When everybody screams and yells, who calms them down? Who rings their bells, when everybody screams and yells? The enchanted one – That’s me. The lyrics from Carole King’s song seem to echo yesterday’s announcement that President Obama is appointing Janet Yellen (ok so it’s a pun) to chair the Federal Reserve Board of Governors.
The appointment of a doctrinal Keynesian with a long pedigree seems to have calmed the markets even in a period of partial government shutdown and the potential that the federal debt ceiling limits will be hit, placing extraordinary burdens on the 49 percent of Americans that rely in some way on monthly government checks.
Yellen is by far not the worst choice to head the Federal Reserve. She is a trained economist with a long pedigree, and is well versed in the ins and outs of central banking. Her predictive abilities have been better than most, including the last two Federal Reserve Chairmen, and in reading her past decisions at the Fed, it appears as if her focus is on employment, which may not be a horribly bad thing in the current economic environment. In addition, she appears to be slightly less doctrinal than Chairman Bernanke or the most mentioned other candidate, Larry Summers.
That said, the transition to a Yellen Fed means more of the same when it comes to the unbridled printing of money as a means to grow the economy. Yellen, like Bernanke before her, and all Keynesians, believes that the creation of money in and of itself is a means to grow the economy. This bizarre theory is similar to the idea that bleeding a patient is a great way to cure a cold. Sure in 1790 all of the most educated and erudite physicians were sure that balancing the bodies humors was the way to cure diseases – which was why a cold kicked the nation’s first President.
Today, academic economists including Yellen, blindly follow an economic doctrine that – even it if was valid in 1930 – is surely not valid today. We would not think that disease was caused by too much blood, we don’t believe that the sun revolves around the earth, and we don’t believe that the North American continent is populated by giants, but for some reason the economic orthodoxy believes that consumption, production and growth are somehow the exact same thing.
As John Tamny recently wrote in Forbes, “It’s probably not asking too much for a Fed Chairman to know that job creation is always and everywhere a function of investment,” and the Keynesian priests are too attached to their dogma ever to understand this. The Yellen Fed will continue to push the US economy toward the asset inflation, currency devaluation, and reduced productivity that has hampered the recovery.
So while everyone screams and yells, the enchanted economic cabal that runs the Federal Reserve, and American economic policy, will continue to lead us on a path toward mediocrity while they worship the god of money.
Maybe someday, somebody will pick up a copy of Adam Smith’s Wealth of Nations and try to get a basic understanding of how an economy actually works. Though now that “someday” looks to be at least another four years away.