The Race We All Lose

In October 2015, former Federal Reserve Chairman Ben Bernanke took to the pages of the Wall Street Journal. Pedigree matters, a fact easily established by how easy it is for central bankers and former central bankers to have their thoughts published in any mainstream outlet of their choosing. Record doesn’t mean so much, performance on the job secondary at most to consideration of titles once held and official positions once occupied.

The topic of Dr. Bernanke’s musing was, ironically, his record as Federal Reserve Chairman. Never one to miss a chance at beating his own drum, whoever cooked up the title for the piece accurately captured Bernanke’s sense of his accomplishment. It was titled simply, How the Fed Saved the Economy.

There wasn’t anything as far as evidence save for one specific comparison. The US economy wasn’t nearly as bad off as Europe’s. The Europeans were reluctant to embrace QE, therefore Ben Bernanke is our hero. “Hey, at least we aren’t Europe” is a little too close to “jobs saved”.

Europe’s failure to employ monetary and fiscal policy aggressively after the financial crisis is a big reason that eurozone output is today about 0.8% below its precrisis peak. In contrast, the output of the U.S. economy is 8.9% above the earlier peak—an enormous difference in performance.

No, actually, it wasn’t an enormous difference in performance. As usual, as an Economist he was counting on the difference in sign to mesmerize away any legitimate thoughts about gradation. With so much time having past since the Great “Recession”, +8.9% wasn’t truly any better than -0.8%. They were at best different shades of atrocious.

In a twisted way, 2017 saw something of a role reversal if only to justify this latest sense of globally synchronized growth. Europe as the world’s second sickest economy, not quite matching Japan in that category, if it was breaking out to a substantial upside, a boom even, then that would be something special. And since the ECB in 2015 finally relented on QE, double plus good.

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Kelsey Williams 2 years ago Contributor's comment

Good article!