Bernanke Rules?

In today’s Wall Street Journal, Fed Chairman Ben Bernanke has outlined “The Fed’s Exit Strategy.” He tells the reader how the central bank will avoid an inflation of historic proportions resulting from all the money and credit it has injected into the economy. All of the strategies he outlines are technically feasible ways for the Fed to implement monetary restraint.

The op-ed has an air of a classroom exercise, however, rather than a practical central-bank strategy. Much of the article is devoted to explaining how the Fed can now pay interest on reserves, and how it could raise that interest rate so as to dissuade commercial banks from lending the reserves out. It could do that, but what would that rate need to be in order to meet a private bank’s threshold rate of return in normal economic times?

More importantly, the Fed has never lacked the technical tools to combat inflation. What it has so often lacked is the will to make tough decisions. And, quite frankly, it does not possess the information needed to fine-tune the economy in the way Chairman Bernanke imagines (a point made by Milton Friedman many years ago). Lack of will and lack of information combine to keep the Fed behind the curve. Its policy was too easy after 2001, and so it fueled the housing boom. It was late to recognize the turn in housing and the economy, and its policy was then too tight. If past is prologue, it will be late to implement its exit strategy.

The Fed Chairman has presented a laundry list of policy tools. What investors need is some assurance that the right tools will be used at the right moment. The mere promise of a policymaker to do the right thing has little credibility. There is no monetary rule in place, only the rule of a man.

More Undeserved Praise for Obama’s NAACP Speech

Mike Petrilli of the Fordham Foundation is an affable and intelligent man. But he has gone round the rocker in regard to President Obama’s NAACP speech last week.

His review reads like promotional excerpts for a blockbuster movie; Don’t miss what critics are calling a can’t-miss experience … “transcendent” … “inspirational” … “honest, direct, bold.”

Why such superlatives? Because Obama is an “African-American president, speaking to the NAACP, and arguing for reform in our schools and responsibility in our homes and community.” Wow. Reform and responsibility?

Of course, as I point out here, the President OPPOSES the most direct and effective means of reforming education and empowering parents; school choice. And he supports expanding federal control of education from pre-k to college. Our President is working against reform and responsibility in education.

Our President has the nerve to lecture parents on the importance of getting involved as he supports ripping vouchers out of the hands of children in DC and elsewhere. He and his Congressional colleagues have effectively told thousands of District parents, who desperately want to direct their children to a better future, to shut up and sit down.

There is absolutely nothing to celebrate about a President who mouths nice platitudes while doing all he can to undermine the principles that underlie those sentiments.

President Obama’s Dishonest Demagoguery

Politicians exaggerate as a routine matter and have well-deserved reputations for stretching the truth. But when they repeatedly make assertions that they (or their aides) know to be false, they surely deserve to be criticized. That is the purpose of my new video. Entitled “President Obama’s Dishonest Demagoguery on So-Called Tax Havens,” the four-minute presentation looks at the two sound bites that the President uses to demonize low-tax jurisdictions.

Bailouts Could Hit $24 Trillion?

ABC News reports:

“The total potential federal government support could reach up to $23.7 trillion,” says Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, in a new report obtained Monday by ABC News on the government’s efforts to fix the financial system.

Yes, $23.7 trillion.

“The potential financial commitment the American taxpayers could be responsible for is of a size and scope that isn’t even imaginable,” said Rep. Darrell Issa, R-Calif., ranking member on the House Oversight and Government Reform Committee. “If you spent a million dollars a day going back to the birth of Christ, that wouldn’t even come close to just $1 trillion – $23.7 trillion is a staggering figure.”

Granted, Barofsky is not saying that the government will definitely spend that much money. He is saying that potentially, it could.

At present, the government has about 50 different programs to fight the current recession, including programs to bail out ailing banks and automakers, boost lending and beat back the housing crisis.

