I just realized I´ve been using the “peddler” description a lot, like in:
- John Taylor “peddles” the “Taylor Rule”
- Paul Krugman “peddles” the “Liquidity Trap”
- Delong/Summers “peddle” “Self-Financing Deficits”
- Edmund Phelps “peddles” “Structural Slumps”
But the tragic moment came about when Ben Bernanke, with the power to act on it, “peddled” his “non-monetary effects of the financial crisis in the transmission of the Great Depression”.
His reasoning was written down almost 30 years ago:
The last part is not quite right. It wasn´t the “New Deal” that rehabilitated the financial system, but FDR´s March 1933 decision to de-link from gold and inflate, stating a price level target. The result was that the last bout of banking failures in the spring of 1933 did not affect the economy like the previous ones.
Maybe Bernanke´s “bias” is the reason David Beckworth upped Christy Romer´s clamor for Bernanke to have a “Volcker moment” and suggested Obama have a “FDR moment”:
Maybe it is time for us to admit that Bernanke will never have his Volcker moment. He has had many opportunities and whether because of groupthink at the Fed, political power of savers, or a failure by him to read Scott Sumner’s blog, Bernanke cannot seem to find his Volcker moment. It is not clear he ever will. So instead of hoping Bernanke has a Volker moment, maybe we should be hoping for President Obama to have a FDR moment.
The FDR moment occurred in 1933 when FDR took the reins of monetary policy from an ineffective Fed and sparked a robust recovery in aggregate demand. The Fed had allowed aggregate demand to collapse for three years when FDR responded. He signaled that he wanted the price level to return to its pre-crisis level (i.e. increased expectations of higher nominal spending) and acted upon it by having the Treasury Department devalue the gold content of the dollar. This dramatically increased the monetary base and spurred a sharp increase in aggregate demand.
Let´s keep wishing and hoping…