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Is ‘Ben Bernanke’ changing his Philosophy on Economics?

August 11, 2012

Could this mean that QE is over???

This week Bernanke spoke to the International Association for Research in Income and Wealth, and, as Bloomberg Businessweek notes, he was singing a different tune. “On Monday, Ben Bernanke wasn’t talking like a scientist,” Businessweek says. “He was talking like a philosopher.” Bernanke questioned the purpose of the economics profession, including his own past record as central banker. “The ultimate purpose of economics, of course, is to understand and promote the enhancement of well-being,” he said, suggesting that economics has not sufficiently fulfilled this role.

Bernanke’s change of heart highlights that, “as a discipline, economics is not doing a good job of examining its core assumptions,” Businessweek says. “Bernanke was nudging economists to ask tougher questions of themselves.”Bernanke’s calls for more self-awareness by economists represents a return to economics as moral philosophy, not technocratic discipline.

If Ben is viewing the economic profession and his personal role in philosophical terms, similar to Adam Smith, then this could mean that he will act much differently going forward. This could also mean that his QE counterfeiting will be viewed as ‘anathama’ and a moral hazard for the markets. So is Ben learning from the experiences of the past five years? We may not know for a few weeks, but we need to watch his pronouncements after his meeting at Jackson Hole later this month and then at the next FOMC meeting in mid-September. The mindset of Ben Bernanke is key to future QE operations and also the issue of ‘inflation’ vs ‘deflation’.
 

 
The speech by Bernanke includes these words:   Continued work on the measurement of economic well-being will likely lead to greater recognition by economists of the contributions of psychology–an area that has been explored by pioneers like 2002 Nobel laureate Daniel Kahneman. One topic on the frontier of economics and psychology is the neurological basis of human decisions, including decision-making under risk and uncertainty, intertemporal choice, and social decision-making.5
 
The above words seem to suggest that Ben is beginning to think much more philosophically about his profession and also his personal reflections on issues of decision-making. He seems to suggest that economic ‘happiness’ should be a core principle within the economic profession going forward. All this philosophical reflection by the most ‘powerful’ money man on this planet is positive and constructive…in my opinion. Afterall, economics should be grounded in moral philosophy and human desires. The ‘well being’ of humanity depends on economics for human survival. Some say that Adam Smith was a moral philosopher, but did his profession grow in morality over time? How did the economics profession become a ‘technocratic’ practice (primarily math and formulae)?
 

 
 All the financial markets have become addicted to the QE policies of Ben and his associates. But if Ben is changing his mindset and becoming much more philosophical, we could witness a different Bernanke going forward. Let’s stay alert and watch the words that flow from Mr. Bernanke after his Jackson Hole meeting and then after the next Federal Open Market Committee meeting in mid-September. I sense that a change is coming!
 
 
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