The View From 1776
Monday, February 03, 2014
The Gospel According to Fed Chairman Yellen
All you need to know is that saving some of your income is bad; spending all of your income is good, even better if you go into debt to increase your spending.
Chairman Yellen, by all accounts, is a true-blue believer in the socialistic economic gospel propounded by John Maynard Keynes in his 1936 so-called general theory, of which the main points are:
First, economic recessions are caused by consumers spending too little.
It’s unclear how that comports with the rampant spending of borrowed money by consumers and deficit spending by the Federal government that led to the housing bubble and implosion of the financial markets.
Second, it’s better for academic intellectuals and bureaucratic experts to control the spending. As Bill Clinton said, he might have supported a tax cut, but the people would have spent the money on the wrong things. Ordinary taxpayers must be compelled to forego private medical insurance and enroll in ObamaCare; we can’t be allowed to use incandescent light bulbs; we must use more expensive, less efficient, and inconvenient “green” automobiles; we can’t be permitted to use much cheaper, more efficient, and less-polluting energy sources such as natural gas, petroleum, and coal; and we can’t choose our own kinds of foods and soft drinks.
Third, when consumers spend too little, the Federal government must increase deficit spending and the Federal Reserve must compensate by creating money out of thin air and using it to buy securities from banks and money-market entities. This deluge of money theoretically will trickle down to the working public, who will resume spending, thus ending the recession.
Evidence fails to support this expectation. Note our two worst recent recessions: the stagflation of the 1970s, as well as our present recession, in which the number of workers who can’t find jobs and have dropped out of the labor force is at the highest level in decades.
Fourth, the Federal Reserve can never create too much phony money, nor can the Federal government go too deeply into debt to increase deficit spending. Since 2007, the United States has experienced the greatest amount in world history of central bank fiat money creation, together with the highest level in history of Federal government deficit spending. This has given us the slowest and most limited economic recovery since the Great Depression, yet liberal-progressive Keynesian believers cling to their socialist bibles and regulatory guns, proclaiming that the Fed and the government haven’t spent enough.