People have asked me about my real position on the renomination of Ben Bernanke as Fed Chairman. I would first like to say that I have no doubt as to Ben’s integrity; he is doing a tough job, and he is trying the best he knows how. It is stupid to imagine that he has some devious plan to restrict any improvement in the economy. He should be given a second chance possibly, simply from the real attempt to present effective curatives to the recessionary pressures which only seem to multiply. My major hesitation on his renomination is based upon technical aspects; the major aspect being his lack of understanding of the altered changes in the last Recessions–notice the plural. It is hard for all of Us schooled in Keynesian theory to recognize those forces, and the traditional Keynesian theorist may be the wrong choice.
Keynesian theory has always been an engine for Inflation, but the Concept was viable when some deflation was evident in the economy, combined with a low Government debt level. We have had neither in this or the last Recession. Operating an economy on deficit spending, whether Public or Private, is not a good idea; especially when there is already sufficient debt. We are in a Period where everyone is leveraged–the Government, Business, the Consumer. We additionally hold to the sad fact of conducting our Production from foreign sources, which means that We do not have a natural Job market. Debt service alone could bring down the American economy, and there is no program to bring American production home. It is somewhat simplistic to advocate Keynesian Spending without controls to retain those funds in the American domestic economy.
The current Crisis is draining excesses from the American economy. Debt is slowly being repaid in the Private sector, and much less is being renewed. Government policy is rapidly expanding their own debt, with little observable effect on economic improvement. One has to ask if Keynesian spending is worth it, if all that can be effected is maintenance of current adverse levels. I take the revisionist position that the only real economic stimulus currently present must be the debt repayment which is being accomplished, and that Government policy could ruin that program. My decision would be that the proper stimulus measure would be the elimination of the Bush Tax Credits, along with bringing Government spending in balance. How this reflects upon the Bernanke renomination is the Statement that Ben probably could not handle such a revision program. The Fed of the 1930s should have acted like the Fed of Today, but the later should act like Fed of the 1930s. lgl