Conventional wisdom is nearly unanimous: Ben Bernanke has saved the world. Last week, bullish sentiment in stocks, as measured by the Daily Sentiment Index, exceeded 89%; the Intelligent Advisors survey found less than 20% bears.
Isn’t this great news for the economy? On the contrary, extreme sentiments usually coincide with major stock market reversals. The Daily Sentiment Index is higher than it was in October, 2007, when the stock market made its all time high—such an extreme reading now is an alarm signal.
How can so many people be so wrong? Conventional wisdom can be dangerously wrong. