“The most ignorant remarks ever made by a central banker.”
“When I started my economics studies at 16,” wrote Paul A. Samuelson not long before he died last year at aged 93, “Carlyle was right to call economics a ‘dismal science.’ Thanks to modern science and better economic knowledge, this Malthusian curse has been vanquished. Good modern economics make economics the Hopeful Science. At last!”
Lucky professor Samuelson! Like an aparatchik who joined the shades before 1989, he went to his reward with his delusions intact.
This week, the scientists began to have doubts. Like the pope wondering about the resurrection, or the Mormons questioning the veracity of the angel Moroni, the head of the World Bank, Robert Zoellick, shocked the learned world. It’s time to start discussing a gold-backed currency, he said. Maybe the crown of creation of modern economics – its centrally managed money – was not such a good idea after all.
Like Christianity, the dollar only has value as long as people have faith in it. But that is true of almost every trick up the modern economist’s sleeve. If people stop believing, the spell is broken and they’re worthless.
Two years ago, when the financial world was melting down, we were told that the volcano needed to be appeased. Without immediate injection of funds, the whole system would blow up, they said. Where was the science behind that? The financial system melted down countless times in the past. No central bank came to its aid before the 1930s.
Or how about the corollary article of faith: that the public had to rescue the big banks, a tout prix? It was practically a universal constant – like the Golden mean or Brownian motion. When bankers make profits, it is theirs to keep. When they lose money, the losses are moved onto the public. The US bailed out its banks. Britain, Ireland, and Iceland did the same. But where was the evidence that bank failures were so horrible? During America’s Great Depression 9,000 banks failed. And history is full of the wrecks of banks that were “too big to fail.”
A hick Congressman from one of the corn states once proposed to round off pi to 3 to make it easier for schoolchildren to remember. He must have been joking. In the world of science, water boils at 212 degrees Fahrenheit, at sea level, whether you believe or not. Pi is always a long string of digits. The mathematicians can sweat and shake all they want; it doesn’t change. But modern economists take the joke seriously. They think they can command water to run uphill and reset the Periodic Table with fancier china. That’s why they hate gold: they can’t control it. And it reminds them that they imposters, no more effective than witchdoctors or marriage counselors.
As of this writing, it takes more than $1,400 to buy a single ounce of gold – a new record. Why? Isn’t it obvious? People are losing faith. Last week, the US Federal Reserve said it was creating another $600 billion to buy US Treasury debt. That will mean a total of $2.3 trillion added to America’s monetary footings since the Fed began its QE program almost two years ago. This will also mean that Ben Bernanke has added three times as many dollars to America’s core money supply as ALL THE TREASURY SECRETARIES AND FED CHAIRMEN WHO CAME BEFORE HIM PUT TOGETHER.
“Easier financial conditions will promote economic growth,” wrote Mr. Bernanke, in The Washington Post, “…higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
Where is the proof? Where is the controlled test? Where is the peer review? Such an extravagant assertion ought to be accompanied by extravagant evidence. But there is none at all. Throwing virgins into a volcano would be no less scientific. The virgins appeased the gods; that was the theory. Mr. Bernanke has a voodoo theory too. He says all that new money will make people feel richer…and then they will act richer…and then they will be richer!
John Hussman, also an economist with a loyal following of his own, read Mr. Bernanke’s explanation and pronounced judgment: “the most ignorant remarks ever made by a central banker.” The latest $600 billion gamble may or may not increase stock market prices, he says. Even if it does, it is unlikely to produce the “wealth effect” that Ben Bernanke is counting on. People spend and borrow when they think they have permanent wealth. World stock markets have suffered two major shocks in the last ten years…with no net gains for investors. An increase in stock prices now – driven by the Fed’s printing press – is unlikely to create the kind of expectations that lead people to spend money. Especially when they don’t have any.
Which makes us wonder too. If modern economists are scientists, it makes us suspicious of the rest of them. What about the physicists? The molecular biologists? The archeologists? Are they all quacks too?