Harvard Class Day Speaker

Ben Bernake spoke to graduating Harvard seniors at Class Day on Thursday, telling them things aren't as bad now as they were when he was in the audience back in 1975. True, we had rising oil and food prices, and slow economic growth then as now, but there are grounds for optimism, Bernanke insisted.

Government is economically wiser since the mid-70s, he claims. Given that government has created a debacle similar to the one in the 70s, what does that say about its ability to learn from its "mistakes"?

He brought up the subject of lessons central bankers have allegedly learned since the high inflation days of the mid-70s, the most crucial of which are (1) "high inflation can seriously destabilize the economy," and (2) "the central bank must take responsibility for achieving price stability over the medium term."

And audience members complained that Bernanke wasn't entertaining?

Let's see, government contributions to our economic well-being in recent years . . . such as the shot in arm SOX (the Sarbanes-Oxley Act) gives to outsourcing?

Or the potential of SOX to "turn into a litigation time bomb"?

Or government's robust penchant for war and the horrendous costs it entails?

Yes, we don't have price ceilings on gasoline today, as he points out, but is that because of government's greater economic wisdom or political expediency? Could it be that Republicans don't relish the prospect of conducting an election with people lining up on odd or even days, as they did in the mid-70s, hoping to find gas in the pumps for the state-mandated price?

Bernanke apparently wants the world to believe that central bankers in the 1970s were unaware that high inflation is bad medicine for an economy, as if banking authorities knew nothing about post-war hyperinflations or about the persistent inflation we get when governments abandon hard money and force fiat standards and banking cartels on their economies.

Counterfeiting is one of mankind's oldest cons. Are we to believe that it took 60 years for U.S. central bankers to realize they were the government's official counterfeiters?

He also seems to believe that without a sufficently high inflation we pay a price "in terms of lost output and employment" -- which he sees as the downside of Paul Volcker's anti-inflationary policies that began in 1979. As for achieving medium-term price stability, does that means the Fed runs the presses but not too fast?

Two points to consider: Why do we need price stability over any term? The free market tends to push prices down. Why is that a bad thing?

Second, who on earth believes central bankers have behaved with restraint since the 10 percent inflation days of the mid-70s? Greenspan ran the printing presses around the clock. At the time everyone was cheering, especially Wall Street.

And today?

According to the BLS inflation calculator, which is programmed by the government, it would take $4.00 today to buy the same thing $1.00 did in 1975. Using the CPI calculator at ShadowStats.com, which uses the government's pre-Clinton method of computing the CPI, price inflation is more than double what the BLS claims. Is this what he means by maintaining stable prices over the medium term?

Is that the best performance we can expect from our money?

According to measuringworth.com, from 1875 - 1908, a period in which the Fed was noticeably absent but gold wasn't, the annualized inflation rate was negative. In 1908, it took $.84 to buy what $1.00 would in 1875. Prices dropped during a period of explosive economic growth. Investments were funded mostly by real savings instead of Monopoly money. It was a time when people could save for their old age. They didn't have to roll the dice in a Fed-inflated stock market or depend on the government's fraudulent Social Security program. The dollar was actually a store of value.

Many students were reportedly bored with Bernanke's remarks. From the Fed's perspective, that's good. Had he sung a different song, such as the one about the Fed's deliberate dollar destruction, more people would have been awake at the end.