Wednesday, February 24, 2010

A Question for Ben Bernanke

"We are not in a Great Depression by any means, but our economy has operated below potential for nearly three years. Nor is it by any means clear that recovery is imminent. Policy options exist that could greatly reduce these losses. Why isn’t more happening? To this outsider, at least, monetary policy seems paralyzed, with a paralysis that is largely self-induced. ... Perhaps it’s time for some Rooseveltian resolve."

If these words sound familiar, Chairman Bernanke, that is because you wrote them. You wrote them about Japan in 1999, when Japan's CPI was flat, and Japan's unemployment was at a mere 4.7%. You wrote that this called for "an aggressive depreciation of the yen", for a “helicopter drop of newly printed money" and for an "inflation target of 3-4%".

The Fed estimates that unemployment in the 4th quarter of 2010 will be 9.5 to 9.7%, and that Core inflation will be a mere 1.4-1.7% in 2010. Unemployment claims were up last week by 31,000, and we had core deflation in January. And yet, last week you took actions which strengthened the dollar, and which, according to any economics textbook, tell us will tend to increase unemployment and reduce inflation -- precisely the opposite of what you counciled Japan. My question is this: Why wouldn't we want to trade more inflation for less unemployment, as you yourself urged the Japanese at a point in time when they had much less severe unemployment and no deflation like we have now? Mr. Chairman, where is your Rooseveltian resolve?

1 comment:

  1. It's a shame no one in the press or congress would ever ask a question like that to Bernanke.

    I have two theories though! One pathetic and one conspiratorial. The pathetic theory is your theory - that he really is a "beta" male, as you call him, and the hawkish FOMC members are really exerting that much influence. The conspiratorial theory is that we might have to dust off that political business cycle literature from Nordhaus, Alesina and the like and consider the possibility of a Republican Fed chairman manipulating the situation for political gain for his party.