The Fed's Applied Progressivism
Will, George, Telegraph - Herald (Dubuque)
Because Ben Bernanke's public persona is as mild as milk, the transformation in American governance in which he has participated is imperfectly understood and hence insufficiently deplored. The change is dramatized by two recent developments.
One was the campaigning by several constituencies for and against what supposedly were the two leading candidates - Larry Summers and Janet Yellen - to replace Bernanke as chairman of the Federal Reserve. The Fed can no longer be considered separated from politics.
The second, and related, development is the semantic infiltration of journalism by language that ratifies the Fed's increasingly grandiose role. A Financial Times column on Yellen, now Bernanke's presumptive successor, described her as "poised to take the tiller of the U.S. economy." Oh? The economy has a tiller? And with it the Fed chairman can steer the economy? Who knew? On The Atlantic website, a columnist defends the Fed's recent decision not to follow through on earlier intimations about reducing its monthly purchases of $85 billion in mortgage and treasury bonds. This, the columnist said, illustrates the Fed's admirable "nimbleness." A touch on the tiller here, a nimble reversal there - these express the fatal conceit of an institution that considers itself capable of, and responsible for, fine-tuning the nation's $15.7 trillion economy.
Slowing the Fed's bond purchases is called "tapering," which means more modest "quantitative easing." This is how governments talk when trying not to be understood. By continuing the pace of "easing" - printing money - the Fed has acknowledged that its fine- tuning has failed. The nimble, tiller-touching Fed assumed it would be more successful at reducing unemployment.
Well, to err is human. To assume that a few government officials can and should steer America's vast, globally connected economy - hundreds of millions of people making trillions of decisions per day - is a kind of confidence peculiar to the progressive temperament. In December 2010, Bernanke had this exchange with Scott Pelley, of CBS' "60 Minutes":
Bernanke: "We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation at the appropriate time."
Pelley: "You have what degree of confidence in your ability to control this?"
Bernanke: "One hundred percent."
Bernanke once hoped that economists might (in John Maynard Keynes' words) "get themselves thought of as humble, competent people on a level with dentists. …