There’s a genre of jokes about the ivory tower propensities of economists, and the monetary economists at the Fed are reputed to be the worst of the bunch. But even allowing for those proclivities, the remarks by Bernanke yesterday about consumer behavior showed a remarkable lack of engagement with the real world. He and his colleagues clearly do not know, or bother to know, members of the dying breed known as the middle class.
Today, Bernanke said in a speech that consumers ought to be spending more. The fact that they aren’t means it must be due to mood, or as he put it, that they had become “exceptionally cautious.” Since economists believe that consumers are rational, this outburst of illogical behavior is unexpected and the Fed can’t be blamed for it. The New York Times dutifully did stenography and played up the confidence meme:
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