Glenn Beck versus Big Brother Ben

[Recently I've been forcing myself to watch Glenn Beck's popular show on Fox News. His sarcastic, condescending style makes my task more difficult each day... but he has been misleading his fast-growing audience on the important topic of "money printing" by the Fed, and I promised myself I'd keep tabs on exactly how he mangles and twists the message whenever he brings it up. Here's my first report...]
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Glenn Beck recently showed us what a trillion dollars would look like. Why? Because the Fed is "printing it up" — and as Glenn Beck and the rest of the Ron Paul crowd know for sure, printing money is an inflationary disaster that makes our currency worthless. It's just that simple to them, because "inflation" doesn't mean rising prices and wages, it means "more money, period."

Here's a link to one of Beck's segments, where he tried to impress his audience with a graphic that showed just how huge a warehouse it would take to store one trillion dollars. (He starts counting to a trillion at 3:15 into the video; I strongly recommend muting it until you get to that point.)

The problem with Beck's quasi-argument: it ignores a few important questions — questions I never, ever expect him to address on his show. Reason: He's irrevocably committed to the scare story, and his audience is snowballing; for him, there's no going back now. But here they are anyway...

First question Beck will never address:

What if the one trillion new dollars in that warehouse just sat there, static and immobile... what if nobody spent any of it on anything... what effect would THAT have on inflation?

Answer: It would have no effect whatsoever on inflation. Even if it were ten trillion new dollars, or a hundred trillion, and it just sat there collecting dust, it would not, and could not, cause prices or wages to rise one penny.

And guess what: That's exactly what's been happening. Here's a chart from the St. Louis Fed titled "Excess Reserves" — bankerspeak for "money just sitting there doing nothing":

Click to enlarge:

Again, don't expect to see that on Glenn Beck's show. Reason: It runs counter to his dogma, and that's a no-no when one is firmly entrenched in belief-preservation mode.

Second question:

If that new money is supposed to make the dollar worth less, then why is the rest of the world fleeing to the safety of the dollar, instead of fleeing away from what you say is the soon-to-be-worthless dollar?

Third question:

What if the Fed started to see the public getting more and more interested in using that new money to start or expand their small businesses, hire people, and get each one of their small pieces of the economy moving again? 

Answer: Well, that is PRECISELY what the Fed would LIKE to see happen. Duh.

Fourth question:

What if, after the economy did get moving again, the Fed started MAKING THAT TRILLION DOLLARS DISAPPEAR?

Answer: Well, that is ALSO what the Fed says it is going to do. Reason: The Fed is COMMITTED to (a) helping the economy get moving again, then (b) keeping inflation down after it recovers — in that order. At 8:20 into this 60 Minutes interview, Fed Chairman Ben Bernanke explains it himself, like this:

"...we need to [be printing money] because our economy is very weak and inflation is very low. When the economy begins to recover, that'll be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation."

But there's no doubt in my mind that Glenn Beck will ignore those questions, and plow right ahead with his annoying schtick on the air. Instead of listening intently to the Bernanke interview above, he'll opt for displaying a gigantic, Orwellian head shot of Big Brother Ben as a scary backdrop on his set (alternating, of course, with gigantic shots of goose-stepping Nazis).

But maybe some concerned citizens will bring those questions up at one or more of Beck's upcoming "tea parties." Maybe. But maybe not; maybe it's just easier for us to let Glenn do our thinking for us, as we stare at that scary picture of Big Brother Ben Bernanke. [... And if that turns out to be the case, I'll have to start thinking of a different name for this blog.]

Comments

[workindev]

It's really too bad. I rather enjoyed listening to Beck for a while, and then he started talking about economic stuff and lost his credibility with me.

[Steve C]

The Galt/Tea Party right exists for my entertainment - good thing they're an increasing (in a viscous cycle sort of way) minority, or it might be scary. As Jon Stewart said, these people are confusing tyranny with losing.

Speaking of comedy, this is pretty good:

The setup:
http://www.colbertnation.com/the-colbert-report-videos/220649/march-04-2009/doom-bunker---glenn-beck-s--war-room-

Doom Bunker:
http://www.colbertnation.com/the-colbert-report-videos/220650/march-04-2009/doom-bunker---jack-jacobs-and-stephen-moore

[SavingSoldier]

Steve,

You are right. Hilarious. And sad/frustrating that someone with such a big megaphone is "educating" millions.

