11 Nov 2015

An Interesting Hypothesis

Humor, Scott Sumner 19 Comments

So it’s a puzzle: Ben Bernanke as an academic recommended policies that, in the opinion of market monetarists, would actually have required a smaller expansion of the Fed’s balance sheet in the wake of the 2008 financial crisis.

Yet inexplicably, once Bernanke assumed a position of immense power, all of a sudden those beliefs went out the window. Now, Bernanke did all sorts of nonsensical things, like paying interest on reserves–a very contractionary policy that made absolutely no sense, given that the ostensible purpose of the Fed’s overall strategy was to boost lending and spending.

Hmm, how can we explain this? An academic abandons his views the moment he assumes power, and begins funneling billions of dollars annually to the shareholders of the company of which he’s the CEO. He also buys trillions of dollars worth of bad assets that his new rich buddies invested in during the housing bubble years, even though such asset accumulation is totally unnecessary, as his own academic work explained.

Well, I’ve got my theory. Scott Sumner’s theory is that Bernanke is just a really nice guy.

These Chicago School economists always assume the best of people. It’s touching, really.

19 Responses to “An Interesting Hypothesis”

  1. Tel says:

    Well, I’ve got my theory. Scott Sumner’s theory is that Bernanke is just a really nice guy.

    I’m betting your theory is different to Sumner’s, am I right?

    Did you listen to Peter Schiff talking about how he met Bernanke? Schiff says, “Hey Ben, it’s me Schiff, I’m your biggest critic.” Bernanke pulls out a pretty good come back with, “I find that very unlikely. “

  2. Dan W. says:

    “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” ~ Adam Smith

    True in 1776, true today.

    • Scott D says:

      In my head, that quote will forever be read by Leonard Nimoy, thanks to the game Civilization IV. It is given when you research the “Guilds” tech.

    • guest says:

      “Conspiracy against the public” = COLLUSION (!), which … is not a problem, at all, it turns out:

      Anti-Trust and Monopoly (with Ron Paul)
      [Duration: 27:50]

      Dominick Armentano: The Case for Repealing Antitrust Laws
      [Duration: 01:04:59]

      [Time stamped]
      The Politically Incorrect Guide to American History, Lecture 8 | Thomas E. Woods, Jr.

      • Tel says:

        I think collusion is a problem, but on the whole anti-trust does not solve that problem and quite likely makes it worse.

        Government operates a protection racket and will tend to protect the highest bidder at the expense of lower bidders (where the bidding may be in money and/or votes). If the cartel is effective at driving up prices then it can bid very high indeed, and has incentive to do so.

  3. David R. Henderson says:

    Bob, What company is (was) Bernanke the CEO of?

    • Keshav Srinivasan says:

      A lot of Austrians/libertarians like to call the Federal Reserve a “private corporation”.

      • gienon says:


      • Tel says:

        The Federal Reserve is the peak body of a cartel of private corporations. Banks work hand in glove with government for a long list of reasons, and as Ron Paul discovered the Fed certainly isn’t directly answerable to government for its actions, but probably tries hard to accommodate government in many situations.

    • Bob Murphy says:

      David I meant the Fed. The commercial banks own stock in it.

      • David R. Henderson says:

        Ah, I see. As you know, I hate sarcasm. You’ve given me one more reason to hate it: it hides clarity.

  4. RPLong says:

    “I’d have to be pretty stupid to write a book about a killing, and then kill him the way I described in my book. I’d be announcing myself as the killer.”

    One of these days I’m going to publish something called “Everything I Ever Really Needed To Know, I Learned From Watching Basic Instinct.”

    • Rick Hull says:

      … or OJ Simpson.

  5. Levi Russell says:

    Public Choice > Chicago

  6. Major.Freedom says:

    During a drunken binge one night in 2008 Bernanke may have said that NGDP targeting has merit, so from that point on, no matter what he has done, he’s a “good guy”.

  7. John Goes says:

    Hey Bob, were you at the GOP debate? I swear I saw you behind one of the moderators.

  8. Bob Roddis says:

    [Market Monetarism (MM)] seems like a theory made up solely for the purpose of justifying not doing any fiscal stimulus. It has very little use besides that purpose …
    Sounds harsh, right? But let’s look at some history.
    The ARRA passed the US House on Jan 28th, 2009 (it passes the Senate in February) [0].
    Scott Sumner started his blog on Feb 2nd, 2009. That’s the Monday after the ARRA passes the House. His first post was a declaration that monetary policy was effective.
    A pretty startling coincidence, right? Sumner is linked to by Tyler Cowen on Feb 25th (which causes him to blow up) because Cowen is on the lookout for any links that say fiscal stimulus doesn’t work. My intuition for why Sumner blows up on the Internet is that Sumner and what becomes MM are a very good post hoc rationalization of people who read MR and are already opposed to fiscal stimulus (or maybe just Obama). Nothing goes viral like stuff that gives you a reason to hold on to your existing beliefs. In an unsurprising turn of events, Sumner later decides to leave Bentley and join Cowen at Mercatus.

    As my wife would say: market monetarism exists in reaction to fiscal stimulus [1].

    So the timing is right. What about the content?


    Yes but. When and where did the market fail requiring violent intervention to fix the failure?

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