’t need to be made now. Fortunately for Mr. Bernanke, his support inside the Obama administration, and even more so inside the Fed, is solid. But the longer the battle drags on, the more it could interfere with the Fed’s ability to communicate convincingly. And no matter what, the Fed will have less sway as Congress debates whether to rein in its powers.

Oh, wait. That’s a news article. The editorial page throws a few random facts:

Mr. Bernanke continues to deny any Fed monetary culpability for creating the mania. Shortly after the New Year, even with his nomination pending, Mr. Bernanke issued an apologia that was striking for its willingness to play to the Congressional theory of the meltdown by blaming bankers and lax regulators. [note: lax regulators includes the Fed itself.]

with semi-credible analysis:

Others argue that any alternative to Mr. Bernanke could be worse, and that is certainly a risk. Mr. Geithner and White House economic adviser Larry Summers couldn’t be confirmed, even in a Democratic Senate. In the short term if Mr. Bernanke is defeated, Vice Chairman Donald Kohn might run the Open Market Committee, and he shares Mr. Bernanke’s contempt for Fed critics. President Obama could also select San Francisco Fed President Janet Yellen, but she thinks the Fed should be even easier. [Oh, the evil of Ms. Yellen, who immediately replaces Laura D'Andrea Tyson as my pick to run the Fed.]

with sheer insanity:

We agree that the Fed needed to ease money precipitously when the financial markets suffered their heart attack in late 2008, and we praised Mr. Bernanke for that at the time and since. But the issue for the next four years is whether the Fed can extricate itself from its historic interventions before it creates a new round of boom and bust. We already see signs that it has waited too long to move.

Yes, because—along with more obvious indicators—Durable Goods orders have been down two months in a row. Anyone betting January will be up? I fear they have used “real” tea leaves to make their tea.

So the WSJ came to the right conclusion for all the wrong reasons, while Krugman comes to the wrong conclusion for the right reasons.

How did we get here? in the next post.

Tags: , , , Comments (23) | |

Get Ready to Throw Momma from the Train

It’s coming closer:

Once the tax expires, those inheriting estates after Dec. 31 will have to pay capital gains taxes on any asset sold. The cost will be based on the original price of the property, which could mean record-keeping headaches and bigger tax bills for some people.

“If we do not extend our estate tax law, all taxpayers, all heirs will be subject to massive, massive confusion in trying to determine the value of their underlying asset,” Baucus argued on the Senate floor.

Fortunately, unlike Health Care “Reform,” this only affects a few people:

The estates of about a quarter of 1 percent [0.0025 -- ken] of Americans would be subject to the tax under the House bill, according to the the Brookings Institution-Urban Institute Tax Policy Center.

I guess someone hasn’t blown Joe Lieberman enough this week.

(Title Reference)

Tags: , Comments (1) | |

Health Care Reform–Even More of a Gift

UPDATE: Greg Sargent (via Glenn Greenwald’s Twitter feed) notes that I am hardly alone in my concluding pargraph.

The last even semi-useful part of health care “reform” (and that was of dubious value) is dead:

The idea of letting people ages 55 to 64 buy into Medicare, announced just last week, had threatened to explode the Democrats’ hopes of getting a bill through the Senate when Sen. Joseph Lieberman came out against it.

Yes, that’s the same Joe Lieberman who told a Hartford newspaper that it was good idea three months ago.

Sen. Evan Bayh (D., Ind.) said Democrats agreed that the dispute over Medicare shouldn’t hold up legislation that would extend coverage to tens of millions of Americans.

How can you tell when Son-of-a-Birch is lying? (His father is rolling over in his grave, probably at Warp Seven.)

There is now no reason not to vote Republican in all future elections—if you bother to vote at all, that is.

Tags: , Comments (41) | |

I Tend to Describe this as "Unwarranted Optimism"

The Shrill One (tm – Brad DeLong) as Optimist:

The result, then, will be high unemployment leading into the 2010 elections, and corresponding Democratic losses. These losses will be worse because Obama, by pursuing a uniformly pro-banker policy without even a gesture to popular anger over the bailouts, has ceded populist energy to the right and demoralized the movement that brought him to power.

