Wednesday, December 23, 2009

UC weighs in: "Reconfirm Ben Bernanke!"

"We" at Unforeseen Contingencies are endorsing Ben Bernanke's re-appointment as Chairman of the Federal Reserve, and we hope that the Senate reconfirms him. We've been harsh critics of him and his performance, and we don't predict he's going to improve. But UC genuinely hopes for him to have a second term. Here are our reasons:

1. There's no prospect of getting someone better if Mr. Bernanke's term is not renewed.

2. He claims he can finesse an exit from the massive expansion of money and credit he's directed. We believe he cannot. The question ought to be put to the test. If Bernanke is right, let him be there to earn the credit. If he's wrong, let him be the one left holding the bag. If he's replaced, and his policies fail, there'll always be the defense that replacing Bernanke was the source of the failure.

Bernanke's critics think that his leadership has been destructive (I concur), and therefore oppose a second term for him. But points 1 and 2 together are sufficient to refute the conclusion that Bernanke should not be re-appointed.

And so to the Senate...please reconfirm Ben Bernanke.

As of press time we were unable to determine whether this is Chairman Bernanke asking the Senate Banking Committee to approve his renomination, or demonstrating how he proposes to "withdraw the extraordinary policy support" of umpteen trillions in liquidity he's created.

The same arguments can be made for re-electing Gordon Brown. It's a serious dilemma. I'd like to see his head explode trying to deliver on his promises, but is that satisfaction worth the damage to the economy? As you say, the fact that the alternatives probably aren't much better swings the argument in favour of continuity. And the argument may be even stronger in the party-political case, as a feeble, nominally-center-right government may discredit classical liberalism with the public, even if they don't actually pursue classical-liberal policies. But, if you were a Brit, could you really bring yourself to do it?
I understand this dilemma, and wonder if I will be calling for second term for Obama before too long.

But I think with Bernanke the situation is different. If I am right (i.e. if Mises and Hayek are right) the damage is already done. We cannot avoid it by replacing Bernanke, it's too late. And there's absolutely no chance that someone who is really better could replace him.

It's dreadful, but we've already embarked on a course that leads to an inevitable wreck, in my view. This is a relatively "clean" experiment, and we should see it through. If we critics of this Keynesian nonsense are ever to make any headway, we have to be able to show that the long run consequences are as destructive as we warned.

And heck, there's always that probability of ε that Bernanke actually can remove excess liquidity. It will be interesting to see him try.
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