Wednesday, April 25, 2012

Pavlina Tcherneva disputes Paul Krugman on Ben Bernanke

This is the conundrum: either he believes (as indicated by his research of the late 90s and early 2000s) that deficits are sustainable and cause a crowding in effect where the policy rate is under the direct control of the Fed, or he believes that they are not (as in his Congressional testimonies). Bernanke simply cannot argue it both ways. And we know well that in practice the operational reality is the former. In sovereign currency nations as in the US, deficits are infinitely sustainable, do not crowd out, and do not put upward pressure on interest rates.
So yes, I too have been unable to resolve Bernanke’s paradox. How is it possible for someone to hold two completely incongruent intellectual positions? Either he has been intellectually dishonest when appearing before Congress fueling the deficit phobia of policy makers, or he has become intellectually lazy and has not taken the time to rethink the crowding out dogma he has learned in grad school in the face of his later academic work and practical experience, which point all evidence to the contrary.
Read it at New Economic Perspectives
No, Mr. Krugman, Bernanke’s Conundrum is Completely Different
By Pavlina R. Tcherneva

Excellent analysis.

I would call it "the Bernanke mystery" instead of the Benanke paradox. Something is going on in his mind that is a mystery to analysis. Has he forgotten what he once knew, is he in denial, or he is just afraid to lead? It's a mystery.


Anonymous said...

Bernanke is a crook, a member of the kleptocracy, just like Geithner.

Everything beyond that is noise, they don't care about the economy, they care about a 'sustainable looting environment', so as long as there is no revolution and things stay more or less as they are, the better.

Off course you can't have half of a nation working force unemployed and/or starving to death because of high prices without blood, but that's about all they care.

Clonal said...

Also relevant is Peter Cooper's observations on Bernard Lietaer's revelations in his talks - Economic Orthodoxy = Intellectual Dishonesty which points to this article - The Bernard Lietaer video as support for Hellyer’s campaign

Matt Franko said...

He may not be able at present to discern the contradiction between his past research publications and his current sworn testimony on fiscal policy that Dr. Tcherneva so ably points out in her article here.... looks like he had a handle on the truth a long time ago but he was a "nobody" back then compared to his present position.

"It can either infer a congenital lack of capacity for reasoning, or a temporary state of daze or slow-mindedness.

I think he is experiencing the latter here (temporary state of daze) but it is also effecting his reasoning. So it is not "congenital" as the wiki page defines it here imo, but looks like it 'comes with the territory' of his exalted/elite position so to speak.

It doesnt look like one can obtain these elite positions of authority while (easily) avoiding this kind of a mental hit.


Jonf said...

Maybe he has been offered a really high paying job at the end of his tenure to lie about it. He is the worst kind of liar. He obviously knows the truth but conceals it for his own career.

Ralph Musgrave said...

This is a duplicate of a comment I put on the New Economic Perspective site.

Heads of central banks are ALWAYS in a difficult position. They aren’t supposed to be political. So they can’t (in the case of the U.S.) tell Congress to spend more (and/or cut taxes), because that is seen as political. So to understand what heads of central banks are saying, you always have to read between the lines.

The solution to this problem is to get a more logical distinction between economics and politics. I.e. the question as to how much stimulus (or deflation) to implement, whether monetary or fiscal, is a strictly economic decision, and should be in the hands of a committee of economists.

In contrast, the decisions as to what proportion of GDP is allocated to public spending, and how that is split as between education, defence, etc etc are legitimate POLITICAL decision, and should be left to the electorate and politicians.

Anonymous said...

"deficits are infinitely sustainable" is a statement which needs to be heavily qualified.

Tom Hickey said...

@ Ralph

I basically agree. However, the distinction between monetary and fiscal is not political but rather economic and if the Chairman wanted to be truthful he would explain this distinction and why monetary policy cannot fix what is presently broken. There is a lot of misunderstanding swirling around this, and the Chairman is sending a message that monetary policy can still still fix matters, when it cannot and he knows it cannot and why. That is being impolitic rather than political.

Anonymous said...

The other problem is that Fed chairs are supposed to engage in "expectations management".

Detroit Dan said...

Pavlina for Fed Chair (or regular columnist in the NY Times)!