From the Fed, Decades’ Worth of Bad Monetary Practice

As you know, a former Federal Reserve chairman, Ben Bernanke, was just awarded a Nobel Prize in economics. A friend of mine suggested it was the worst Nobel Prize in economics since Paul Krugman’s. I’m not sure I’d go quite that far, but that’s probably because I know Ben and respect him as a fine public servant and a very good former professor at Princeton. In fact, being a Republican on the Princeton faculty is not an easy thing. So, there: This is not personal. But. But, But, But. I think his stop-and-go policies — especially in the early 2000s, when he kept interest rates too low for too long, when he created way too much high-powered liquidity, when he took a strong dollar and made it a weak dollar, and when all his unsound fine-tuning created a boom in gold, commodities, and housing — were a big bungle. That bungle led to a financial meltdown, most especially a mortgage meltdown that he had to rescue us out of later on. It’s like a fireman who starts the fire — and then wants to take credit for putting it out. Not good. It’s all too reminiscent of the mistakes Jay Powell made almost two years ago as Fed chairman. Mr. Bernanke was worried about deflation post-9/11, so he authored a major league money supply helicopter drop, when in fact the George W. Bush tax cuts successfully boosted post-9/11 economic growth. I raise this because Mr. Bush moved to the supply side. He chopped down the top personal tax rate and obliterated the tax rates on capital gains and dividends. So when everything was taxed less, including investment, we got more of it. And the Bush boom did not require a major opening of the monetary spigots. We were doing fine. The supply side worked. The Laffer curve worked. But Ben Bernanke wasn’t watching, and that’s what got everybody into trouble. Sound familiar? The V-shaped recovery in late 2020 and early 2021 was ignored by the Biden socialists and the Jay Powell modern monetary theorists. Remember? Everybody was cheerleading for a $2 trillion stimulus package — that is, everybody in the left-wing camp — but we didn’t need it, and it started a big inflation. Mr. Powell opened those monetary spigots wider and wider even though the economy was growing at 6 percent thanks to President Trump’s tax cuts, deregulation, and energy dominance. So, here we are again. Only it’s a reverse rescue. Mr. Bernanke had to save America, he thought, by turning the spigots on, then off, then back on again. Mr. Powell kept the spigots on, opened them wider, and now he is crunching down until there’s no tomorrow. I don’t know if this is modern monetary theory, or what, but I do know that in both cases it was bad monetary practice. There’s an easier and softer way. Keep the dollar steady in relation to commodities and real goods, keep the spigots at medium-open, and we’ll have price stability. Leave the growth incentives to tax and regulatory and limited spending policies — where it belongs. The monetary lever is for inflation. The fiscal lever is for growth. Beginning with Ronald Reagan and Jack Kemp, and Art Laffer, and Steve Forbes, and a whole bunch of us — we’ve been saying this for more than four decades. Now, one more point about Ben Bernanke: I don’t know why he and others are so determined to bail out failing institutions. We had a chance during that financial crisis to get rid of some real turkeys. Like Fannie and Freddie, which should’ve been privatized. Or, remember the craziness: Bear Sterns was bailed out, Merrill was sold, and Lehman was left to fail. Whole parts of AIG insurance could’ve been dumped or junked — but they were bailed out. Stanford’s John Taylor has often written that it was the unknowable erratic bailout policies that did as much — or even more — damage to the financial world as the opening up of the monetary spigots after the crisis came upon us. Governments shouldn’t pick winners and losers. Still, today, it’s incredible to me that Fannie and Freddie are now owned — lock, stock, and barrel — by the U.S. government, a.k.a., the taxpayers. We shouldn’t be bailing out student loans, mortgage lenders, gasoline prices, potheads, banks, car companies, semiconductor companies, EV makers, wind and solar farms, and insurance firms. How about, make my day: No new bailouts. Or, make my day: $31 trillion of debt has gone too far. Don’t you think? From Mr. Kudlow’s broadcast on Fox Business News.

From the Fed, Decades’ Worth of Bad Monetary Practice

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