Every now and then I find myself driving to work after 9 am, and GB is on the news talk radio. And invariably, I hear his "the world is coming to an end because the US is becoming an economic banana republic" schtick. The funniest thing is that GB always points out (before or after a rant) that he is not an economist and has no economics background or knowledge. He just happens to listen to guys like David Walker, who decided to "cash in" the prestige of his GAO CG position to sell "doom and gloom" books.

Anyways, I am not saying that we are not in tough economic times. And I am not saying that if we continue to deficit spend 0.5 - 1 trillion/year we won't hit a true crisis. What I am saying is that we are not there yet, and it would take many years of deficit spending to get there. My biggest pet peeve is when Walker/GB compare apples and oranges by comparing the total U.S. debt accumulated in the history of the U.S. to the yearly GDP of the U.S. or the world...and then yell "We owe more money than we make!" As if we need to pay that back (as opposed to the interest), or even if we DID need to pay it back, as if we needed to pay it back in one year (as opposed to 70 years that the SS and MediCare and GAO accountants use to calculate the big and scary unfunded liability numbers). Oh, and of course they assume that the US economy will not grow in the 70 years to boot...

Glen Beck I forgive b/c, as he says, he is not an economist and doesn't understand this stuff anyways (although that doesn't stop him from commenting on it ;-). David Walker is another story. He is deliberately cashing in on misinformation just to sell his book.

Sad.

Again, thanks for the website Steve. You really do a public education service.

Let me know when we are going to to talk Marx/Smith again!

Jose

[Bob]

The cherubic Beck (I think that is part of his appeal) may achieve loon status if he is not careful. I don't watch him or listen to his radio show because he is too, well, loony for me.

I'll cut him a little slack though because way too many of the "financial celebrities" schtick is starting to get on my nerves. If it isn't Kudlow screaming at the floating heads about free markets and low (er, no taxes) it's Cramer
and his annoying sound effects.

These folks are starting to become cartoons.

Things were a lot calmer and reasoned when Louis Rukheyser, RIP, was the main showman.

[STS]

Thanks for watching Bozo the Beck so I don't have to. Calling him a clown would be redundant -- Beck is the new word for clown.

[tttar]

Alright, I keep hearing interesting bits and pieces suggesting that we're ok, but I don't see a big picture yet.

Mike Hodges seems to not get it yet, either. It'd be cool if you two could publicly start a written debate, where you answer each other's strongest points and let the rest of us just watch.

In the same "now you can easily know why the other guys are all scaremongers" vein, can you tell me how "money just sitting there doing nothing" is going to induce businesses to borrow, expand, and create jobs - unless and until it enters the economy and "starts doing something?"

Is the idea that there will be a lag between the economy starting to expand, and inflation - during which time the money will have to be sucked right back out - WITHOUT somehow killing off the recovery in the process?

From what I've read, the "scaremongers" do understand that much, but think it just isn't possible to pull off. It's hyperinflation or depression from here, they think. Or some of each. Take your pick.

[beancounter]

No, the idea is not lag. The idea is multiplier, that is money spent on certain initiatives will create more growth and consequently more wealth. The idea behind the banks was the banks would have loads of excess reserve and lend. A man opening a restaurant with a 10k loan would create 20k or 30k worth of job and so on. Scarmongerers certainly don't understand the idea of multiplier, ironic given GB blasted Obama during the election for his "spread the wealth" comment saying there is infinite potential wealth. People like GB understand the need for growth but don't understand it takes money to make money. GB, those dump trucks you say that can drive right up to the sea of capitalism cost money.

Banks are sitting on their excess reserve to absorb more banks or make sure they don't fail, not lending to entrepreneurs. But that won't continue forever, and the banks that take the risks now on entrepreneurs will reap the benefits later. If the private sector is the best positioned to decide who to give loans to, then banks. And if not banks, then who? A government agency? Perhaps there just aren't enough profitable ventures to lend to now, but never underestimate fear.

And then there's the whole idea of preventing bank runs and a spiral of collapses.

[Steve C]

More Beck nuttiness:

http://www.washingtonmonthly.com/archives/individual/2009_04/017696.php

[timwalsh300]

Thank you, thank you, thank you for going after Glenn Beck.

I was introduced to his radio show for the first time a few months ago when I moved to a new state. At first I enjoyed him. I describe myself as a libertarian, so I agree with many of his core principles, and he articulates them very well on occasion.

But I've been listening to him with horror and frustration for weeks over this inflation, gold, money printing, Federal Reserve stuff.

What scares me is that he reaches out to lot of people, and I think this is the first time that most of them have heard someone talk about monetary policy. Naturally, they seem to be taking every word he says as gospel.

God help us.