We used to complain that George W. Bush had increased spending by ONE TRILLION DOLLARS in seven years. Who could have even imagined new government commitments of $24 trillion in mere months? These promises could make the implosion of Fannie Mae and Freddie Mac look like a lemonade stand closing.

Obama’s New Numbers

A new ABC/Washington Post poll is out.  The trends are not comforting for the White House.  President Obama’s approval rating - probably the most important number for a president these days - continues to drop. Approval by independents has fallen by 9 points over his term.  Support for his handling of the economy now garners the approval of barely half of respondents.  The number of people who see him as an “old-style tax and spend” Democrat has risen by 11 percentage points; the number who see him as a new Democrat “careful with public money” has dropped by about the same number.

A majority of the public now rejects a second spending splurge. Most now give avoiding deficits a higher priority than increasing spending, even to fight the recession.

The number of people in the poll identifying themselves as independents is at a post-1981 high. Most of those people may well vote most of the time for one of the major parties. For now, neither party is attracting much loyalty.

Surely some Democrats in Congress must be starting to wonder how far they should follow the president and his desire for ever greater spending.

Soaring Sales for “Road to Serfdom”

Cato’s new staff writer, Aaron Powell, told me he had recently seen two people on the Washington Metro reading The Road to Serfdom by F. A. Hayek. That prompted me to check the sales figures for Road to Serfdom at Nielsen’s Bookscan. And whattaya know? Sales have increased this year at an even faster pace than sales of Atlas Shrugged. (Atlas sells 10 times as many copies, but the percentage increase over last year is less.)

So far this year the most popular edition of Road to Serfdom has sold 11,000 copies. That compares with 3,000 copies at the same point last year. That’s a 263 percent increase for those of you keeping score at home.

Why? Well, no doubt huge new government spending programs and attempts to massively expand the welfare state send people looking for classic literature that makes the case for liberty and limited government. But what the Marxists call the “objective conditions” can always use a bit of help. And indeed, just as I found in investigating the sales bump for Atlas Shrugged, it looks like an op-ed in the Wall Street Journal was instrumental in boosting the sales of The Road to Serfdom.

On February 4, former House Majority Leader Dick Armey, now chairman of Freedomworks, published an op-ed in the Journal titled “Washington Could Use Less Keynes and More Hayek.” Sales of Road to Serfdom, which were in the low hundreds each week since the beginning of 2009, more than doubled over the next four weeks. It seems likely that Armey’s op-ed caused the new interest.

Armey didn’t actually mention The Road to Serfdom – he just talked about Hayek and his ideas generally – but when you go looking for Hayek, you’re going to find his most popular book. So maybe we could attribute the sales bump instead to David Henderson’s review of The Road to Serfdom – titled “Still Relevant–Perhaps More So” – in the Spring issue of Regulation. But the Wall Street Journal does have a larger circulation.

Update: This item has been edited to remove proprietary information.

Remembering the Good Old Days

Actress and former Miss America Vanessa Williams reminisces on NPR about the long car trips her family used to take “when gas was like 30 cents a gallon, and my parents would complain that it was going up to 35 cents.” No wonder families could take car trips then.

But wait a minute. Williams was born in 1963. So let’s say she’s remembering family trips from about 1970-75. This chart from the Department of Energy does show that retail gasoline prices were around 35 cents a gallon at the beginning of that period, going above 50 cents by 1975. But adjusted for inflation, that was more like $1.50 in 2000 dollars.

And as Jerry Taylor and Peter Van Doren show (click on the chart to enlarge), the price then was about $3.00 adjusted for inflation and changes in disposable per capita income — just about what it is now. So Williams’s memory was correct — gas was about 35 cents when her family went on trips. But the implication that those were the good old days of cheap gas isn’t quite right. In terms of the family budget, gas costs about the same now as it did then.

Julian Simon used to write about how people have been deploring the lost ”good old days” since ancient times. Sometimes he quoted the columnist and Algonquin Round Table regular  Franklin Pierce Adams: “Nothing is more responsible for the good old days than a bad memory.”