For regular readers of this column, you know one of my favourite subjects is economics. I also write about US Federal Reserve chairman Ben Bernanke and his machinations on controlling the US economy. Today, I listened intently to his speech to the Washington Economic Club on the state of the US economy from my perch in front of my Sirius satellite radio. Here is excerpt of the question and answer period following his speech, which I found fascinating.
“When you were minding your own business at Princeton,” he was asked in a question-and-answer session following his speech, “did you ever have second thoughts about coming to Washington in light of all of the…”
The question was cut off by laughter from the economists in the room, many who generally supported Bernanke’s actions. “Well, let me say, it’s been an interesting experience overall,” Bernanke replied after a long pregnant pause. “Keynes once said that economics should aspire to be as useful as dentistry. And what he meant by that was that economics is not a subject, which should be studied in an ivory tower.
It’s one that should apply in a way to try to help the broader economy, to try to help the public, to try to make things better. And it was my objective to bring my knowledge, my research on the Great Depression, on financial markets, on the economy to do the best I could to bring that to the actually policy-making arena. In that respect, I don’t regret coming to Washington.”
Later he was asked, “What is the best thing about being chairman of the Federal Reserve Board?”
“I get to go through the security lines at the airport much more quickly than,” Bernanke said, again cut off by laughter. “And I can take along even three ounces of fluid if I want to.”(Source:Real Time Economics WSJournal)
His explanation about dentistry is something that I’ve tried to explain in this column for many years. Despite how many of us hate to go to the dentist, usually there is a good result from all the bad things that they shove in your mouth. I know that I make a habit of going to the dentist every four months and despite my misgivings about that my teeth are in really good shape and ultimately that keeps me in good stead. As Bernanke said, the dentist analogy was credited to famous economist John Maynard Keynes. He was the one who said that government should step in when the free market couldn’t take care of itself. So when the Federal Reserve stepped in last year and rescued Bear Stearns and Fannie Mae and Freddie Mac that was a good dentist fixing some teeth. There was a method to the madness and Ben Bernanke and the Federal Reserve were surely doing their job.
Of course there will always be second guessers. I’ve always wondered why Bear Stearns, Fannie May and Freddie Mac were saved but Lehman brother were allowed to fail. Former Federal Reserve chairman Andrew Brimmer asked Ben Bernanke that question. Bernanke responded by saying, “We did our best to protect the system from the collapse of these firms, all of them,” he said, adding that the only power the Fed had was the central bank’s lending authority against capital, and that there was nothing it could do to save Lehman.
There were some light moments in the exchanges between Bernanke and the other economists. For instance one of my favorites questions was, “what do you think interest rates will do?” Maybe you had to be there but I laughed out loud when I heard that question. The point being Ben Bernanke is the chairman of the Federal Reserve in the United States and those are the guys that set the interest rates. So if he gave any clue at all it would have sent markets into frenzy. He replied by saying, well they can’t go much lower reflecting the obvious fact that interest rates are at record lows and in fact would have to go negative to go lower.
Of course not all of you are going to find this as fascinating is I do. However I get a kick out of listening to a man that has most of economic power in this world. I get the same kick out of listening to our Bank of Canada Gov. Mark Carney. Key moving forward on the economic front is getting the United States economy back front and center with renewed job growth. Bernanke offered some modest caution in that regard. However, of course nobody knows.
Which is the frustrating part of the dismal science called economics. You can be wrong all day but still sound right about the economy after the fact. Needless to say when the Federal Reserve chairman speaks, I listen. He’s the big guy with the controls. I just hope he knows what he’s doing.