Paul Krugman has a piece in the most recent NYT Magazine with the provocative title, "Earth to Bernanke." It's a great title; but unfortunately, for Krugman it's only a metaphor. He criticizes Fed Chairman Bernanke for having fallen away from what Professor Bernanke seemed to know before he was appointed to the Fed; Bernanke, he says, has been assimilated by the Fed Borg. Fair enough. But if the earth could speak to one of the world's most powerful economists, what would it say? I think I know....
If he had actually imagined what the Earth might say to Ben Bernanke, Krugman would have been led beyond Keynesianism (which, in our current economic climate, amounts to a dissident view within the conventional wisdom) to the realm of Ecological Economics--a dramatic reconceptualizing of economic theory.
“Ben, Ben,” we can imagine the Earth saying. “The problem is that you’ve been asked to manage an infinite-planet financial system and it turns out I’m finite. You’ve got to bring economic theory into alignment with physical reality if you want to fix things.”
If Bernanke proved a willing audience, the Earth might go into detail. “Your system is seeing cost-push inflation driven by physical reality—the increasing energy cost of energy being the most obvious and easily quantifiable indicator of that. Treating this inflation as though it were demand-pull inflation makes the sum total of your policy deflationary, which keeps unemployment high."
Ultimately, the Earth would criticize the faith in infinite growth that is at the root of the 2008 crisis and all other crises and recessions of the Postwar era. “Your system fails to respect the basic idea that debt, whether public or private, is a claim on the future production of wealth. You let debt grow without limit, which makes sense only if wealth—the means of paying off that debt--can grow without limit. But it can’t, because wealth is physical—created with energy and materials that you wrest out of me. If your financial system lets debt grow faster than you can grow the means of paying it back, of course you get crises of debt repudiation—‘no duh,’ as your culture’s idiom has it. Inflation is a form of debt repudiation, and letting it rise a bit would help, but you’re not going to solve your economic problems until you start controlling the creation of debt, limiting its total amount to something like your ability to create wealth by using my resources sustainably.”