Kris Kringle? No, Ben Bernanke
George F. Smith
What will Ben Bernanke do to restore economic growth? He’s probably wondering the same thing. Since he holds our future in his hands, it can be helpful to think through some of the politically-acceptable options he has, to see where they might lead.
Everyone is speculating on QE2 - Quantitative Easing Two. Will he or won’t he, and if he will, how will he implement it - all at once or gradually? The financial press is convinced QE2 is a done deal in some form. They’re probably right -- aren’t they usually? -- but if I were Ben Bernanke, I would think about it extra hard. QE1 was not an American success story. You don’t improve a gross blunder by repeating it. The monetary base is at an all-time high, banks are risk-averse, corporations are loaded with cash, and the mortgage industry is in trouble again because of sloppy or fraudulent foreclosure practices. Pouring more fiat money into the banking system, therefore, would have the same effect as setting the stuff on fire. Bernanke would seem to be trapped. He can print money all he wants but if the usual beneficiaries sit on it, what good will it do?
According to my understanding of Keynesian theory, Bernanke has to get the money into the pockets of people who will spend it. He needs to identify the spenders and make sure they go to their favorite retail outlets and buy things.
Who are the spenders? You and me. But Americans are too much in debt, and there’s always the chance that if he writes them a check they will use most or all of it to pay creditors. How can he get people spending on stuff that’s sitting on store shelves?
How about a free Christmas - for starters?
The holidays are almost here, and people won’t be paying down debt for the next two months. They will spend, but they will be frugal. Frugality is a mortal sin in the Keynesian religion. Frugality belongs to the same family as hoarding, and hoarding is public enemy number one to central planners.
Some people think of Bernanke in a helicopter dropping money on the masses to get them to spend. He would probably enjoy doing it - after scattering the loot, he could hover overhead and watch the action. He would be witnessing one of those rare moments in the life of a leading economist, the confluence of theory and reality. It would sure beat watching a rat navigate a maze. Moreover, he could attach sales fliers to the money, to further reinforce the idea of spending it. Imagine: From his perch low above the ground he could see unsold inventories gathering dust, then watch those inventories being whisked away in a cloud of dust as consumers went on a spree.
Would this work? Maybe, but while we wait for the econometric models to tell us for sure, we can dream up other possibilities.
In my opinion, Bernanke needs to think like the father of teenage daughters. What is their ideal world? One or more credit cards with astronomical spending limits -- credit cards that daddy takes care of when the bills come due. Bernanke could issue Fed credit cards and scatter them over the American landscape. Take a card to Macy’s, buy what you want, and Macy’s sends the receipts to the Fed. Drawing on his capacity to produce digits and dollar signs with a few keystrokes, Bernanke prints Macy’s a check, Macy’s orders more inventory, and the cycle begins anew. As the Mogambo Guru might say, “Whee! This economics stuff is easy!”
You say, fine, but who would do the work in this scenario? Who would produce the goods, and who would man the stores to sell them? We already know the answer to the first part - foreigners would make the goods. We’re still the world’s only superpower, right? As for retail clerks and such, Bernanke could call on the military or hustle up prison inmates. Soldiers would be well-suited to instill order in a frenzied crowd of shoppers, and prisoners would welcome a break from their confinement, while it would help acclimate them to rational society.
Not only will massive spending boost GDP, it will eliminate the nagging unemployment problem by bringing new meaning to the idea of work. Inflation fears? Who cares about inflation when you have unlimited credit? Crime would plummet because there would be no need for private citizens to rob or steal. People would have their faith restored - yes, indeed, there is a Santa Claus. And that bad ol’ government that libertarians love to skewer - why, they’re wrong, it truly is our servant. Man of the Year? Ben Bernanke would be a shoo-in for the White House.
We don’t need another QE. We need Fed credit cards. If the Fed is generous enough, Christmas 2010 will be the best, and quite possibly the last, on record.