Cosma Shalizi: The Impossible Takes a Little Longer
Self-Financing Fiscal Policy

What Can Ben Bernanke Do Now to Summon the Confidence Fairy?

At this stage, I don't think there is anything he can do. Since the fall of 2009 he has misread the situation: been dovish, then hawkish, seen "green shoots", contemplative, then decisive, then a victory lap, then hawkish, then dovish, dovish again, oh—then hawkish.

Declarations that the Federal Reserve is about to undertake QE III or Twist II simply won't alter market expectations about the future path of the price level or nominal income anymore (if they ever would have) and so won't induce any increase in the flow of spending.

So we are now down to two possible tools:

  • Congress can spend more: as far as boosting the flow of spending is concerned, the government's spending is as good as anybody else's.

  • Ben Bernanke can announce that he has misread the situation since the fall of 2009, that it is time somebody else took over, that Janet Yellen has been warning him that he has been misreading the situation, and let her take the hot seat…

Does anybody see any other options?

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