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Sunday, June 23, 2013

Paul Krugman, "Et Tu, Bernanke?": Hey, Doesn't Someone Else Deserve the Blame?

Yesterday, I was asked to attend a management meeting of Nano Retina, a small, non-public Israeli start-up company (see:, which is creating a tiny implant that will restore vision to persons blinded by retinal disease, e.g., age-related macular degeneration and retinitis pigmentosa, in a 30-minute minimally invasive procedure. Viewing a simulation of what patients will be able to see following implantation of the device and listening to the subsequent discussion, I estimated the incredible cumulative IQ of those seated around the table and calculated by how much the average had been reduced by my arrival in the room. Although I could not understand much of the talk concerning the electronics and miniaturization, I was relieved to know what humans continue to strive to achieve, notwithstanding the readiness of others to spend hundreds of dollars on zombie movies (see:

But all is far from well in the world.

In his latest New York Times op-ed entitled "Et Tu, Bernanke?" (, Paul Krugman complains that the US Federal Reserve is hinting that it is abandoning its policy of aggressive monetary stimulus. This has caused the benchmark interest rate on 10-year US government bonds to rise from 1.7 percent to 2.4 percent over the past two months and has also engendered a precipitous decline in the stock markets (see:  Krugman writes:

"Lately, Fed officials have been issuing increasingly strong hints that rather than doing more, they want to do less, that they are eager to start 'tapering,' returning to normal monetary policy.

. . . .

The first thing you need to understand is how far we remain from full employment four years after the official end of the 2007-9 recession. It’s true that measured unemployment is down — but that mainly reflects a decline in the number of people actively seeking jobs, rather than an increase in job availability. Look, for example, at the fraction of adults in their prime working years (25 to 54) who have jobs; that ratio fell from 80 to 75 percent in the recession, and has since recovered only to 76 percent.

Given this grim reality — plus very low inflation — you have to wonder why the Fed is talking at all about reducing its efforts on the economy’s behalf.

Still, it’s just talk, right? Well, yes — but what the Fed says often matters as much as or more than what it does. This is inherent in the relationship between what the Fed more or less directly controls, namely short-term interest rates, and longer-term rates, which reflect expected as well as current short-term rates. Even if the Fed leaves short rates unchanged for now, statements that convince investors that these rates will be going up sooner rather than later will cause long rates to rise. And because long rates are what mainly matter for private spending, this will weaken growth and employment."

Yes, I agree with Krugman: unemployment remains disastrously high, although I question to what extent the purchase by the Fed of billions of dollars of Treasury and mortgage-backed securities each month has improved the American economy. Yes, funds have been driven to the stock market, but where is resultant job creation?

But just a moment: Where is there even a mention of Obama in Krugman's op-ed? Does our incredible shrinking president (see: have no responsibility for the economy? Perhaps not. Recall the recent words of Ben Rhodes regarding the cost of the president's upcoming trip to Tanzania:

"We don't have the exact figure on costs — frankly we don't own or control those numbers."

Or in other words, "Hope," "Change" and "Forward" with no control of the numbers.

Yeah, right.

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