I’m not the one saying it–that would be Robert Samuelson, columnist for Newsweek and the Washington Post. The sole point of Samuelson’s recent opinion piece is that Ben Bernanke’s job is to increase confidence.
Like much but not all error, there is a grain of truth to this point. Thanks to John Maynard Keynes (whom Samuelson cites), George Akerlof, Robert Shiller, and any number of economics experiments, we know that confidence has an effect on behavior and hence on the economy. Too much overconfidence can fuel a bubble and too much pessimism can exacerbate a slowdown.
But to leap from there to the conclusion that the job of the chair of the Federal Reserve is to increase confidence–“Ben Bernanke has, or ought to have, a very simple agenda: improve confidence”–is just silly.
The Federal Reserve has two important jobs: (1) set monetary policy and (2) regulate bank holding companies and enforce financial consumer protection statutes. These affect the real economy in very concrete ways, not just via their impact on confidence. Saying that the objective of bank regulation should be to improve confidence is not just silly, it’s destructive. If your goal were to improve confidence, you would never restrict predatory lending practices (since they are good for banks and for asset prices) or crack down on undercapitalized banks (since that would reduce confidence in the banking system). I would submit that the first item on Ben Bernanke’s agenda should be doing the job mandated by Congress.
Equally quarter-baked is the idea that Bernanke should go out and talk up the economy. Even if we agree that too much or too little confidence can be a bad thing, how do we know that the current level of confidence is too low? Samuelson says that 47% of Americans rated the economy as “poor” in mid-January–with unemployment at 10% (now 9.7%), I’d say that seems low if anything. Is it really a good thing for people to be more optimistic than the economic fundamentals warrant? That’s not a rhetorical question–think back over the past decade.
If Samuelson’s point is that Bernanke should do a good job because that will make people feel more confident in the Federal Reserve, then that’s virtually a tautology, and certainly not worth writing eight hundred words about. If his point is that Bernanke should seek to improve confidence as an independent objective (implied by everything in the article itself), then that’s nutty.
Then there are the additional bits of silliness, like this one: “The administration’s decision to push health-care legislation was a blunder. It sowed conflict and was so time-consuming that it paralyzed action on other issues. Business planning and the willingness to expand have suffered, because companies find it harder to predict their costs and returns.” Businesses are one of the major interest groups supporting health care reform, because they bear the brunt of increasing health care costs, and they face the tough choice every year between increasing their personnel costs and cutting back on health care benefits. Most companies would like nothing better than the development of a viable alternative to the employer-based health care system. And what data could possibly exist that would back up the assertion that businesses have expanded slower because of health care reform, as opposed to, say, reduced availability of credit?
But I’ve already given Samuelson’s column more time than it’s worth.
By James Kwak
The Baseline Scenario 
Improve confidence? How can confidence improve when the median income for a family cannot provide for decent food, shelter, clothing and health care? Many of us have dug in and reduced spending as we now understand that debt was not really a substitute for income.
Meanwhile we watch as banks raise credit card fees and rates and bank fees while paying the saver pittance for CD’s all of which they claim they need to become solvent and lend to Main Street. How about that 145 billion that made its way into their bonuses and not to Main Street?
Who could possibly have confidence in Bernanke’s job performance? He has forgotten that the consumer actually needs sufficient income for the basics before she has confidence to borrow, invest and spend. He has forgotten his duty to enforce regulations to prohibit predatory lending. He does not think that the consumer needs the benefit of law. In his world only the powerful banks need the benefit of law, the law of deregulation, the law of government bailouts, and the law of a FED that protects bankers over the public.
Hopefully, most Americans will remember that a confidence game has been played on them and that true confidence comes from economic strength. Economic strength is not based on borrowing and accumulating debt. It is based on having sufficient income to pay for you needs, save money for the future and borrow prudently.
I think you’re reviewing not the column Samuelson wrote and wanted to write but the one you think he should have written.
The Federal Reserve has two important jobs: (1) set monetary policy and (2) regulate bank holding companies and enforce financial consumer protection statutes.
It will never do (2), so that’s out. (And Samuelson agrees that it shouldn’t.)
And of course “set monetary policy”, to the corporatists at the Fed and at the WaPo, by now simply means looting on behalf of the banks. Whatever it could have meant or did mean in the past, that’s all it will ever mean going forward. There’s no other wealth left to be “monetized.” In the globalist context, America’s real economy has been permanently gutted.
So the Fed chief’s job, from the establishment point of view, really is simply to maintain the confidence of Wall Street that the looting will continue for as long as possible. The actual mechanics of the job are pretty simple. Economic crashes, depressions, etc. are of no consequence as long as the system can hold onto power, so the Fed chief doesn’t have to worry about that. All he has to worry about is seizing the disater opportunities, shock doctrine style.
That’s why Greenspan and Bernanke were so complacent about the many convulsions of the “Great Moderation” even prior to the late blowup. (And that’s why Bennie coined that Orwellian term. It was indeed a signal meant to inspire his masters’ confidence, as well as a lie to the people.)
So here too, Samuelson’s dual purpose is to both reinforce for the initiated what the real nature of this system is, a confidence game indeed, as well as try to lyingly instill confidence among the uninitiated readership, that if everyone just stays confident, if everyone believes the numbers, if everyone joins in hallucinating the green shoots, most of all if everyone has confidence in the Fed chief, and believes in his confidence in himself, then the “recovery” is as good as here.
