The article, A Dispirited Fed Chairman Emerges at Jackson Hole, is another reminder how people are good at looking at some evidence and jumping to the wrong conclusion. The article starts with the following:

A thoroughly chastened and discouraged Fed Chairman Ben Bernanke gave his annual speech last Friday at the Fed conference in Jackson Hole, Wyoming. After reading this year’s speech, and then re-reading last year’s speech, I found his tone gloomy and dispirited. This is a far cry from the younger, more confident Ben Bernanke who in 2002 told Milton Friedman at his 90th birthday party that Milton was right about the Fed causing the Great Depression and “we won’t do it again.” Of course Milton was right about the Fed but for the wrong reasons, which could be part of our problem.

With this beginning, I had the feeling that this article could go wither way.  It could go in the right direction, or it could demonstrate a huge misunderstanding.  The latter turned out to be correct. Here is where the article started going south in a hurry.

It is my impression that while he has tried to exude confidence, he is now clearly discouraged. As well he should be, since none of the Fed’s “suite of tools” have worked as intended and almost every forecast the Fed has given since the Crash has been wrong.

My comments that I posted on this article state my disagreement.

I imagine that Bernanke is dispirited, but not because his policies didn’t work.

It must be tough being Fed Chairman when the Legislative and Executive branches have been working at cross-purposes to what you have been trying to do.

It’s about time that a Fed Chairman could leave the diplomacy behind just a little and say forthrightly, “You know my job would be a lot easier if I had a little help here. Maybe if you guys in the Legislative branch were pulling in the same direction as I am, this economy would move faster. The President could stand a little tougher against the people pulling the wrong way.”

I also noticed that while investors in general and people on this site tend to claim they don’t believe in Keynesian economics, they sure rushed for the stock market exits when they saw the debt ceiling deal forced on us by the Republicans.

Maybe they really didn’t understand why they had this visceral reaction that it was time to get out, but those of us who understand the economics sure felt that it was an understandable reaction.

If I hadn’t already had an investment strategy to weather this storm, I might have had the same reaction as the people rushing for the exits.

And speaking about economists who understand what needs to be done, we have the article Republicans Against Science from economist Paul Krugman. This column goes somewhat far afield of economics.  He finishes with the following words:

Now, we don’t know who will win next year’s presidential election. But the odds are that one of these years the world’s greatest nation will find itself ruled by a party that is aggressively anti-science, indeed anti-knowledge. And, in a time of severe challenges — environmental, economic, and more — that’s a terrifying prospect.

As a personal note of confession, having achieved a Masters Degree in Electrical Engineering, I have a prejudice that believes that actually studying something might lead to a better understanding of the subject of study.  Maybe that is why I fail to see value in always downplaying what academics have to say about any given subject.

Don’t get me wrong.  One of my personal credos is that one should never believe something cannot be done just because an expert says so.  It is worthwhile to consider what they have to say, but I have frequently found that it is also worthwhile to do some investigation on your own.  You might, and I emphasize might, be able to come up with something the experts have not thought about yet.

I have been wondering about President Obama’s nomination of Alan Krueger to head the White House Council of Economic Advisers. At least Krueger is from Princeton University and not the University of Chicago.

The interview below is the first instance I have seen of a fellow economist commenting on the nomination. (There is a brief introductory ad in the video. You can mute it until the interview starts.)

Unlike the people in the above interview, I think that if this guy is any good, the Republicans will fight his nomination tooth and nail.

From The New York Times article, Economic Adviser Pick Is Known as Labor Expert, we have the following:

The cooler reception came from some on the left, who said the moment called for a big-picture macroeconomist who would push for more ambitious initiatives to reduce unemployment. “The kind of action he’s an aggressive and creative thinker about is relatively small bore, supply-side changes rather than big-picture efforts to fill the gap,” Matthew Yglesias, a senior fellow at the liberal Center for American Progress, wrote in a blog.

I had that same feeling when I heard the interview above. Krueger sounded a bit too much like he comes from the pushing on the string camp of economists rather than from the pulling camp. Pushing is ok as long as there is still some starch left in the string. When it has gone limp, pulling is the only thing left to do. (It’s not my fault if you see any hidden sexual reference in the preceding sentence. If you think you see it, it must be because your mind is in the gutter.)

I keep trying to remind people that there is no policy prescription that is correct at all times. You have to pick the prescription to fit the disease. In this case, any lessons learned from labor policies studied in the midst of mild recessions might not be valid for prescribing what to do in this era of the Lesser Depression.

Keynesian economics was developed to explain why certain economic policies that people up to that time had believed ought to have worked did not in fact work during the Great Depression. I hope that Alan Krueger is not thinking still about policies that “ought to work”, but that lots of economists have realized will not work under the current conditions.