Ben Bernanke's over-the-cliff notes

No one needs me to add my wonder to that of everyone encountering Ben Bernanke's remarkable commencement speech at Princeton debunking the concept of meritocracy as defined by nearly every politician in America who pays lip service to it. No one needs me either to highlight the implicit rebuke to a party fanatically devoted to preserving low taxes for the rich and benefit cuts for the poor. 

I will only gild the lily so far as to note how thoroughly Bernanke set up the climactic credo from the moment he opened his mouth.  With caustic good humor, he repeatedly struck notes that eventually merged in the climactic chord: Life is unpredictable; merit is a product of chance; you are collectively the luckiest of the lucky; and your only instrument of meaningful control is a determination to do well by others. To wit:

Our next Great Communicator

Having made something of a study of our current President's rhetoric, I owe some attention to that of the man perhaps likeliest to be our next President, Rick Perry. Time's Richard Stengel and Mark Halperin just posted an interview with Perry. Below, some thoughts on responses revel much about Perry's approach to policy, politics, and the rules and purposes of political discourse.

Now that you’ve been in the race for while, do you feel pressure to temper some of your rhetoric, like calling the Obama administration socialist?

No, I still believe they are socialist. Their policies prove that almost daily. Look, when all the answers emanate from Washington D.C., one size fits all, whether it’s education policy or whether it’s healthcare policy, that is, on its face, socialism.

Let's grant Perry his definition of socialism -- he does have one -- and look at his signature method of characterizing opponents' policies. The Obama administration's education policy is embodied in Race to the Top, which invites states to compete for extra federal funding by submitting their own plans to raise performance according to standards that they propose.  As for healthcare policy: the Affordable Care Act does create a template for states to achieve near-universal coverage by two means: expanded Medicaid, 80-90% financed by the Federal government, and healthcare exchanges composed of private plans that meet minimum coverage standards, made available to citizens via premium subsidies provided by the federal government. But it also grants waivers to the states to design their own plans, as long as they meet basic coverage standards, and Obama has proposed moving up the date for granting such waivers.  In neither case do "all the answers emanate from Washington."  A candidate minimally concerned with veracity would not "temper" the socialism charge with socialism thus defined -- he would eschew it. But that of course implies a by-now-Utopian reality standard for any GOP candidate. Let's move on to Perry's more specific m.o.

The party of treason (charges)

In the GOP debate tonight, Perry doubled down on his slimy insinuation that Ben Bernanke's attempts to stimulate the economy with monetary policy are treasonous. This time he used the classic demagogic method of asserting that we have no way of knowing that an outrageous smear isn't true. Of Bernanke's motive for intimating that further monetary easing may be coming, he said "we don't know if it was political or not" -- i.e., whether Bernanke is motivated by trying to help Obama get re-elected.  Never mind that the being accused of treason for following a given policy course by the leading presidential candidate of one party would constitute a perfectly good motive for trying to maintain the other in office. Or that Bernanke is a Republican, and a Bush appointee, and a student of the Great Depression whose entire corpus of published writings support a more radical course of easing than he's pursued.  From smearing motive to charging treason -- that's the GOP way.

What goes round comes round. Invited to respond, Romney agreed that Bernanke's policy is wrongheaded and didn't call out Perry for smearing Bernanke's motives and patriotism. And then, shockingly, the T-word was turned on Perry by the guy who's supposed to be the sane man in the asylum.  On immigration, Perry in response to Santorum said it was not feasible to build a fence along the entire U.S.-Mexico border. He then delivered his own nostrums for "securing" the border - 4500 boots on the ground, air surveillance, etc. Then, Huntsman turned around and declared sententiously that for Perry to say that we can't secure the border was "near treasonous." (Never mind that Perry didn't say you can't secure the whole border; he said you can't fence  the whole thing. And he lacked the verbal quickness to make that point himself.)

Treasonous!  GOP culture makes Stalinists of them all.  Disagreement with their favored policies -- tactics even -- is treason. 

Another crie de coeur from Cassandra

Alas, poor Cassandra Krugman -- impelled to prophesy economic doom while watching those in power ignore his warnings.

On Nov. 7, Krugman lamented thusly regarding the likely course of Fed Chairman Ben Bernanke's announced plans for a new round of quantitative easing:

For the big concern about quantitative easing isn’t that it will do too much; it is that it will accomplish too little.

