Who’ll Get the Old Maid?

Tea Party Economist

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Ben Bernanke’s position as Chairman of the Board of Governors will end on January 31, 2014. He is now in a race against time.

(1) Will the American economy fall back into recession before then, thereby negating the tripling of the monetary base under his chairmanship? Will he get out before mass inflation rears its ugly head? (2) Will he be able to pass on the Old Maid of price inflation, the way that Alan Greenspan passed on the Old Maid of the Great Recession to him?

He suffers from a major liability: he is an academic. In the history of the Federal Reserve, only three men who have held the position of Chairman of the Board of Governors have had a PhD in economics.


One was Arthur Burns, who served under Nixon, and therefore presided over the destruction of the gold exchange standard, and who launched the worst phase of price inflation in the history of peacetime America.

The second was Alan Greenspan. He was not known as Dr. Greenspan, which is good, because the conditions under which he received his PhD have been under a cloud for years. There has never been a release of his PhD dissertation. A purloined version has circulated, and the thing is little more than a series of articles. It does not have anything like the academic character of a standard PhD dissertation.

Ben Bernanke is the third. He was a professor of economics at Princeton University. This is a major university. There is no question that he has strong academic credentials. His academic credentials are greater than the credentials held by any previous Federal Reserve Chairman. This is why he is a sitting duck.

Bernanke’s problem is that academic economists are protected by tenure from the realities of the capital markets. Nobody can fire them. They are not held accountable for anything they say. They are in control over the grading process. Students do not give them any back talk. If another economist challenges them, the other economist is writing in some obscure journal, and the public has no interest in the debate. So, the debates among economists take place in a rarefied world in which economic reality rarely intrudes. When it does intrude, it usually does so at the expense of the theories that are offered in the standard academic journals.

Greenspan never taught at a university. He was not strictly an academic. This helped him. He covered himself with his famous “Greenspeak.” He admitted this on national TV while he was in office. The public thought this was amusing. Obviously, so did he. Congress, officially in charge of the Federal Reserve, never challenged him. He got a free ride.

Bernanke tries to escape criticism by three methods when he speaks publicly: (1) reviewing recent financial history at great length even though everyone in the audience already knows this history; (2) adding footnotes to bog down his critics in academic bilge; (3) mildly blaming Congress for its deficits, on the assumption that Congress will do nothing to balance the budget, and therefore the FED (and Bernanke) will escape blame when the house of credit cards finally collapses.

Academic economists should not be allowed anywhere near policy-making power. Yet there is no policy-making in the field of economics that is more crucial to an economy than the policy-making at the nation’s central bank. Of all places where you do not want a man with a PhD to preside over the institution, the central bank is that institution.


Bernanke came into power in February 2006, following the tenure of the most famous Federal Reserve Chairman ever. Not even Paul Volcker was as famous as Greenspan, because Volcker served a shorter term. He left before cable news had become dominant. There were no financial news channels. There was no YouTube.

I said from the beginning of his term that the recession crisis would hit under Bernanke’s administration, and so it did. In late April 2006, I wrote this:

The Federal Reserve must walk the tightrope between price inflation on the one side, which will raise long-term interest rates and mortgage rates, threatening to pop the housing bubble, and a recession on the other side. The yield curve almost inverted in early April, 2006. This is the traditional harbinger of a recession. That would also threaten the housing bubble. . . .

The expansion of the U.S. money supply, beginning in late 2000, created the bubble condition of the housing market. The way to keep gold from going up, other than selling large quantities, is to stabilize the money supply. The FED actually began to follow this policy in January, 2006. But if this policy is extended, the fiat money-induced boom that began in 2001 will bust. Bernanke must find a way to escape from the trap Alan Greenspan set for his successor. This can be done, but only at the expense of a major recession. In a Congressional election year, there is pressure on the FED not to let this happen. . . .

THE FED DARES NOT STABILIZE MONEYThe FED will not stabilize the money supply for long. Bernanke is famous for his speech in which he compared the FED to a helicopter full of paper money. He is attempting to overcome that blunder with tight money. But the result of tight money will be a recession. Then it will be a depression. He knows this. He has hailed Milton Friedman for having told the economists in 1963 that it was the FED’s deflationary policies that produced the great depression.

Austrian School economics told me that the attempt by Greenspan to reduce the expansion of the money supply would eventually produce a recession. He got out in time. He was replaced by an academic who did not understand Austrian economics, and who did not have a clue as to what was about to hit the economy. No Federal Reserve Chairman has been as completely blindsided by the economy as Ben Bernanke was in 2008.

Bernanke is the first Federal Reserve Chairman to receive widespread criticism by the public. The main reason for this has been Ron Paul. The other reason has been YouTube videos produced by people with an Austrian school economic perspective. Peter Schiff has been very successful in this regard.