So there’s two kinds of confidence: that of the con man himself, his clear understanding of the fundamental phoniness of his job, how every aspect of it is shrouded in lies, and how he himself is master of those lies; and that he falsely inspires in his marks.
It’s the standard psychology of totalitarian regimes.
Robert Samuelson’s entire career is based on the fact that the public has him vaguely confused with Paul Samuelson, to whom he is not related, and who, unlike Robert, was not a meatloaf. The only writer that I know of who is more thoroughly and consistently inane than R.Samuelson is Ben Stein, whom the public vaguely confuses with his father Herb Stein. The American public tends to get confused on names. Exit polls showed that in the ’68 New Hampshire primary, more than 1/3 who voted for Sen. Eugene McCarthy thought they were voting for Sen. Joseph McCarthy.
To James and Simon:
“Seems like a dream.
It’s the same kind of story.
That seems to come down from long ago.
Two friends having coffee together.
When something flies by their window.
It might be out on that lawn.
Which is wide, at least half of a playing field.
Because there’s no explaining what your imagination
Can make you see and feel.”
Capitalism cannot breathe without perpetual growth — but this fact is running up against the hard reality of a finite planet. Green shoots indeed. There can be no confidence now in capitalism and its last-ditch greed games. Maybe the thing has to crash. How can we get this monkey off our back without costing millions of lives? That is the question.
Hilarious but, sadly, true.
Perhaps it is the totalitarian publics rather than their leaders who need psychoanalysis.
One of the major objectives of good crisis management is to lower the hysteria level to zero – hysterical folks make bad choices and big errors. This is generally achieved through gaining confidence in the way the crisis is being managed: honesty; clear explanations; frequent status and actions to be taken; and setting realistic expectations. The administration would have benefited greatly by having spokespeople who are well trained in communications – the fixers are rarely good communicators. This task is greatly complicated by the media who seem to have found their cash cow in the generation of hysteria.
Ha ha, that is in fact true in my case.
The first few times I read Samuelson’s column, years back, it reminded me of my college econ 101 textbook, and I thought they’re probably related.
“But to leap from there to the conclusion that the job of the chair of the Federal Reserve is to increase confidence–”Ben Bernanke has, or ought to have, a very simple agenda: improve confidence”–is just silly.
The Federal Reserve has two important jobs: (1) set monetary policy and (2) regulate bank holding companies and enforce financial consumer protection statutes. These affect the real economy in very concrete ways, not just via their impact on confidence.”
I think you should rephrase both of those. The fed’s “job” is to “trick” (thru confidence) the lower and middle class who are suffering negative real earnings growth to keep going into debt to the rich who are “suffering” really positive real earnings growth. This keeps price deflation and/or asset price deflation from happening enriching the few.
It would be fun to see a bloggingheads debate on this and related topics.
This post is curiously dismissive of a very compelling position.
Well said,
This system is cooked, but it will most likely linger around for a while until its absolutely clear it can’t continue. What will that take? I fear the possibilities.
Systems are recursive. Doesn’t make one right. Let’s start another one; The stock market does not inherently create jobs, the US financial system is nothing like a “free market”, and GDP is certainly not a supreme being.
Where is Noam Chomksy when you need him!
Actually, with confidence in institutions with locations inside the Capital Beltway at a substantial all time low, having Ben don cheerleading gear seems absurd at best. First he doesn’t even look the role, second, I have seen the few quasi-cautionally optimistic statements he’s made in recent months in interviews to be largely trying to cover the tracks of his apparent Greenspanish support of the financial oligarchy, and he’s been accompanied at every turn by the pale optimist (and defensive) Geithner, who’s also tried on his short skirt, even last weekend. No, Mr. Samuelson, we just want him to do his mandated job, no more and no less, and provide the FED’s aegis to the larger economy by assuring that all banks are healthy, not just the ones in NY.
via wikipedia:
A confidence trick or confidence game (also known as a bunko, con, flim flam, gaffle, grift, hustle, scam, scheme, swindle or bamboozle) is an attempt to defraud a person or group by gaining their confidence. The victim is known as the mark, the trickster is called a confidence man, con man, or con artist, and any accomplices are known as shills. Confidence men exploit human characteristics such as greed and dishonesty, and have victimized individuals from all walks of life.
Confidence tricks exploit typical human qualities such as greed, dishonesty, vanity, honesty, compassion, credulity and naïveté. The common factor is that the mark relies on the good faith of the con artist.
Just as there is no typical profile for swindlers, neither is there one for their victims. Virtually anyone can fall prey to fraudulent crimes. … Certainly victims of high-yield investment frauds may possess a level of greed which exceeds their caution as well as a willingness to believe what they want to believe. However, not all fraud victims are greedy, risk-taking, self-deceptive individuals looking to make a quick dollar. Nor are all fraud victims naive, uneducated, or elderly.[2]
A greedy or dishonest mark may attempt to out-cheat the con artist, only to discover that he or she has been manipulated into losing from the very beginning. This is such a general principle in confidence tricks that there is a saying among con men that “you can’t cheat an honest man.”[3]
The confidence trickster often works with one or more accomplices called shills, who help manipulate the mark into accepting the con man’s plan. In a traditional confidence trick, the mark is led to believe that he will be able to win money or some other prize by doing some task. The accomplices may pretend to be strangers who have benefited from performing the task in the past.
“The Federal Reserve has two important jobs: (1) set monetary policy and (2) regulate bank holding companies and enforce financial consumer protection statutes.”
Did we loose the employment mandate by accident, or is this a proposal to change law and statutes?