Amateur's Luck

According to Jimmy Rogers (quoted in today’s Barron’s), Ben Bernanke is “an amateur with no knowledge of markets.” The article doesn’t make explicit the context of this characterization, but it implies that Jimmy thinks the new chairman’s lack of knowledge of markets will lead to more inflation.

It’s fair enough to point out that Uncle Ben (in contrast, for example, to Alan Greenspan) is a strictly ivory tower guy without much direct “real world” experience. It’s also fair enough to anticipate that this background might in some cases lead Bernanke to make mistakes that Greenspan wouldn’t have made. But I don’t see any reason those mistakes would be biased toward more inflation rather than less. (As I argued in an earlier post, Bernanke’s confidence about the Fed’s ability to deal with deflation should lead him to be more aggressive in combating inflation. That’s a separate issue, though.)

If we look at Greenspan’s time at the Fed, there certainly was some dispute between the ivory tower guys and the real-world-minded chairman. (I get into trouble using the word “guy” to refer to Janet Yellen, though.) The ivory tower people put up a fair amount of resistance to Greenspan’s relatively easy money policy in the mid-to-late 90s. It was the ivory tower people who concerned themselves with the spectre of inflation that Greenspan recognized as a mere phantom. If they had had their way, we almost certainly would have had less inflation (and perhaps deflation) in the late 90s and early 00s.

Possibly, the situation could be different now, but my reading is that it is more extreme in the same direction. Academia has a tradition of regarding the unemployment rate as a critical indicator of inflationary pressure. The “Natural Rate” or “Non-Accelerating Inflation Rate” of Unemployment is a staple of macroeconomics textbooks. Almost anyone who takes this ivory tower view would have to be a little concerned about today’s historically low 4.6% unemployment rate. But other indicators – less popular in academia and on the Fed staff – of labor-market inflationary pressure come in much weaker, indicative of plenty of room to grow without stressing the labor market. For example, help wanted advertising (even if you include the Internet) is still near an all-time low when measured relative to the size of the labor market.

If anything, I would argue, Ben Bernanke will listen to the Fed staff, apply his own ivory tower knowledge, and be induced to tighten more than is necessary. While I share Jimmy’s concern that the bull market in commodities could be a continuing source of inflation, I would point to the present Fed’s tendencies as a counterweight rather than an intensifying factor.