Wednesday, 18 May 2011

GUEST POST: Ben Bernanke. Idiot?

Guest post by Vedran Vuk from Casey Research.

We've often called Ben Bernanke an idiot, dumb, ignorant, and a whole other variety of adjectives to demean his intelligence and understanding of the economy. Though these words are convenient ways to label a nemesis, they are completely inaccurate.

Ben Bernanke is an extremely intelligent man. Few morons can graduate from the MIT Ph.D. economics program. Perhaps some graduates are dishonest or idiot savants, but in sheer brain power, they are on the far right tail of the IQ distribution.

_bernanke-helicopterHowever, what Bernanke lacks is not intelligence - it is a much more basic human characteristic: humility. The Fed chairman's intelligence has deluded him in to believing the economy can be centrally planned through complex equations and statistics. This isn't his failing alone. Many highly intelligent people, especially in physics, chemistry, and mathematics, lack the same humility when it comes to social issues. Researchers in these fields solve extremely complex systems, and as a result, become deluded in to thinking economic problems can be solved in the same way.

Unfortunately for them, society is vastly more complex than a controlled lab experiment; the economy is pure chaos with millions of forces shaping it.

Scientists and mathematicians often falsely believe the world is just another equation to solve. Usually the smarter the individual, the more they believe in man's capacity to plan and shape the world (even Einstein had communist tendencies). If we get the equation right, we can take the economy to some perfect equilibrium.

Yes, human beings are highly intelligent. We can build skyscrapers, fly planes, cure diseases, and even explore outer space. With these accomplishments achieved, why not centrally plan society through mathematics and the scientific method as well? Unfortunately for us, it just doesn't work that way. The economy is a far too complex system. Several equations cannot capture the simultaneous reactions of six billion people around the world to a million different economic events.

Society doesn't need smarter central planners. We don’t need any at all.


  1. i don't blieve the man is an idiot at all, The actions he is overseeing may seem idiotic, but he is not an idiot.
    I believe that his actions are actually from a different paradigm completely. His actions need to be looked at in respect of who he is actually benefitting with the results of his actions.
    What I don't believe is that he is playing an and game where the beneficiaries are the populace at large.
    The results of his actions so far have resulted in massive governmental indebtedness, massive private indebtedness, and now we are starting to see massive asset valuation degeneration (US housing stock is devaluing for the 4-5th yr in a row, with regards to company valuations if valued in gold, they have decreased/ stagnated for 10 years).
    Who wins in this scenario?
    The creditors.
    Who are the creditors?
    The FED is a private entity, not owned by the govt, and yet they have the power to print their own currency, with which they are buying govt overspends (debt) in the form of bonds.
    I believe that Bernank is actually transferring massive amounts of wealth via junk bonds issued at huge discounts to a gullible populace, with the intent to saturate their indebtedness to the point of bankruptcy, and only then will they turn around and start to receive the true benefit the initial investment has been aiminng to achieve. Essentially they are trying to force the population to become debt serfs.
    They will achieve this by starting to increase the scews with interest rate hikes. We are already seeing Greece fall into the trap. Many other nations are bordering on Greece's abyss. Austerity will be the name of the game, national assets will be sold for wholesale prices in order to pay back some of the debt.
    The population will be forced to pay more for the products of the assets, like electricity (the whole AGW thing is just another ruse to milk higher prices from these assets before they are repossessed by the FED's etc shareholders).
    Answer the question as to who Bernank's real masters are and you will see who wins with his actions.
    Unfortunately, unless we start playing the game the way the his paymasters play, we will be headed for debt serfdom via higher taxes to pay off govt debt and the interest payments that bebt demands, higher consumable commodity prices, and ultimately lower investment returns too.
    There will probably be a play soon to denude people of their retirement investments, and it will happen simply by a massive correction in stockmarket prices.
    My advice would be,liquidate what you can now, get some gold/silver and hide it somewhere safe for the next 2 years, then come out all guns blazing and buy the cheapest highest yeilding assets you can get you hands on and then just ride the sharks back, because they will drive the income from those adjusted assets so they can yeild 30% + ROI when the great transfer has been given time to bed in.

  2. In other words one should read "The fatal conceit".

  3. Vedran Vuk said...
    If we get the equation right, we can take the economy to some perfect equilibrium.

    Aha! That's your mistake there. There is no equilibrium that exists in the market whatsoever! How did we know that? Psychic dreams? Angels told us? Perhaps the astrologists? Nope! BUT HOW? Are you ready? ANSWER : Mathematical equations. Yep, that's right mathematical equations. We can't know our environment without mathematical laws.

    Bernarke? He believes in equilibrium (which is false). Mathematical Equation is not the problem. Wrong formulation (ie, wrong premises) is. Ladies & gentlemen, this is what is wrong with mainstream economics. Wrong premises & formulations rather than wrong equations.

    Can you see the difference?

    I hope you do.

    All pens down, that's all for today folks. Until then, keep walking on the right hand side of the road on your way home and be careful. We will see you back here tomorrow with our new topics on non-equilibrium economics.

  4. I would like to add another important point that's seems missing from Austrian anti-mathematics proponents in economics theories.

    If everything else is eliminated, such as Govt interfering in the free markets, Govt subsidies, blah, blah, blah, and the world economies will be left unregulated (which is what is should be as a free market proponents like myself), crises will still exist. The reason is because economic agents exists. They interact, they trade, they watch each others' moves and react accordingly, etc, etc,... All these dynamics in their actions lead to near equilibrium. This translates into system instability. The further away from equilibrium, the more unstable it is. This takes regardless if the system is based on Austrian or Keynesian philosophies. To stop instability in its entirety is to froze interaction amongst economic agents completely. Don't trade, don't exchange, each produce for themselves and not sell their products to others, etc,... The real world doesn't work that way.

    I think that an Austrian based economic system will be better, but it doesn't mean that crises will disappear. It is generic. Crises in such system may not be severe compared to other crises as we're seeing today Keynesian based philosophies, but the fact is, crises will not be totally eliminated as long as each agent interacts with each other.

  5. @FF: Not for the first time, FF, you're attacking a straw man.

    Vedran did not say, "If we get the equation right, we can take the economy to some perfect equilibrium" in order to endorse it.

    He said it to paraphrase the idiocy of people who think it can be done.

    I think perhaps you should re-read the piece--and also find out what Austrian economics does say, instead of criticising what you think it says.

  6. PC, this is what Mr Vuk said further down in his post?

    Scientists and mathematicians often falsely believe the world is just another equation to solve.

    Can Mr Vuk state clearly of why scientists and mathematicians should not falsely believe the world is just another equation to solve? This assertion is based on what? Opinions or empirical facts? Which one?