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Home Publications Blogs Beat the Press George Will Shoots at the Fed and Misses, Big Time

George Will Shoots at the Fed and Misses, Big Time

Sunday, 29 September 2013 13:15

George Will is apparently still obsessed with inflation and very disappointed that the Fed's policy of quantitative easing has not led to hyperinflation thus far. This led him to write a seriously confused column condemning the Fed and its Chairman Ben Bernanke.

Will complains:

"A touch on the tiller here, a nimble reversal there — these express the fatal conceit of an institution that considers itself capable of, and responsible for, fine-tuning the nation’s $15.7 trillion economy."

This assertion is incredibly wide of the mark, even getting the size of the economy wrong by $1 trillion. Certainly Bernanke and the Fed are not claiming the ability to fine-tune the economy. If they had this ability then the economy would not currently be operating at a level of output that is $1 trillion below its potential. That is not anywhere in the ballpark of fine-tuning.

The comment that apparently upset Will is Bernanke's claim that the Fed would have no problem raising interest rates and slowing the economy if there was an outbreak of inflation on the horizon. It's not clear why this comment would seem so strange. Inflation only rises very gradually and there has been no problem of inflation growing out of control for more than three decades in the United States or any other wealthy country. This would suggest that Bernanke has some reason for believing that he or his successor will continue to be able to prevent an outbreak of accelerating inflation.

Will is also convinced that the stock market has been artificially inflated by the Fed's quantitative easing and zero interest rate policy. The S&P 500 peaked at over 1550 in the fall of 2007. If it had risen in step with the trend growth rate of GDP it would be over 1950 today, almost 20 percent higher than its current level. For some reason Will never complained about the 2007 stock market level in spite of the fact that it was markedly higher relative to the value of GDP at the time.


Note -- typo corrected in first sentence.

Comments (8)Add Comment
written by Squeezed Turnip, September 29, 2013 1:46
George Will has a lot of guts ... and in those guts, there are lots of little microbes that he mistakes for brain cells. He then allows the movements of trillions of microbes in his gut to be mistaken for actual thought (even rational thought). Thus he arrives at conclusions that are equivalent to the product of those microbes, which product is most politely referred to as feces. That he is taken seriously is just a sign of how far the education system has fallen ever since the GOP convinced everybody via Reagan that underinvestment in public education was going to improve the economy. Now we have people who believe Mr. Will has some semblance of sense.

BTW, I believe the first line should be:
George Will is apparently still obsessed with inflation and very disappointed that the Fed's policy of quantitative easing has NOT led to hyperinflation thus far.
written by Steve Bannister, September 29, 2013 2:32
Dean, have you ever done an Econ 101 for journalists? for lawmakers? Has anyone?
So clueless
written by Jennifer, September 29, 2013 3:01
"To assume that a few government officials can and should steer America’s vast, globally connected economy — hundreds of millions of people making trillions of decisions a day — is a kind of confidence peculiar to the progressive temperament."

Seriously what progressives have got within a mile of the Fed? For that matter how many progressives were involved with the Fed's founding? I believe none, as it was primarily a project of the large banks of the time. "Steering" is as good as an analogy as any, as I think conventional wisdom would suggest that fiscal policy is actually motoring the ship as it were. The inflation-is-coming-any-day-now-and-its-the-end-of-the-word meme will not die, facts be damned. Just as some in the media use "recovery is just around the corner" as an excuse to do nothing aggressive on fiscal policy, others use the inflation gambit to suggest doing nothing on monetary policy.
"eureka on angelic prayer wafts in and scents the air"
written by watermelonpunch, September 29, 2013 3:31

Maybe some people are disappointed because they imprudently invested in a patent for a psychiatric med shown to be helpful in the treatment of Zero Stroke.
Maybe they should instead invest in a personal prescription to treat inflation-phobia.

Frankly, I think there's some waste going on where media outlets are paying opinion columnists to write stuff which would be more suitably addressed by the writers paying for a few hours with a therapist than being paid to publicly vent their inner most irrational fears.

"Protect our hearts from this cruel world" - Susan Ballion

But maybe we know what it's really about.
Upsetting the profesor again
written by Lrellok, September 29, 2013 3:54
Normally, i would consider Mr Will a burbling putz, but he does have one good point. The feds policies are having an impact on the stock market, though not when you look at normal metrics.
First, lets look at market trend. Lets start with a less arbitrary date, the year before greenspan became fed chair. If we compare the GDP and S&P values of 1986 (4.46 trillion, and 250 respectively) and their values today (16.6 trillion and 1,692 respectively) we see that the economy has grown 3.72 times over and the stock exchanges have grown 6.76 times over. Adjudicated this way the S&P should be around 930, about half of where it is right now.
SO no, equity growth since the start of the unspeakably stupid "Shovel money at the market" Alan Greenspan polices has not been proportional to trend growth rate at all. Our professor is simply not looking back far enough to reach meaningful conclusions. Which is one of my consistent criticisms of economics generally, ty.
George Will - Even Dumber Than Dean Says
written by Paul Mathis, September 29, 2013 7:46
If Georgie Boy were just another delusional inflationista wishin' and hopen' for that hyper to appear, he might make some sense because many cons are delusional inflationistas.

But Georgie goes full Anti-Keynesian. His real complaint is government planning of the economy. Will is outraged that the Fed is not letting Adam Smith's invisible hand control the market. Instead, Bernanke is playing god by trying to jump start demand with low rates for mortgages and auto loans.

NOBODY gets to play god in George Will's crazy world except maybe Saint Reagan. Keynes was satanic and St. George is on a MISSION FROM GOD to stop all Keynesians! Keep your gubmint hands off my economy!
written by skeptonomist, September 30, 2013 9:33
Whatever Will may or may not have said in 2007, stock prices are very high by standard fundamentals, such as the Shiller P/E or capitalization/GDP, compared to pre-1995 values. It is likely that the low interest rates have contributed to this, although profits are also anomalously high. Supposedly the flow of capital into the stock market should promote productive investment, but this has not happened - corporations are sitting on the money or buying back their own stock. In fact this is another way standard monetary policy and the Fed have proven inadequate. Will's criticisms of the Fed are actually justified in some respects, but the solution is hardly to select him or any like-minded person as the new Chairman.
One type of inflation hits suddenly
written by Vincent Cate, October 02, 2013 4:20
There is a type of inflation that hits suddenly, hyperinflation. I have more than 30 different ways to explain hyperinflation. Check it out:

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.