BERNANKE AT JACKSON HOLE

I have just read the much anticipated speech that Bernanke the Chairman of the Federal Reserve Board gave at Jackson Hole. A more vacuous speech it would be difficult to imagine. I found it a crushing disappointment.  After stripping away the platitudes with which such speeches are always littered it seemed to me that Bernanke basically said nothing at all.

Bernanke did admit that things are bad though he claimed that they are less bad than many feared at the height of the crisis in 2008.  That is no reassurance.  He said that if the right economic decisions are taken all in the end will be well. He conspicuously did not say what these right economic decisions are.  What he said instead is that it is not for the Central Bank to take them. This may be true but is hardly inspiring.  Given the severity of the crisis and Bernanke’s own comment that the future depends on these “right economic decisions” being taken one would expect at least some indication from him of what he thinks these “right economic decisions” to be.  Instead we got the usual platitudes about “promoting macroeconomic stability”, “encouraging enterprise”, “training a skilled workforce” etc. 

As for Bernanke’s reasons for saying that if the “right economic decisions” (whatever they are) are taken all will in the end be well, these in the end boiled down to the endlessly repeated cliches about the US having a “market oriented economy”, an “entrepreneurial culture”, “flexible capital and labour markets” and a “spirit of innovation” with “the best universities in the world”.

This is pure mysticism. Why do Americans for example persist in thinking that they are more innovative than other people? History and experience does not bear this view out.  Most of the great inventions and scientific and technological discoveries of the last two hundred years have been made in Europe not in the US.  The US is responsible for only a small number.  As for the US being an entrepreneurial culture, to the extent that this is true this seems by encouraging excessive risk taking (especially on Wall Street) to be at the heart of the US’s problems.

At no point did Bernanke address himself to the real problems of the US, its stagnant manufacturing, declining wages, falling industrial productivity relative to other countries and reliance on debt to pay for its imports and maintain its standard of living.  Remarkably the word “debt” scarcely got mentioned even though it surely is at the heart of the crisis.  Bernanke did talk about the importance for the US to return to “fiscal sustainability” but declined to say how this should be achieved.  He did not for example say whether he thought that taxes should be increased, decreased or left where they are.  In fairness to Bernanke most Americans from the Tea Party extremists on the right to the hardline neo Keynesians like Paul Krugman on the left seem to be in denial about the extent and nature of the US’s debt problems.  Like Bernanke most Americans seem oblivious to the fact that the explosion of private and personal debt is as at least as much a problem as the increase in public debt and that it is this explosion in private debt, which is stifling demand and which lies at the heart of the problems in the banking system.  On the subject of private debt Bernanke had nothing to say.

The impression I came away with after reading Bernanke’s speech is of a very clever man who knows how bad things are but who has run out of ideas (or at least ideas he would consider ideologically acceptable) and who is therefore reduced to waiting and hoping that something will turn up.

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