[Steve C]

One more thought: which do you think does more damage to the idea of capitalism: a european who doesn't know what he's talking about, or a Glenn Beck / Limbaugh Tea Party nut holding a pro-capitalism sign?

[Optimist123]

Well, I'd say the socialist who doesn't know what he's talking about does more damage, because once he fools enough people, the reward is control of the biggest of all monopolies: the government. Little people like Beck, Limbaugh, and Olbermann are competing in the free market of ideas, and competition will keep them from achieving a dangerous monopoly on power.

[Gil]

Would Glenn Beck be a real-life case of what Homer Simpson would look like if he were explaining Libertarianism? I didn't mute the sound for the first three minutes but now wish I did. :(

P.S. There never seems to be enough S. Optimists in the world, is there? "B'oh!"

[Bob]

The tea parties have some competition.

A new organization wants to rein in the big banks. If its too big too fail, it's too big to exist and may be too big to rescue sometime in the future.

I can't argue with that statement.

http://anewwayforward.org/demonstrations/

Note: Some will designate this as a leftist/liberal initiative.

[AlmostChosen]

Great post!!

[tttar]

I'd assumed that Steve C and Optimist123 were both Steve, but I guess not, because now they're talking to each other! ;-)

Alright, beancounter, assuming you gave the approved answer here, I get the multiplier thing, but isn't lag still assumed and necessary? It's claimed that yes, they might be able to goose the economy with an extra trillion or more, but once they start sucking those dollars back out the recession will return - or if they can't suck it back out, we'll have inflation, or some of both. So, I wonder, how long of a lag can we expect, and why isn't this scenario inevitable?

[beancounter]

I can only speak for myself and nobody else.

If by lag you mean the markets not knowing excess reserve is being monetized (what I assumed you meant by lag) then no, there is no lag. If by lag you mean the norm for the past 100 years of inflation -- wages increasing and prices increasing, both "slow enough" (defined as the damage the public will tolerate to their savings) allowing businesses to service debt and employees to feel valued, then yes there is lag though to mean anything you would have to show why "lag" is a bad thing.

It certainly isn't what GB is trying to sell; that is the idea that nobody knows what is going on, the Fed is secretly printing money that nobody knows about but he is blowing the whistle on some kind of fraud, that once exposed inflation will skyrocket. That kind of "lag" is not inevitable because -if the economy grows it needs more money-. Free markets are not as organic as some assume; yes to be perfectly honest we are borrowing from our grandchildren's backs but for those grandchildren to have high paying decent jobs the entrepreneurs of today must become the big business of tomorrow. A total collapse if defined as no high paying or decent jobs except for the politically and family connected certainly is possible if banks don't have the liquidity to fund enterprise.

[tttar]

By lag I mean what seems to be implied by questions 3 and 4 - the economy will be flooded by an extra trillion, which will first get things running again, and, just before we see prices shoot up (after the "lag"), will be sucked back out to prevent this from happening.

The naysayers ask why, even is this were possible to do, we wouldn't simply be hit again with a recession.

And if they can't suck out the extra dollars, won't we have high inflation?

How will we escape this dilemna, that the "scaremongers" are apparently irrationally warning about?

[Higgs Boson]

"How will we escape this dilemna, that the "scaremongers" are apparently irrationally warning about?"

We won't.

"The Fed is COMMITTED to (a) helping the economy get moving again, then (b) keeping inflation down after it recovers"

There have been 18 recessions since the Federal Reserve was created in 1913. During that time the dollar has lost 95% of its value. (http://www.minneapolisfed.org/)

"If that new money is supposed to make the dollar worth less, then why is the rest of the world fleeing to the safety of the dollar"

Obviously, in a financial panic the dollar will strengthen temporarily, since it is a safe haven. As the global economy recovers, the demand for the dollar will fall again for the same reasons it has declined on balance for the last 96 years.

[Optimist123]

"Obviously, in a financial panic the dollar will strengthen temporarily..."

...therefore, "printing money" under those short-term conditions obviously does not weaken the dollar.

"As the global economy recovers, the demand for the dollar will fall again for the same reasons it has declined on balance for the last 96 years."

And if wages increase more than enough to compensate for gradual, predictable price rises in the long run -- as in the last 96 years -- long run "money printing" does not weaken the purchasing power of an hour of labor.

In short, fear-mongering about the printing of money is nothing more than that, when the monetary authority's goal of low, predictable, long-run price/wage inflation is achieved, and short-term deflationary collapse is prevented. Therefore, talk-show hysteria about money printing is far more likely to be about audience expansion than money expansion.

[Higgs Boson]

Ok, that made sense. Forget what I said.

