Cross-Post from Mike Norman Economics
In this piece by Mike Konczal: Is Ted Cruz Right About the Federal Reserve and the Great Recession? I noticed this crazy line:
"Ben Bernanke recently showed that interest rates would have had to go to about -4 percent to offset the Great Recession at the time."
Which refers to this blog by Ben Bernanke: The Taylor Rule: A benchmark for monetary policy?
So here's two problems with this:
1) Does Bernanke really believe this?
I mean does he seriously believe that if banks were taxed 4% on their "excess" reserves they would create the $10's of trillions of dollars in bank lending that would be needed to convert the $4 trillion in "excess" reserves due to QE in to "required" reserves? Does he really believe that banks would pay people (negative mortgage rates) to take out loans? Does he really believe that what the American private sector really needs to get back to health is 10's of trillions in new debt that must be serviced with stagnant real incomes? If your economic theory or model requires you to answer yes to any of these questions, then you are not only wrong, you are not qualified to head the world's largest and most important bank.
2) Appeals to authority.
I dont know if Konczal himself actually believes that a 4% tax on bank reserves would have led to economic nirvana, but the language he uses is telling.....'Bernanke shows'.....Bernanke didnt demonstrate that the Taylor rule is operative in real life, he just solved for the variables in an equation. But how can that equation accurately reflect macro-economic reality if it requires "yes" answers to some of the ridiculous questions I asked above. And there is no way a rational analysis of banking and accounting mechanics could lead anybody to answer yes to those questions. This "Bernanke shows" nonsense leads uninformed readers to conclude that Bernanke is not stating an ideological position with precious little in evidence or logic to back it up, he's demonstrating "Truth" as a scientist who is intimately familiar with the subject. After all, there were equations that got "solved". So laypeople can repeat Bernanke's myth of a mechanical relationship between interest rates and the economy without hesitation, perpetuating these clearly ridiculous and failed ideas that the mainstream of economics peddles.