The tunnel vision of macroeconomics

Bernanke’s blind side:

.. one of the reasons .. is the inability of large sections of the political and financial establishment to even grasp what is going on. Of course, the reason for this is not any lack of intelligence. These are smart people. The reason is the oppressive dominance of an economic belief system that only provides a very narrow perspective on the full effects of an expanding supply of money.

The problem is not that he [Bernanke] is evil or dumb – I think he is neither – the problem is much bigger. Evil and dumb people can be dealt with. The deeply-convinced do-gooders in positions of almost unchecked power, those are the ones we should worry about, those who are full of good intentions but suffer from tunnel-vision, incurably in awe of their own theories and incapable of even beginning to grasp how what they are doing could make things worse ..

It is almost comical how Mr. Bernanke seems to say, why are you criticizing me? I am spending all this money but it doesn’t add to the federal deficit. I am printing this myself. I just press a button. Money printing is costless. And I can help the economy.

What the Fed is trying to do is destined to fail. It cannot solve the problem. It must exacerbate the problem .. For him his job appears to require simply an astute balancing act between the two phenomena his macro-tunnel vision .. macro-statistics – the present-day fetish of the economics profession. He cannot grasp the distortions in prices he creates, the misallocations in capital he constantly furthers, and the accumulation of debt he encourages. None of them register on his statistical radar.

The economy will stay in the dumps. And like a little hamster in his hamster wheel, Mr. Bernanke will only run faster and faster .. Some day inflation will rise to uncomfortable levels, and inflation is a macro-phenomenon that does appear on the Fed chairman’s radar screen. But then it is too late.