[beancounter]

Mr. Boson,

I guess you want the government to pay interest on money doing absolutely nothing.

==

ttar,

The naysayers don't understand business. Small/medium business owe more money than their fixed assets and inventory. Even large business usually owe more money than their assets or inventory. Stocks are on the right side of the accounting equation and they would be worthless with a bankruptcy. "Lag" is part of the game of capitalism. Ideally there wouldn't be another recession because these structures would exist to provide people jobs (rather than them eating government benefits). If good economics is common sense then a good economy is where the most people have a (non-government) job and a bad one is where the most are on social assistance or the structures don't exist to provide jobs regardless of inflation, pie charts, formulas, etc (all human constructs that serve to guide but dont' get to the heart of the matter). The more business that exist the better.

[Harun]

I do not know anything about Glenn Beck, but you are perhaps a little to sanguine that the Fed will time the inflation killing so skillfully that nothing bad happens when the stagnant trillion begins to flow.

I think we can see from Greenspan's management that its not so simple to get monetary policy "just right."

There will also be serious, serious political pressure to not kill any nascent recovery by raising rates. The argument will be made that because unemployment is still high, interest rates should remain low.

Or, the Fed might raise rates too fast and create a double dip.

Alan Melzer's podcast interviews on Econtalk discusses how the Fed is politicized even as it claims to be neutral. (Not even to mention human error which is always possible.)

Frankly, the fact that we rolled the dice on a huge Keynesian stimulus, and not just for 2 years, but for years out, should remind you that politicians and government often overshoot, too.

[Optimist123]

That's a common concern. The Fed isn't perfect, that's for sure. But first things first. I don't think it would be wise to give up on the current problem just because fixing it might (vs might not) cause an inflation problem, sometime in the future, that they might not be able to prevent -- even though preventing it is their charter and their explicitly stated goal.

[tttar]

Does anyone have any comments on the idea that if we did nothing, the adjustment would be painful, but also quick?

They say there used to not be long, drawn out depressions. "Panics" were over in about a year, but what's being done now could make the problem last several years or more.

Does anyone know of a website where I can watch the Keynesians, the monetarists, and the gold bugs, and everyone in between, debate their economic views in detail?

Steve told me a couple of years ago that he and Mike Hodges did have a conversation about their differences, but I take it that neither "suffers fools," so it probably didn't get very far. ;-)

I'd think that some sort of comparison chart answering all the major "but what about" questions would be very helpful, but I've never seen one.

[beancounter]

Well, ignoring the possibility a modern public will not tolerate panics of any sort and start a revolution either by election of a far left radical (those who think Obama is socialist should look at Europeans) or an outright destruction of government, the real question is adjustment to what?

Modern day libertarians in particular envision a pristine, no-waste society where corporations make more than they owe and government does the same. Ignoring the fact that corporations generally have long-term liabilities that exceed revenue and assets, a "clean" economy where debt was near non-existant both with government and in the private sector would favor the landowners, those with access to natural resources rather than innovation, hard work, intelligence, dedication or training. That is not liberty. That is serfdom, economic slavery, born without land and family connections and you are forced to live a peasant life because going into debt is oh-so-wrong.

This is the adjustment libertarians seek, whether they know it or not: a default back to the days when the economy was focused on production of goods rather than services (they particularly dislike the past ten years of growth of services and see it as fraud.) I and most other rational people see the tremendous growth of a service based economy as a boon, a blessing allowing those without access to natural resources a path to a good life, but libertarians see it as a scam because of their obsession with commodities (seen in their desire for a gold-based currency). Libertarians accuse liberals' endgame as a European social democracy, but very few realize the libertarian endgame is feudalism.

Both are kept in check by conservatism, the idea that the burden of proof for change lies with those who propose it and staying the course is the safest and most correct path.

[jpniner]

how high do you see interest rates getting down the road?

I'm debating at the moment on a Fixed Rate or this 2yr Arm with max adjustment of 1%, 8% over life of loan. which is around 4% starting out.

original plan was to sell in about 4 years, but now I'm worried about being able to sell and/or possibly keeping it as a rental.

[Harun]

Steve,

If we end up having to do a repeat of 1982 ala Volcker to kill inflation, I will wonder if the medicine was not worse than the cure.

While I understand the thinking behind "first things first" I worry that such thinking also was the cause of some of the things we are seeing now - keeping strictly to the Fed for example, Greenspan's fear of a deep recession after the tech bust and 9/11 led to low interest rates that helped smooth out those recessions but helped lead to the current problem. Was he right to use "first things first" mentality then?