Reasonable estimates suggest that the Fed’s new policy is unlikely to reduce interest rates enough to make more than a modest dent in unemployment. The only way the Fed might accomplish more is by changing expectations — specifically, by leading people to believe that we will have somewhat above-normal inflation over the next few years, which would reduce the incentive to sit on cash.

The idea that higher inflation might help isn’t outlandish; it has been raised by many economists, some regional Fed presidents and the International Monetary Fund. But in the same remarks in which he defended his new policy, Mr. Bernanke — clearly trying to appease the inflationistas — vowed not to change the Fed’s price target: “I have rejected any notion that we are going to try to raise inflation to a super-normal level in order to have effects on the economy.”

And there goes the best hope that the Fed’s plan might actually work.

Think of it this way: Mr. Bernanke is getting the Obama treatment, and making the Obama response. He’s facing intense, knee-jerk opposition to his efforts to rescue the economy. In an effort to mute that criticism, he’s scaling back his plans in such a way as to guarantee that they’ll fail.

When Democratic Presidents reappoint Fed Chairmen

Regarding Fed Chairman Ben Bernanke's refusal to juice the economy at this point with further extraordinary measures such as a new round of quantitative easing, Jonathan Bernstein suspects that "Obama re-appointed Ben Bernanke without assuring himself that Bernanke would carry out policies that Obama presumably supports on the merits, and would have had the benefit of helping the Democrats in the 2010 election cycle."

Bernstein does grant that "it's possible that when Obama re-appointed Bernanke he thought he had such assurances, and it's possible that he believed that Fed policy to that point combined with fiscal stimulus would be sufficient to beat the recession, so that he underestimated the importance of the Fed in getting the economy back up to speed."  Finally, he arrives at what may have been the key point for Obama decision:

It's also fair to say that a year ago, in the wake of the financial crisis, reassuring the markets and keeping in place the person who had experience dealing with those issues was probably a more legitimate concern than it is today. 

As is the case on so many fronts, Bill Clinton, facing a rejectionist Republican majority, worked under constraints similar to those confronting Obama (and if Republicans capture one or both chambers of Congress this November, as seems increasingly likely, the operating environment will be more similar still).  According to Taylor Branch in The Clinton Tapes, when Clinton reappointed Greenspan in 1996, he

had wanted badly to replace chairman Alan Greenspan with Felix Rohatyn, the shrewd investment banker from Lazard Freres, but he ran into vexing constraints everywhere. Rohatyn himself advised Clinton to reappoint Greenspan instead, arguing that the Republican Senate would confirm no one else. Wall Street could not elect a U.S. president, Rohatyn told him, but it could surely un-elect one.  If threatened, financial, financial powers would sacrifice short-term profits to drive interest rates higher, hurting blue-collar workers with layoffs and shaky pension funds. In the end, Rohatyn refused appointment to both posts -vice chair as well as chair], and Clinton suspected that Greenspan had engineered this result by warning of political friction and terrible drudgery at the Fed.  He thought the wily incumbent protected his brittle ego from comparative scrutiny alongside Rohatyn, who was just as accomplished and a far more persuasive, attractive public speaker (p. 348).

How will Obama raise tax revenue?

Robert Reich hypothesizes that Ben Bernanke is helping the Obama administration prepare the ground for new taxes on the wealthy:

But Bernanke also wants to deliver a message to Congress, a message the White House doesn't want to deliver because it's politically awkward: Congress will have to raise taxes on the wealthy in order to finance universal health care and reduce looming budget deficits. Such tax increases won't slow down the economy because the wealthy don't spend that much anyway (that's what it means to be wealthy -- you've already got most of what you need), but may be necessary, at least to ward off inflation fears.

What sort of higher taxes on the wealthy? Bernanke didn't say, of course, but the White House has already floated limits on deductions and seems willing to consider taxing employee-provided health benefits for employees over a certain income. And maybe lifting the cap on Social Security payroll taxes, at least for workers earning over $250,000 a year.

More radical ideas batted around by Matt Yglesias and Nate Silver a couple of months ago: create new tax brackets far above the current top level of $357k -- or make tax brackets "infinitesimal," i.e. ratcheting up proportionately for every extra dollar earned. As Silver pointed out, the current top bracket threshold is anomalously low compared to those of prior eras.