The Federal Reserve is now under assault. It is not a direct assault on the government. It is more like guerrilla warfare. The Federal Reserve is the target of snipers who are well informed about economic theory and policy. It is also the target of snipers who are not well informed, but who are really angry at the state of the economy. The Federal Reserve likes to promote itself as being the center of economic policy-making, so it takes the blame for this economy.

Bernanke is a Keynesian. This means that he really does not understand how the economy works. Worse than this, he made his reputation as an expert on the Great Depression. This means that he is a pro-Roosevelt, pro-inflation, pro-government, pro-regulation economist. I think there is zero possibility that he will recognize the imminence of the next crisis. He did not recognize the last one, so there is no reason to believe he is going to recognize the next one.

Being an academic economist, he does not know how to conduct himself verbally in the highly competitive world of political rhetoric. He has had a free ride all of his career. He has never been forced to interact with either the market or Austrian economists.

He cannot communicate his ideas, because Keynesianism is incoherent. I am not exaggerating. If you read John Maynard Keynes’s famous book, The General Theory of Employment, Interest, and Money (1936), you will see the extent to which he was utterly incoherent in that book. This is in contrast to most of his other books. He was a very clear writer when he wanted to be, so you can be sure that whenever you read incoherent statements in anything written by Keynes, it was because he was trying to cover up the fact that he did not understand economic cause and effect.

His disciple an acolyte, Paul Samuelson, was equally incoherent in his Foundations of Economic Analysis. Samuelson hid behind mathematical formulas, so that the average reader did not expect to understand. Neither did most of his academic peers. The book began with these words:

The existence of analogies between central features of various theories implies the existence of a general theory which underlies the particular theories and unifies them with respect to those central features. This fundamental principle of generalization by abstraction was enunciated by the eminent American mathematician E. H. Moore more than thirty years ago. It is the purpose of the pages that follow to work out its implications for theoretical and applied economics.

It went downhill from there. He got away with it. In economics departments, this faculty saying has been true ever since: “Nobody ever got fired for assigning Samuelson’s Economics or for not having read Foundations of Economic Analysis.”

These university-tenured academicians think that incoherence is a benefit. They believe that they can hide behind equations and verbosity to protect themselves from the realities of both logic and the free market. They have done this all their lives, and they are completely defenseless when it comes to making clear whatever they are talking about, and to be persuasive enough to be believed. These days they have lots of criticism from people who are clear, who have an understanding of economic cause-and-effect, and are able to state their position in such a way that voters can understand what they are talking about. This is why Ron Paul has inflicted so much damage on the Federal Reserve. People can understand what he is talking about.

Bernanke is utterly defenseless. I assume that he is smart enough to know that he is being beaten up by Ron Paul. Or maybe he is not that smart. Maybe he has been shielded by academia so long that he thinks that the opinions held by voters are irrelevant, and therefore he does not need to confront them. This will doom his efforts when the economy turns against him.


We are living in a time in which the failures of government are becoming obvious to a growing minority of voters. The Federal Reserve is at the center of these failures. It controls the central institution, meaning banking, meaning money. Its mistakes are magnified throughout the economy. Its mistakes are many. These mistakes can no longer be concealed from intelligent voters.

The voters have been tipped off by Ron Paul and YouTube to the fact that Bernanke has feet of clay. They are no longer impressed by his academic smokescreen. His footnotes, which are his vain attempt to cloak himself in bullet-proof armor, do not accomplish this service. He does not know where to hide in a crisis.

If you remember what happened in late 2008, he was almost invisible. Well, not exactly invisible, but inaudible. Hank Paulson did all the talking for them both. Paulson understood confrontation and rhetoric. He knew how to act as though he knew what he was talking about, which he did not, but at least he gave the impression that he did. He completely bamboozled Congress, which is not that difficult for somebody who gives the impression of knowing what he is talking about. Paul Volcker and Alan Greenspan did it for years.

In contrast, Bernanke was like a timid mouse in the corner, and the capital markets were the cat. He knew he was going to be eaten alive. He hid behind Hank Paulson. He showed no initiative, no sign of self-confidence, no awareness of how to conduct himself in the middle of a crisis which his policies had created. He was to blame, to the extent that he inherited the disaster left behind by Alan Greenspan. He was holding the bag, and he did everything he could to make himself invisible.

This silence in the face of looming disaster is not going to work ever again. If there is another crisis, Congress will be screaming for his head. So will the public. Admittedly, the mainstream media will probably hold back, because the Federal Reserve is the heart, mind, and soul of the control mechanism that the Establishment has over the economy. The media will always give a free ride to the Chairman of the Federal Reserve. But I do not think the faltering media will be able to protect him next time.


Bernanke may escape when he leaves office in early 2014. Maybe the economy will not be in a crisis. Maybe he can pass on the old maid, the way Greenspan did to him. But that is his only legitimate hope.

April 25, 2012

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2012 Gary North