[Harun]

should read "cure is worse than the disease"

[jpniner]

"No man, who has attentively considered the rise, progress, and growth of these States, from their first colonization to the present period, can deny that foreign capital, ay, British capital, has been the pap on which we first fed; the strong aliment which supported the stimulated our exertions and industry, even to the present day."

- Senator John Taylor of South Carolina in a debate in 1811

[Joe C.]

There is a lot of assumptions being made that go against history in order to characterize people as "scaremongers":

1) The extra dollars won't get into the economy, but if they do they will be taken out in time to prevent inflation.

2) The tripling of the debt by 2019 will have no effect, and will continue to be bought rather than monetized.

3) The "stimulus" will stimulate the economy instead of retard recovery and growth.

4) Increased taxes will increase revenue to the Treasury (i.e. removed from the productive economy) without any effect on recovery, growth, or innovation.

5) The increased federal spending will actually be productive and yield a +ROI.

6) NOTHING bad happens in the next 10 years -- i.e. terrorism, war, natural disaster.

7) The Fed and/or Congress doesn't enable/pass more bubble/burst cycle(s)/anti-growth policies.

8) No other country or economic region, central bank, the IMF or UN does anything to precipitate further adverse macroeconomic effects.

9) Cap-and-trade doesn't collapse the world economy before the world cools down another 0.4 C.

10) Oil prices stay low and production increased or alternative energies and green technologies are perfected and become globally scalable, like tomorrow.

My bet is that "the scaremongers" have a stronger case than the "We're from the government, and we're hear to help." crowd.

[Optimist123]

Mark Gongloff (of the Wall Street Journal) disagrees with the scaremongers; inflation isn't happening, and isn't likely to happen any time soon:
http://tinyurl.com/dd9m8k

Ben Bernanke isn't exactly from the government, but he *is* helping (...better than Volcker and Greenspan did):
http://tinyurl.com/cn6gm6

But the economic doomsday industry has been alive and well for at least the forty years I've been paying attention. So has the Loch Ness monster theory, and so has the Kennedy assassination conspiracy industry. Moneymakers all.

[beancounter]

Certainly they are scaremongerers, because peak oil has already happened and we are still on our feet, environment will be sacrificed for economy, the world is so interconnected protectionism is no longer viable, and whatever terrorists achieve will be small scale and not warrant another invasion (before North Korea everybody was thinking any terrorist had plans for the bomb on their laptop after North Korea's fizzle suprise suprise you can't homebrew that which took the USA a Manhattan Project.) They also never rebuttal points such as the bond market is 100 trillion in size, the debt-to-gdp ratio is low, human beings are designed for walking, etc., or even attempt to.

But the most important reason why they're scaremongerers is it seems they want to scare and nothing else. They never say what will happen if all you say comes to pass, or they do and it sounds ridiculous (destruction of industrial civilization, city folk back to plowing fields like the Khmer Rogue ha.) The standard of evidence for their claims is tremendous and they certainly haven't met it. Yes, it is a double standard because extraordinary claims require extraordinary proof. At least government spending has worked before.

[Higgs Boson]

"Does anyone have any comments on the idea that if we did nothing, the adjustment would be painful, but also quick?" -- tttar

Good question, tttar. I see that view articulated all over the internet. Google Mike Shedlin, Peter Schiff, Lew Rockwell. Matt Taibbi wrote a scathing article on the bailout (http://www.commondreams.org/print/39825). There is deep suspicion among a great many people that we are being screwed.

"Does anyone know of a website where I can watch the Keynesians, the monetarists, and the gold bugs, and everyone in between, debate their economic views in detail?" -- tttar

I suspect a website like that would degenerate fairly quickly into name calling. People believe what they want to believe. If you think the world is flat, you are not going to listen to some wacko telling you otherwise.

One side believes we are free citizens in a functioning democracy -- the other, slaves in a malevolent kleptocracy. To go from one belief system to another requires a paradigm shift. Not easy.

Sometimes I envy people like beancounter, who are simply insane.
(just kidding, beany, JUST KIDDING)

[tttar]

Another interview question:

What did Argentina do wrong that we're not doing?

In 1929, it was the 4th-richest country in the world, now it's in 80th place, behind Libya, and children are actually starving. Here's a long account of daily life there, by a native:

http://www.powerswitch.org.uk/portal/index.php?option=com_content&task=view&id=2079&Itemid=2

Search the page for "little girl" to read something really gut-wrenching.

Is this a possible outcome for us?

[Brogan]

I cannot stand this guy, Glenn Beck. He is so married to the FOX news network that in comparison he makes Michael Moore look completely non-biased.