Putting the 'Ph' back in Bernanke's PhD?
Allow me then to showcase a Bloomberg piece on Bernanke from
last week, someone who actually holds some reins of power for the US and world
economies. They say economic data is like a particularly boring form of science
fiction. Ben seems to have taken that to heart in his turn from the scientific
to the philosophical, as he proclaims the field’s “ultimate purpose” to be “understand
and promote the enhancement of well-being.”
Now the chairman’s words do reflect an excellent point: that
beyond ensuring our measurements are correct, we must be certain the set of
measurements we take answers the right questions. Referring to GDP and
inflation, Bernanke says “Aggregate statistics can sometimes mask important
information… We should see better and more direct measurements of economic well-being.”
It’s easy to suppose why Bernanke is taking such a
meta-critical view of the profession. The failure to predict the turmoil of
2007 and beyond and to recommend remedy in unison illustrates the disarray that
dominates the field. Furthermore, criticism of central economic premises, such
as individual rationality and the impersonal nature of exchange, persisted long
before the latest crisis.
And indeed, narrow-minded focus on aggregate data does not
with any certainty produce that ultimate goal of economic well-being
policymakers seek. Singapore comes to mind, that Southeast Asian city-state
with the world’s third highest per-capita GDP. While Singapore fares quite well
by standard metrics, even earning the best quality-of-life ranking in Asia,
visitors report a pervasive sense of hollowness, fakeness, or shallowness to
the culture. Upon hearing news that a convicted drug trafficker would be executed,
Wired writer William Gibson, who had been visiting the country, deemed it “Disneyland
with the Death Penalty.” His famous piece of the same name is a gripping read,
and gives the reader a sense of what life is like in a land where utilitarian-driven
policymaking has run amok.
That said, America is hardly in danger of becoming Singapore
(serious counter-cyclical fiscal policy would have to have been on the menu). I
think Bernanke’s philosophical turn rather belies his own insecurities about
his tenure as Fed Chief. Since the crisis, Ben has been trying oh-so-hard to
walk a fine line between active and hands-off approaches. While he’s kept rates
near zero and engaged in QE twice, he is also refusing to budge any further
despite an economy that has “decelerated” from already anemic growth and
below-target inflation. The Atlantic monthly encapsulated his internal conflict
back in April by running a piece on him titled both “The Hero” and “The Villain.”
It is incredible that a Fed Chief who’s done so much on such an historic scale
has still fallen short in bringing the economy back to full employment.
What’s holding Ben back? “I’d feel much more comfortable if
Congress would take some of this burden from us,” he said in June, with apparent naïveté. If the President’s abortive Jobs Act push last year was any signal,
Congress has no appetite for new stimulus, and this reality should be obvious.
Thus it’s hard to see Bernanke’s ‘philosophical’ push as much more than an
attempt at distraction. His job is to minimize unemployment and stabilize
prices. Whether these are the ultimate goals of policy or not, they are the
responsibility with which he is charged, and both are pleading for additional Fed
action. So while Bernanke makes a good point about the nature of economic
study, I’m guessing this erudite realization is just something to help him
sleep better. After all, he surely knows prolonged, widespread unemployment
carries a hefty price tag in terms of human costs. We don’t need a ‘happiness’
measure to tell us that.
Bernanke's sudden pivot to concern over "well-being" instead of unemployment is alarming. Maximizing employment is only welfare-harming if you believe that those without jobs are unemployed not because they can't find work, but because they don't want to.