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Source link: http://archive.mises.org/9067/ben-bernankes-pretense-of-knowledge/

Ben Bernanke’s Pretense of Knowledge

December 8, 2008 by

The argument is that we must be patient with our wise men at the Fed and the Treasury. Monetary policy takes time to work, but, rest assured, the mistakes of the 1930s will not be made again. After all, Ben Bernanke is an expert on the Great Depression, we’re told over and over. He knows what to do to make sure it doesn’t happen again. Hayek refutes the claim. FULL ARTICLE


Tim Kern December 8, 2008 at 10:11 am

Oh, dear. Where to start?

“In response to the meltdown of financial institutions, unprecedented power has been unleashed by the federal government.”

The fallacy here is that the power is assumed to belong to the federal government in the first place, the fatal mistake Americans and their media so often make. If the power isn’t specifically granted in the Constitution (and these powers aren’t), the federal government does not have this power. Even if a plebiscite were held and confirmed this to be “the will of the people,” (and it hasn’t), the power to do this is not among those granted to the government.

Then, there’s “‘Look, this is no time for the Fed to act like a bashful virgin,’ ex-Fed operative Vincent Reinhart told Barron’s.”

Believe me, the Fed isn’t acting anything like a bashful virgin — it’s showing its true colors, as a brazen whore.

How can we keep falling for these 180-degree pronouncements?

Peter van Haaren December 8, 2008 at 10:18 am

In fact I don´t believe there is any pretense of knowledge as regards Bernanke. I don´t believe Bernanke believes he can fine-tune the economy as the Keynesians of the older days believed and which were the focus of Hayek´s critique. Probably Bernanke only believes it is better than doing nothing, that the costs of letting the system implode are still larger than those of present action.

peter helbich December 8, 2008 at 11:09 am

this is vienna austria. where it all began.
mozart, menger, mises, hayek etc.
send this theorem to all your friends and let it loose in the internet.
it proofs mathematically that the austrian school of economics is right.

regards peter helbich

Eric December 8, 2008 at 11:37 am

This discussion sounds eerily like the debate on global warming. All we can be fairly sure of is that there will be more government programs created and a new high level department will be created. I’m guessing it will be called DOCC or the department of climate change.

Even in the physical sciences, the laws of nature are difficult to compute. Take the 3 body problem. While to a great extent, one can compute Newtons laws of gravitation for 2 bodies, as soon as you get 3 or more bodies the interactions are much more complicated and some indications show that the solutions can be chaotic. In the mathematical sense that means that slight changes in some of the input variables (and there are 6 times N for N bodies) cause wild changes in the output results (predictions).

Now extend this to planetary weather systems, and try to predict future weather. The climate modelers do the same things that the FED wizards try to do. They model what they believe they know and don’t model what they don’t know how to model or what they don’t even know exists.

But they keep up a pretense of knowledge just the same.

For example, clouds are quite difficult to model. In fact, if cosmic rays have anything to do with clouds, as some have theorized, then it is likely that these facts are completely ignored by any climate models.

Only the Austrians seem to even use both positive and negative numbers in their theories of government intervention while the mainstream only models positive results from government programs. When is the last time you heard a new government program that didn’t have a positive sounding title.

Actually I think computer science does have a good theory on these models, it’s called garbage in, garbage out. In many cases, the input garbage is the model itself.

Milena Thomas December 8, 2008 at 12:07 pm

A wonderful post on CoyoteBlog.com notes the jobless rate, when measured as a percentage (the obviously more meaningful statistic) is not as bad as it has been painted to be:

“Much as looking at percentage moves in the Dow is much more meaningful than looking at nominal points moves (500 points means a lot less when the average is at 10,000 than when it is at 1,000), it is useful to look at the recent jobs report in the same way. While 553,000 lost jobs is certainly a lot, it is only the 41st worst loss since WWII when looked at as a percentage of the workforce (and it would be much further down the list if we had similar metrics back into the 1930′s and 1920′s).”

More specifically, the lost jobs from Nov/08 represent only a -0.39% decrease compared to a -5.11% decrease from Sept/45.

Joe Keckeissen December 8, 2008 at 12:33 pm

Congratulations. Doug. this is the “bestest” article I´ve seen since the beginning of the crisis.

Joe Keckeissen in Guatemala

Bruce Koerber December 8, 2008 at 12:58 pm

Empirical economic models are erroneous from the outset. It is like the trajectory of a bullet. Even a small deviation at the starting point causes a tremendously great error at the end. But the error of empirical economics is absurdly great at the beginning because it is the incorrect methodology for the social sciences.

