The Fed's knees are chafed from kow-towing to their banker masters, and worshipping the "magic" of their Keynesian Cargo Cult . .But the Fed and Bernanke are NOT Keynesian in the least. They are Chicago School monetarists.
Some people get this:
One year ago, I argued in Reason that Milton Friedman’s writings on the Great Depression inspired the Federal Reserve’s response to the current economic crisis. Friedman held that artificially induced inflation would have prevented the ordeal of the 1930s, so I inferred that Fed Chairman Ben Bernanke’s implicit goal is likewise to ramp up inflation as a cure to our present ills.And Robert Barro himself declared in 2007 that "we are all Friedmanians now."
A year later, the Fed is beginning to make that goal explicit. Over the past few weeks, Bernanke and other Fed bigwigs have been dropping conspicuous hints that they plan to boost inflation and pump another round of conjured-up cash into the economy. One proposal is to inject $100 billion per month. It’s being called Quantitative Easing 2 (QE2).
So, what CHS is really decrying-- at least with respect to the Fed and Bernanke-- is the Friedman Cargo Cult, not the Keynesian Cargo Cult. Krugman is clearly of the latter cult, but I'm not defending him or that cult here, only making the point that CHS has oversimplified his worldview: as much as he sometimes congratulates himself on being a free-thinker, his thinking is not all that free. It is distinctly Austrian neoliberal. Try as he might to distance himself from Chicago neoliberal economic thought, the core ideology is the same.
As I've said before,
How is it that the founders of two seemingly diametrically opposed schools of economic thought co-founded the neoliberal movement? Economics, more properly political economy, is really a political science, after all, so if their economics reflect their politics, doesn't that mean that their politics are diametrically opposed?The underlying assumption in CHS's post is that his idealistic view of capitalism is reality. Unfortunately, what we are seeing IS capitalism as it always has been and always will be. His idealized view of capitalism is what is sold to the masses, the bleating sheep (who think they are free thinkers), to explain why they always wind up losing in the "free market." The folks who peddle capitalism are not and never have been subject to capitalism, which is a rigged game that they run for their own benefit and to the detriment of others.
Only if you believe that each school's economics reflect its true politics. In the case of the founders of the Chicago School, that isn't the case.
Neoliberalism was founded by Hayek, Mises, Friedman and others as a multi-generational strategy to effectively eliminate public control of democratic governments in order to ensure governments would not interfere with the banks' creation and manipulation of boom bust cycles to their advantage. The end game is and always was to have a return of laissez-faire boom-bust cycle without governments stepping in to help their citizens during busts. As discussed previously, the neoliberals believed that classical liberalism had failed because it framed the goal of good governments and good economics as to promote the common good. Neoliberals removed the concept of the common good from their reforumulation of liberalism, recasting the concept of the market itself as an all-knowing, all-seeing god that could not be interfered without dire consequences.
Given that socialism and Keynesianism were responses to the great damage produced by laissez-faire economics had produced, there was no way to return directly to it in the form of the Austrian School of ecnomics. The Chicago School of economics was therefore created to provide an incremental move away from Keynesianism economically and an incremental move towards neoliberalism politically. The Chicago School exists to prove once and for all that government intervention into the money supply and the economy can never work and will always lead to disaster (but not until after eliminating the gains the common people reaped due to government intervention). Once the Chicago School's economics do their work and flame out spectaculary into a truly Great Depression, the answer will be and must be the Austrian School's economics. After all, we know from Milton Friedman's revisionist history that the Great Depression was caused by the "government" interference of the Federal Reserve, so what's left but to bend over for the all-knowing god of the market and hold your ankles (and never mind that man behind the curtain).
And the neoliberals will label Chicago School economics as "Keynesian." In fact, they already are.
While I agree with CHS that Bernanke's policies have been "disastrously wrong" by my own standards, I equally believe that Bernanke's policies have demonstrably achieved everything he was assigned to accomplish. The man is in place to assist in the banks' looting of the real economy and to hasten the enslavement of the masses. By that yardstick, Bernanke is a genius and a winner that will be canonized by those he serves.
And then people like CHS will applaud when we go full Austrian, which will preserve the gains the banks achieved through looting.