Let’s face it: Ben Bernanke is never going to get an FDR Moment. First: Bernanke isn’t President of the United States. Second: FDR wasn’t announcing some fancy-schmancy macroeconomic goal like a Nominal GDP target. No. He was announcing class warfare and humongous jobs programs.
Can such a message work now? No. As bad as things are in the U.S. economy, it’s not like Spain (with its Depression-level unemployment rate but European social safety net), much less like America in 1933. Bernanke can’t rattle political sabers with crowd-pleasing rhetoric about the rich, he can’t roar “I welcome their hatred!” to a crowd that roars back in approval. Nor can he get major new spending programs. Not even Obama can do that.
Announcing a higher nominal GDP target isn’t going to work unless people with lots of cash and relatively bright prospects wake up and say, “Uh-oh, Ben really means ‘give me higher inflation or else’. We’d better get cracking and find some slightly better-yielding positions than cash, before inflation starts to chew holes in our piggy banks.” But who would these hypothetical people be? Would they be corporate treasurers? The operators of major funds? The 0.1%? No. Their first question is: “Or else what, Ben?”
Here’s what Bernanke must do: he has to hit Main Street, not Wall Street, and he has take advantage of the economic ignorance of the American consumer. He has to go out there and say, “I’m sorry, but I just can’t keep the raging fires of inflation under control anymore, not after printing all this money. My best estimate now: it’ll rise to 4%. Only there can I hold the line.”
Now, the fact is, there are no raging fires of inflation. Employment is far below the level required to ignite a wage-price spiral. And printing money (“quantitative easing”) in a liquidity trap gives you very little inflation in a slump. (Exhibit A: Japan. Colossal QE, but still in deflation.)
But there is a golden opportunity here to encourage ignorant Americans in the fallacious metaphor of Inflation as A Process of Combustion Kindled by Printing Press Output. Gasoline prices have gone up, and food’s not cheap either. That’s what they think inflation is. Of course, food and energy prices are volatile, which is why they are stripped out of the Consumer Price Index. But your average American consumer doesn’t think that way. No, your average American believes Greenspan spent his days keeping The Great Inflation Firestorm at bay. If there was any inflation after that, it was because Alan, for all his (supposed) brilliance, was still just this old guy who had to sleep a few hours a night, maybe even take weekends off now and then. Your average American thinks Bernanke is just a wimpier Greenspan. Fecomantically: that’s what you want them to think.
There are Americans who don’t fear for their jobs very much. What’s needed now is for them to go into their next performance review and hint darkly to their bosses that if they don’t get a 4% cost-of-living increase soon, they’ll be eyeing greener pastures. There are Americans who have a lot of cash piled up, who are fearful of the volatility of the stock market. You want them to look askance at the measly earnings on their safe-as-houses-used-to-be portfolio, and hint darkly to their investment advisors that they’ll be shopping for better help if they don’t see a 7% nominal return by year-end.
What’s lacking are Americans who could see through a Fecomantic Ben and his natterings about a 4% conflagration, who can see that he’d only be trying to articulate an otherwise-toothless prophecy convincingly enough to make it self-fulfill. And this is a good thing to lack.
But what if they wise up fast? I’m not worried. Sure, readers of the Wall Street Journal might get clued into Ben’s game. Maybe readers of the New York Times as well. But those readers are like Lake Wobegon’s children: all above average. And they’ll overestimate the ability of others to see through the game, indeed, it’s the way of the world.
Most Americans are instead watching MSNBC or Fox. And when Bernanke announces 4% inflation coming soon (perhaps throwing a damp towel into a laundry hamper next to the podium, for emphasis), the talking heads on those channels will go ballistic, they will howl for Bernanke’s scalp, they will point fingers left and right. Their audiences will believe those talking heads. Those in the audience with some bargaining power at work will go out and demand raises. Those with some purchasing power in their bank accounts will go out and start to spend their cash hoards. That would create more of what economists call Aggregate Demand. And that’s what missing now.
There’s no Volcker Moment for Bernanke. There’s no FDR Moment. There sure as hell ain’t gonna be a Bernanke Moment. Only a Fecomantic Moment will do.