Ben Bernanke Invents Supply Side Keynesian Economics

Ben Bernanke is back, having been interviewed during the past month by The New York Times, NPR, CNNMoney, The Hill, Bloomberg, CNBC and other media. That his book, The Courage to Act: A Memoir of a Crisis and Its Aftermath, is out in paperback could have something to do with it.

When the hardcover version was released, Bernanke, former chair of the Federal Reserve Board, wrote a piece for The Wall Street Journal titled, “How the Fed Saved the Economy.” Having taken credit for saving the economy after the financial crisis, he’s now giving advice about how to continue saving it. His comments, in which he poses as a supply sider while advocating for still more Keynesian stimulus are almost as unintentionally humorous as his Journal op-ed.

In an interview with The Hill, he said, “What we want to do is try to improve the supply side of the economy, make it grow faster, have greater potential. And I think that probably that to do that, I would think that on the fiscal side, that infrastructure spending that improves our roads, our bridges, our schools, and tax reform, not necessarily tax cuts, but reform that makes the system simpler, more efficient, those would probably be the highest-return fiscal actions in terms of getting higher growth.”

We’re not sure how you can reform the massive federal tax code without cutting taxes for someone, but supply side stimulus spending is an oxymoron. Supply siders would deregulate and cut taxes to encourage business investment.

If the U.S. corporate tax rate remains the highest in the world, you can build bridges and high-speed rail to nowhere and you’re not going achieve higher economic growth. You may recall that we were going to spend our way to prosperity with the American Recovery and Reinvestment Act and we’ve had nothing but slow growth ever since.

Reducing the Fed Balance Sheet

Bernanke is also encouraging the Fed to reduce its balance sheet, suggesting that the Fed reduce its $4.5 trillion in bonds to “something in the vicinity of $2.3 to $2.8 trillion.”

“What exactly this would achieve Bernanke didn’t say,” ZeroHedge notes. “As far as we can tell, a balance sheet of $2.8 trillion would still be about 300 percent higher than it was prior to the 2008 financial crisis.”

We’ve previously questioned the former Fed chief’s competency and his latest comments give us additional reason to do so. ZeroHedge goes a step further and questions his sanity:

“Bernanke, by all measures, is an absolute lunatic.  He, more than anyone else, is responsible for the utter mess that radical monetary policies have made of the U.S. economy.  He’s the one who dropped the federal funds rate to near zero and inflated the Federal Reserve’s balance sheet by over 450 percent.

“Yet Bernanke walks and talks with no remorse.  He even believes his actions somehow saved the economy.  In truth, his actions impeded the economy’s ability to self-correct and provoked today’s asset and debt bubbles.  However, with the exception of Lehman Brothers, his efforts did succeed in saving the banker’s bacon.”

During an interview with “CBS This Morning,” he concluded that the economy is doing well, with 16 million jobs created since 2009, the unemployment falling from 10% to 4.5% and the housing market recovering.

“Lots of things are positive,” he said, yet he concluded that President Trump’s target of a 3% annual economic growth rate is most likely not achievable or sustainable “unless we get lucky.” The economy grew at an annual rate of 3.3% from the end of World War II until the financial crisis, so why is 3% growth unachievable, especially if the economy is as “positive” as Bernanke says it is?

The Partisan Divide

Not everything Bernanke says is nonsense. Consider the following quote.

“It is really striking,” he told The New York Times. “The election result completely reversed people’s views of the state of the economy. Republicans who thought that we were in a dystopia now think things look great, and Democrats, the opposite. And it shows that it isn’t all based on an objective assessment of the economy.”

Maybe he invented supply side Keynesian economics to bring Democrats and Republicans together.

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