Dr. Bernanke was on 60 Minutes last night to again defend his second attempt at quantitative easing. QE2 has already spawned inflation in commodities from oil to cotton and sugar. Nevertheless, Dr. Bernanke assured the CBS interviewer that he was absolutely sure that he could control inflation within “15 minutes” by raising interest rates.
Why are “smart” public figures like Dr. Bernanke so spectacularly wrong? Why are they selected in the first place? Why are they reappointed?
Predict Early, Often and Incorrectly
The core competencies for economists are prediction and anticipation of economic events, and description of their consequences. In stewarding our economy, I wonder how Professor Bernanke would grade Chairman Bernanke in these core competencies. James Quinn in Bernanke is 100% Sure catalogs the Chairmen’s dismal predictive record:
“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – 7/1/2005
“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” – 2/15/2006
March 28th, 2007 – Ben Bernanke: “At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,”
May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.”
June 20th, 2007 – Bernanke: (the subprime fallout) “will not affect the economy overall.”
October 15th, 2007 – Bernanke: “It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”
February 29th, 2008 – Bernanke: “I expect there will be some failures. I don’t anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”
June 9th, 2008 – Bernanke: Despite a recent spike in the nation’s unemployment rate, the danger that the economy has fallen into a “substantial downturn” appears to have waned.
July 16th, 2008 – Bernanke: (Freddie and Fannie) “…will make it through the storm”, “… in no danger of failing.”,”…adequately capitalized”
September 19th, 2008 – Bernanke: “most severe financial crisis” in the post-World War II era. Investment banks are seeing “tremendous runs on their cash,” Bernanke said. “Without action, they will fail soon.”
Too Smart For His Own Good
Dr. Bernanke had a stellar academic career: high school valedictorian, near perfect SAT scores, summa cum laude Harvard graduate, PhD in economics from MIT. Teaching positions at Stanford, NYU and Princeton followed. So we have to ask: if he is so smart how can he be so wrong? Source – Conservapedia
I have worked with many academically gifted individuals. I have learned never to confuse or to prize academic brilliance over good judgment, predictive capability, wisdom or excellent decision making. Academics in our country favor proficiency in standardized tests and memorization skills. But these educational measures in no way tell us about a person’s practicality, initiative, creativity, leadership, integrative thinking and emotional intelligence. Academic proficiency also does not guarantee wisdom.
In fact, many of those who reach the pinnacle of academic achievement lack the basic life skills that would constitute leadership skills. An insular education, a lack of street smarts, reinforced by an academic establishment focused on quantitative benchmarks instead breed arrogance. The ultimate unfortunate outcome is the talented academic’s misguided belief that he is the smartest person in any room. And the further tragedy is the common outcome that he is often wrong but never in doubt.
Leaders of organizations often select individuals like Dr. Bernanke because, with his stellar credentials, it is simply easier and more defensible. It takes a lot more work in the hiring process to find potential or proven leadership qualities such as character and creativity. Further, picking a less credentialed candidate puts the hiring manager at risk should the hire prove problematic. Why was the manager taking such a chance? That manager can always defensively invoke the stellar credentials in the event of a bad outcome.
As for Dr. Bernanke, his perpetually reinforced “brilliance” blinds him to the real world and its economic conditions. And certainly to the possibility that he may be wrong about anything.
Playing the Game
There is one other dark underside to the ability of people like Alan Greenspan and Dr. Bernanke to rise to power. While they may not have necessary leadership skills, they often have enough political skills to attach themselves to the right candidate or power structure. The ability to network at high levels of government and corporations becomes an extremely important skill.
Over the long term, success in politics and government requires a certain moral flexibility. That is, the academic recognizes that to reach the highest levels of power he must learn to flatter superiors, go along and get along.
If Dr. Bernanke displayed true independence, he would depart from the Keynesian party line of money printing to solve all crises. He would refuse to bail out the banks. And he would not be able to hold onto his Chairmanship for very long. He would be too threatening to his Wall Street patrons and the Obama administration.
The Useful Dupe
Why is there no penalty for Dr. Bernanke’s poor prognostications or failing economic stewardship? Because he serves a useful purpose. His presence allows his powerful financial patrons from recognizing well-deserved losses. And he then provides to them an endless supply of overt and covert (QE2) bailout funds.
Dr. Bernanke serves a second little discussed purpose. President Obama has many economic failings, but he does have political skills well-developed within the Chicago political machine. If the economy goes down the tubes, who better to take the fall than Dr. Bernanke, a card carrying Republican and certified genius? Moreover, Wall Street threatened that the markets would crash if Bernanke was not reappointed. If they do, who better to pin the crisis on than the good doctor?
Should the inevitable crisis hit, you can almost hear the Administration now. “While we had our misgivings we went along with TARP, guarantees, bailouts, and QE 1, 2, 3 etc.” Thus, we will be treated to the spectacle of Dr. Bernanke continuing to steer the economy from one crisis to another: the perfect useful dupe and probably too arrogant to realize it.
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