Negative externalities of Congress

2010-01-22 · Original WordPress address

So they're going to torpedo Bernanke's nomination because they need his blood to placate their base. Ms McArdle says:

I see the political logic, but the economic logic is pretty poor. Bernanke didn't become Fed chair until 2006, long after it was realistically possible to do much about the bubble except wait for it to pop. He shepherded us through the financial crisis without another Great Depression--maybe not perfectly, but no Fed chair would have been perfect. The markets have confidence in him. Spiking his nomination may have grim effects on 401(k)s throughout the land.

But doesn't this suggest the political logic is piss poor, too? The uncertainty of monetary policy (not to mention financial regulation) hurts the voters' 401(k)s. I don't take this stuff that seriously, but reading tealeaves of stock market movements, one could easily attribute the 5% drop in markets this week to this uncertainty. Voters who are 5% less wealthy are less likely to vote for you. But individually, it makes sense for Senators to vote against Bernanke's reappointment. They can tell their inattentive constituents they're "doing something" about something. Or something else of the "off with his head" flavor. This will work for the marginal voter, thus marginally improving the chance of reelection for each Senator that votes no. Uncertainty is pollution created by Senators doing what's in their own best interest. As theory predicts, there's more uncertainty than is socially optimal. Because this pollution is created by the government, what we need is a benevolent super-government to fix this "market" failure. Somebody call the UN or maybe after they fix this global warming thing the IPCC can help out.