Bernanke's challenge resembles the task at which the Gosplan of the Soviet Union failed. In most of the so-called "capitalist economies," modern central banks are supposed to accomplish a similar task: to make the economy and employment grow, to finance wars and fight depressions, to supervise and regulate financial markets, and all along to guarantee "price stability." In order to grapple with such a superhuman challenge, the Fed staff make up one model after another, only to have them each be immediately falsified by new data. As a consequence of this confusion, each erroneous policy measure is followed by the next.The central bank's pretense of knowledge is obvious, given its manifest failure to meet its stated goals. What isn't always obvious is how much the state benefits with every run of the printing press. Politicians will keep the pretense alive until the chandeliers fall on their heads. At that point they will once again blame the free market and start over again.
Ben Bernanke is too much of a good guy to practice the art of deceit in the cynical way that is necessary for deception to work on a grand scale. His predecessor at the helm of the US central bank, Alan Greenspan, at least knew that central banking is not a science but a kind of show business whose very nature is the pretence of knowledge.
There is no solution to Bernanke's manifold dilemmas other than to end the Fed. Economies are too complex to be handled by a central authority. This lesson was learnt by the central planners of the socialist economies at a high price.
We do not need new monetary process models, more statistics, or better scenarios. All of these are in ample supply. We do not need a more competent chairman. By conventional measures, few are better qualified for the job than Bernanke. What we need is something else: the establishment of a different kind of monetary system, one that uses competitive markets in the area of money and banking, and that eliminates the currency monopoly of the state.
Though I like Mueller's article, I'm not as generous as he is in attributing innocence to Bernanke's motives. As Mueller points out, Bernanke is one of the brightest academics around. It would be naive to believe such a person could be fooled by so crude a thesis as Friedman's monetarist explanation of the Great Depression.