The long list, unlike that of Richard Nixon’s, began for me in 2010. It contained everybody on President Obama’s economic team, but in an order. Because they were the president’s inheritance from an era bygone. From the heydays of Clintonomics to the economic drought of Obama’s, yet delusional to resurrect the go-go ‘90s and paranoid about those who could stand in its way. It felt as though a pall of dishonest gloom was befalling the nation’s economy in 2009, in stark contrast to the refreshing honesty of the Bush administration on Iraq in 2006.
The economic stars, including the man of impeccable integrity Paul Volcker and the teflon Secretary of the Treasury and former Co-Chairman of Goldman Sachs Robert Rubin, had lined up behind the president on the dais for the transition announcement with no plan, at least for namesake, to put people first. Only the personalities of the hyped geniuses mattered.
All the King’s Men were in place for the great but patient economic restoration that was to come, as if the gentiles of the American economic renaissance after the Cold War, eager to restore their own work tarnished by political time, had returned as apparitions under the patronage of an inspiring president before that work itself could come under scrutiny.
The wiser, Alan Greenspan, had stayed away from the Obama limelight to take the beating later on his own.
As the patience of a level-headed president, elected for that very same trait of his, began the work of finishing the unfinished agenda of the ‘90s, from health care, financial market regulations and gays in the military, the restoration took a back seat to patience. What was thought to be the Sistine Chapel of economic globalization turned into a piece of art that would not sell in a flea market on a Sunday morning.
The risorgimento began in 2006 when the scaffolding was put into place using the cover of a new-Keynesian conservative at the Federal Reserve, a monetary economics scholar named Ben Bernanke of Harvard, MIT, Hoover and Princeton, not too libertarian and not too liberal, some mix of Volcker and Greenspan with books about how to supply money to his credit. Had he not come to the Fed, he could have been a Nobel-winning academic for his insights into the causes of the Great Depression which he had never experienced except in the ivory towers of academia.
Bernanke’s claim to policy fame was his critique of Alan Greenspan’s lack of monetary discipline, as if he had come to the Fed with a vengeance from Princeton’s economics department because the Greenspan Fed had dispensed with Alan Blinder, his colleague, rather unceremoniously, in two weeks for pointing out that the Fed paid more attention to inflation and less to unemployment. Bernanke wanted monetary policy to be less discretionary, faithfully and quite appropriately toeing the line of highly regarded, mainstream economic thinking on time consistency that is less prone to political vicissitudes.
The Economist magazine had known that a dynamite was being handed off in a relay race from the legendary Greenspan to a new comer into the practice of monetary policy (and politics) because of the housing bubble. Academic theories of central bank independence to which every student and professor of economics subscribe religiously were to be put to test as America looked to the Bank of England’s Mervyn King and the European Central Bank’s Jean-Claude Trichet in envy because they argued that bubbles could be controlled by monetary policy. It has escaped the minds of American economics that central bank independence and monetary independence, in practice, are two different concepts, albeit subscribing to the same theory in essence. A separate institution may not after all be necessary to have monetary discipline. So, the Bernanke Fed continued to raise interest rates during the housing bubble from 2006 through 2007.
To turn the Fed into today’s European central banks was Bernanke’s undergraduate objective: why so many economists (the Fed employs around 200 Ph.Ds from the best economics programs in the United States) when a computer program can supply money using Milton Friedman’s reformulation of the quantity theory of money within the neoclassical framework? The Fed had made a mistake and caused the Great Depression, he said, at a remembrance ceremony speech for Milton Freidman and that it would never happen again. Anna Schwartz, Friedman’s co-author of A Monetary History of the United States, was in the audience. So, the Bernanke Fed, after raising interest rates during the housing bubble, forecast a depression in 2008 to drop the floor on money supply.
What could have been a controlled implosion had the housing bubble been left alone until it collapsed of its own accord ended up becoming a global detonation within the G7, putting all the G7 countries in the same boat as Japan, draining water from a leaky boat over an extended period of time to remain afloat, straining the very fabric of economic science and its practice since it had been thought to be all finished in the ‘90s (similar to the ideology of the end of physics toward the end of the 19th century). Ben Bernanke had made a mistake, despite the conviction not to make it.
This unraveling of the packaging of the biggest economic folly in the history of economic science is now taking its toll: Peter Orszag, Christina Romer, Lawrence Summers (the chief architect and the big fish of them all), Ben Bernanke and finally Timothy Geithner are all set to exit the stage because the country’s patience is wearing thin even as that of the Ice Man president persists.
Does this president have any moves remaining or is another depression the political reason to return to old keynes from the new keynes, for America to converge on Europe to end history for saving the last man?