Despite all this, the midterms probably won’t give Republicans the majority in the House. But the losses will be big enough to deny Obama a working majority for any major initiatives in the rest of his first term. (My guess is that he’ll be reelected thanks to the true awfulness of the Republican nominee). Since Republicans are dead set against any of the things I think could help pull the economy out of its rut, this means more economic stagnation.

Can anyone point to any evidence of either of the bolded statements being likely to be true? (I’ll pre-emptively conceed that the Republican nominee may well be awful—probably a 75% probability, since the current Best Case Scenario is Mittens. But adjust you expectations by what you would have expected the Democratic Party nominee to be in late 2005.

Tags: , , , Comments (23) | |

Simple Answers to Simple Questions, Floyd Norris/GS Edition

Floyd Norris is Shocked! Shocked! to Find Goldman Sachs controls Congress as well as the Treasury. Where has he been for the past three years?

Imagine the reaction if, perhaps during the 1998 Asian financial crisis, a group of Republican legislators had threatened to block legislation unless a contributor to their campaigns received special treatment. Then imagine what would have happened if a powerful House committee chairman had called companies with a direct interest in legislation pending in his committee and asked them to help out that contributor.

Why is this any different?

It isn’t. But why is this any different that the pandering to Goldman that you have been applauding for the entire Paulson/Geithner/Summers maiming of Main Street?

Tags: , , Comments (5) | |

Obliviously Offending the World, Teabag Edition

by Noni Mausa

From the NEWS.com.au Australian :
news service

Tea Party Obama ‘witchdoctor’ slur offends PNG October 01, 2009 02:46pm

PAPUA New Guinea tribesmen have demanded an apology from American political satirists who used their traditional dress in a witchdoctor slur against US President Barack Obama.

In the offending image, a headshot of Mr Obama was superimposed on a photograph of a PNG Highlands region man in full traditional costume, supposedly to portray the black President as an African witchdoctor.

Damien Arabagali, Hela Gimbu Association chairman, said PNG’s Foreign Affairs Minister and Cultural Minister would have to take up their demand.

[...]

HGA lawyer Alfred Kaibe, who wore his traditional Hela costume when sitting as a member of Parliament in 2001, said his people did not see the funny side.

“It borders on racism, to us and the US President,” he said. “The connotation is this type of dress is for witchcraft…This is our traditional costume; we are proud of it.”

Another HGA member suggested that if no apology was forthcoming the $16 billion ExxonMobil liquefied natural gas project based in the region could be jeopardised…

Well, maybe not. But maybe.

Good prospects of reopening Bougainville copper mine.
There are ‘positive prospects’ for reopening the Panguna copper mine in Papua New Guinea’s Autonomous Bougainville province, with local landowners planning a major reconciliation. The mine was closed nearly 20 years ago during a secessionist conflict led by the late Francis Ona, which was sparked by landowner issues and environmental damage caused by the mine……The Bougainville conflict that broke out in 1989, when rebels under the leadership of the late secessionist, Francis Ona, attacked the mine workers and installations over environmental pollution they alleged the mine was causing.

The mine was abandoned, and thousands of Bougainvilleans died in the subsequent civil war before a peace accord was reached in 2001.

Words and images have power, and not just in the intended direction . It doesn’t seem likely that the offensive images fostered by the American tea partiers will have force enough to reach around the world and effect the business dealings of ExxonMobil…

But they might.

Tags: , Comments (0) | |

Texas is Not in a Recession, but it’s Bottoming Out

Rick Perry famously declared that there was no recession in Texas, even though the only way they balanced the budget was through emergency funding.

Rick Perry and the Federal Reserve Bank of Dallas appear not to talk with each other:

Texas factory activity showed the first signs of bottoming out in September, according to the business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key indicator of current manufacturing activity, came in close to zero as the number of companies seeing increases and decreases was nearly equal….

Employment indicators suggest manufacturers are still trimming payrolls, but the key indexes are becoming less negative. The average work week index rose for the second consecutive month, and about 17 percent of manufacturers noted increases in work hours. The employment index also improved as

the share of firms reporting job cuts fell

, while those reporting new hires rose from last month. Wage pressures remained minimal, with 92 percent of producers noting no change in compensation.

Yep. Just what we expect to see in a “normal” economy.

Tags: , , Comments (0) | |