Why Ben Bernanke has no idea

Not much action in the financial markets yesterday. The Dow fell 20 points... completely inconclusive. We don’t know whether the final stage has begun or not. We think it has... but we’re not sure.

The big action was in the bond market, where the US government tied its all-time record by borrowing $25 billion worth of 10-year notes. All in all, the sale went well... but yields rose slightly... to 3.69%. At some point, bond yields will rise decisively to the upside. But whether that has begun or not... we don’t know yet.

Ben Bernanke says he will raise the discount rate “before long.” The inflation numbers are coming in higher than expected. At some point, Mr. Bernanke will have to raise rates to stop inflation. But we suspect that that will not happen any time soon. We have a depression to live through first.

But we strongly suspect that Mr. Bernanke has no idea what he is doing.

In short, we don’t know what will happen or when it will happen. But we’re pretty sure that Mr. Bernanke understands even less than we do. (For reasons we elaborate below...) Still, we’re counting on him to guide us. We just watch what he does... and listen to what he says... and head in the opposite direction!

In the meantime, we are snowed in tight... at least three feet of snow is outside our door…

One thing that man cannot get a grip on is central banking. Or, more broadly, economics.

Wait a minute. If he can send a man to the moon he can certainly make some progress in economics, right?

Wrong again!

Economics is not a hard science. It’s a human science. Like psychology or history... it’s an observational science. A decent historian observes what happens and does his best to tell the story faithfully. He is a fool if he thinks he can control it or make it turn out differently. An honest psychologist, also, can sometimes help people understand what they are doing. At the margin, he can even change human behaviour – perhaps. But he cannot really change the way people think or feel. Because he cannot change human nature.

Likewise, an economist with a residual trace of dignity and integrity admits that he is only half-capable of describing how people get along in their economic undertakings.

At best, he has a dim, vague idea of what is going on. He may even be able to give some good Dutch-uncle advice from time to time. “Don’t spend more than you earn,” he might tell his nephew. Or, ‘a penny saved is a penny earned.’ Or, ‘don’t put all your eggs into one basket.’ That kind of thing. At the margin, this advice might even be helpful.

But never in his wildest delusions does he imagine that he can improve or control an entire economy. In a theoretical sense, this would mean improving human nature... and he knows this is impossible.

Human nature expresses itself in an infinite variety of ways.

One man wants to work hard.

One wants to spend every penny.

One likes gaudy automobiles.

Another is afraid it will be a cold winter... he spends all his money stocking up on food and firewood.

Who’s right? They all are expressing their own fears, desires, and ideas – through the markets and the economy. Any action an economist takes to improve things necessarily means bending these people away from what THEY want towards what HE thinks they should have. And since prosperity makes no sense outside of the voluntary choices of the people themselves, the meddling economist inevitably makes them poorer. Because his interference shifts time and resources away from what people really want.

The economist is human too. As such, he is prone to human error... and a prisoner of human nature.

What do all these people in Washington do?

Well, we got a copy of the free local paper – the Politico. Want to get a job in the capitol? Just look in the paper. There are dozens of jobs on offer.

“Energy Analyst,” says one. They ask for a “proven analyst,” whatever that is.

Another ‘trade group’ advertises for a “Director, Policy and Research... to guide its policy/research initiatives...”

Still another wants a “Vice President for Government Affairs.” What is that? “Lobby experience” required, it explains.

How about this: “Legislative Assistant.” Senator Bob Corker is looking for someone to handle “energy and natural resources” issues for him. What kind of government is this, dear reader? The people’s elected representative knows nothing; so he hires a policy wonk.

Gosh... there are dozens of jobs on offer. And none of them seem to require any real skill... except a talent for BS: Congressional Relations... Federal Relations... Director of Public Policy... Government Affairs Director...

If none of these people ever came to work again, would the Republic be worse off?