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