Bernanke At Bay … Again

Poor Bernanke. He has to explain in almost childish language some things that he probably assumes any half way engaged politician or business person knows well.

That’s the price economists pay for being deliberately disengaged from the economy. A century of self indulgent discussion and increasingly arcane mathematics has made economics impenetrable to anyone not accepted into the inner sanctum of academia. Instead those actively engaged in running the economy tend to pick up the tricks needed by way of direct experience, hearsay, gossip, and old fashioned trial and error.

Nonetheless people like Bernanke have, periodically, to mingle with the other side – those who form what we can call the actual economy. This produces a clash between the mind game economies of the theorists and the rough hewn ones of the practitioners. It is always fun to watch the dialog.

Like yesterday, when Ben came down and opined on the economy.

It is, he said, in a transition state. What is this we wonder? A transition between what and what?

Well the transition seems to be from good to bad to good. With us being in that bad bit in the middle right now. No fear though: it will pick up. This is because, Ben tells us, that the rotten things that rocked the economy in the first quarter are transitory. Transition – transitory: get it?

Take oil prices. They are high but trending lower. All sorts of bad things happened to oil prices earlier this year. Middle Eastern turmoil – although I, for one, don’t see this as unusual – caused uncertainty to rise and hence prices went up. Supply was disrupted, and demand is rising sharply as the emerging economies suck in more oil. Thus prices went up even more. None of this, please note, was due to the Fed flooding our economy with dollars. It wasn’t the Fed’s fault gas prices rose sharply. We should all blame those Middles Eastern types rallying for democracy, and those emerging middle classes around the world who aspire to drive cars all over the place.

He’s right. It wasn’t the Fed’s fault. It was those oddball things. And, yes, oil prices will calm down. Anyone with half a brain could look back over the last few decades and see similar blips up and down. The long term trend is upwards as cheaper sources of oil dry up and are replaced by much more expensive sources – the much ballyhooed oil shale in the US, Canada, and Europe is only worth exploiting if prices stay high, so even if they provide a good supply prices won’t drop.

So the blip in inflation will go away – as we all thought it would. And the cash drained from everyone’s pockets, and thus not spent on other stuff, will return and thus be available. Consumers will feel more at ease, and the economy should recover a bit.

A bit.

The rest of Ben’s talk was along similar lines: explaining simple things to an audience that has been whipped into an inflation fearing hysteria by a torrent of bad information and wrongheaded analysis.

The facts are ordinary now. The economy has slowed down from its modestly good pace of late last year. There are some reasons, like the ones Ben highlighted, that make this slowdown more dramatic than it might have otherwise been.

But is that all?

No. Not by a long way.

The point is that the economy was going to slow down anyway because the efforts to get it growing were never sufficient to give it the oomph – a technical economics term – needed in the first place. No one in power wants to admit this, so we are treated to this transition conversation as if it is the sole explanation of what’s going on.

It isn’t.

All this is common currency though, so I need not repeat it. Those of us who care about the average household need to hold our leadership accountable for any slow down. It was avoidable. If the economy was so weak that a few storms and supply chain disruptions in Japan can push us towards a double dip recession, then it wasn’t very robust to begin with. Those things happen routinely. That’s why uncertainty is central to any understanding of an economy. Robust economies withstand that kind of buffeting. Ours, evidently, cannot. That should tell us all we need to know about the efficacy or recent policy.

Ben assures us that this bad patch is temporary. We will be growing again nicely soon. Just you wait and see.

I wish that he hadn’t pointed to a recovery in the labor market as evidence of his expected pick up. It’s not a good example. Nor should he focus on the overseas profits of our biggest businesses, that doesn’t help our workers one bit. Nor should he prattle on about how the recent rise in stock prices has restored household wealth – not unless he wants to restrict his definition of household to the top 10% of families.

Oh. Wait.

Of course he does.

Silly me.

I forgot his target audience and the people he is concerned for.

Ben Bernanke is one of our leadership elite culpable for the current malaise. He is not alone, so we should not single him out. But nor should we forget his role. It might be tiresome for him to have to engage with the public. But they are, after all, his ultimate judges. If he fails them, he has failed totally. He might feel surrounded by reactionary ideologues calling for tighter monetary policy to combat an inflation that doesn’t exist. And he might feel constrained and unable to maintain the Fed’s series of extraordinary actions in support of the economy. But he could have the decency to say something not couched in circumlocution, bureaucratic obscurantism, and technical mumbo jumbo.

Oh. Wait.

Of course he talks that way.

He’s an economist. And a political one at that.

Aren’t they all?