That is why Greenspan simply resorted to his own arbitrary interpretation of the ‘smell’ of the economy to decide what to do. Bernanke is more hard core and he will stick to his empirical models which follows precisely the pathway Hayek called the “scientistic” attitude, which is in fact unscientific in that it “involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.”

All of these empirical economists are fools who have forgotten that they are playing with models and it is their indoctrination (claimed to be ‘education and experience’) that has given them models not worth the excrement (which stinks) that comes out of its end.

Jim December 8, 2008 at 1:22 pm

Even Bruce’s analogy of the trajectory of a bullet is unreasonably optimistic in decribing the reliablity of quantitative modeling. As there are no constant quantitative laws in economics (only qualitative ones), even knowing the intitial conditions with absolute certaintly doesn’t help. Add to this the fact that each atom of metal composing the bullet (each individual actor in the market) can change its mind as to which way it would rather fly at any point in time.

Bruce Koerber December 8, 2008 at 2:32 pm

Dear Jim,

I am assuming that the starting point for the trajectory is subjectivism which is qualitative rather than quantitative and is empirical in the sense that it is about the real world.

‘Armed’ with the correct economic methodology (subjectivism) the bullet (theory) can begin its journey and either hit or get closer to the target than in the past.

Fephisto December 8, 2008 at 9:19 pm

“Believe me, the Fed isn’t acting anything like a bashful virgin — it’s showing its true colors, as a brazen whore.”

Quoted For Truth.

Robert December 9, 2008 at 6:52 am


I see what you mean, but Sept 1945 the unemployment was under 2 percent, right? I mean the reason the percentage was so high was because the drafted soldiers were all coming back home so that isn’t the best month to compare to this jobs’ report. I still agree the jobs’ report isn’t too bad yet, but it should be compared to say December 1974 when the percentage was -0.77. That seems like a better parallel.

Arend December 9, 2008 at 9:33 am

I think it’s important to note that there is a conceptual difference between (1) the scientistic enterprise of mimicing, anticipating and predicting the catallaxy called the market economy and (2) the reality of the hampered market economy, which is the result that by govt. and/or through govt. the market economy is actually heavily influenced (or distorted if you will). Conceptually these two notions are (for Austrians) easy to distinguish, but in reality they are inextricably connected.

The first notion, the scientistic enterprise, is useless and intellectually confused by itself. But even more so when notion (2) is taken into account. Then the reality is just the sublime of self-defeat, which doesn’t mean that roasted chicken are flying effortlessly into our mouths, but wealth destruction and undermining of individual liberty is slapping into our faces every day.

Long story short: it’s just that Bernanke arrogantly claims the pretence of knowledge but also the pretence of meta-action (meaning notion (2): the notion that Bernanke can defeat/overcome the indirect consequences of his own policy action, i.e. that he can overcome the consequences of action, with the characteristics of not acting while acting – maybe another term than “meta-action” would be better/ hopefully this doesn’t seem very confused thinking to you all… ;)).

Dewey December 9, 2008 at 8:14 pm

Great article,
But I do have one question –

Who is Bernanke’s employer here in America?

Dewey December 9, 2008 at 8:14 pm

Great article,
But I do have one question –

Who is Bernanke’s employer here in America?

Friedrich December 10, 2008 at 1:01 am

I did not found the link yesterday but here it is:

goes without words

Befree December 10, 2008 at 11:10 pm

Bernanke is scared, you can hear a tremor in his voice when he gives some speeches. I think deep down he knows he does not have a handle on this thing. Even if he was a full blown libertarian and knew what should be done, what could he do in the face of all the popular fallacy he is nested in. He is scared because he knows that when it crashes it will be him that is behind the wheel.

Tom Puckett December 11, 2008 at 12:57 am

Let me get this straight. The taxpayers who don’t have the money to pay their mortgages are going to pay more taxes to subsidize the failures of the bankers, auto executives and the unions.
For those out there that scream that socialism and the nationalization of sectors of finance and industry will “save” our economy, guess what, we already have it and it has brought us to this awful place.
As for Bernanke and Paulson,et al.,perhaps we need to look at things from a different perspective. What if they are getting exactly what they want and the economy and country be damned.
It appears that these two are simply insuring that whoever they work for will get their dividend check either from interest on lending to its affiliate banks or from the American taxpayer. If the banks fail then they always have Uncle Sam. But what happens if the banks fail and Uncle Sam is homeless? How will these shareholders get paid? Go to the countries that all the wealth and prosperity has been transferred to, I suppose and start it all over again. Look out China and Dubai the Central Bankers are coming…

E. Harding December 20, 2008 at 2:24 pm

Personally, I think Bernanke still thinks of the economy as being governed by the same laws as this game is.

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