Krugman: "The intimidated Fed"

Ben Bernanke, head of the Federal Reserve and Paul Krugman's former boss (as head of the Princeton Economics Dept.), gave a first-ever press conference this week. It did not go well.

Mr. Krugman sets the stage (my emphasis throughout):

Last month more than 14 million Americans were unemployed by the official definition — that is, seeking work but unable to find it. Millions more were stuck in part-time work because they couldn’t find full-time jobs. And we’re not talking about temporary hardship. Long-term unemployment, once rare in this country, has become all too normal: More than four million Americans have been out of work for a year or more.

Given this dismal picture, you might have expected unemployment, and what to do about it, to have been a major focus of Wednesday’s press conference with Ben Bernanke, the chairman of the Federal Reserve.

You might expect that, but you would be wrong. The column does a nice job of detailing the Fed's mandate — low inflation plus low unemployment, a kind of Goldilocks balancing act. The magic numbers are about 2% inflation and about 5% unemployment.

The reality?

Goldilocks has left the building, and shows no sign of returning soon. The Fed’s latest forecasts, unveiled at that press conference, show low inflation and high unemployment for the foreseeable future.

So what has gone wrong? According to Krugman, Ben Bernanke "is allowing himself to be bullied by the inflationistas" — the people who are always seeing hyper-inflation "just around the corner" and are never ever right.

Krugman is right about the consequences: For Bernanke and the Fed to not pull the trigger condemns "millions of Americans to the nightmare of long-term unemployment". His conclusion is merciless:

I’d say that the Fed’s policy is to do nothing about unemployment because Ron Paul is now the chairman of the House subcommittee on monetary policy. ... [S]o much for the future of America’s increasingly desperate jobless.

Farewell Fed independence.

Krugman is becoming increasing desperate himself, looking here and there for a solution, or a solution-supporter. He isn't finding one — no surprise, since neither are we — and is starting to return to his 2003 analysis; that the inflationistas are not sincerely wrong-headed, but insincere revolutionaries who want to tear up the social fabric. Bernanke's just the latest timid national Dem (Correction: figure) to fall on his sword before them.

GP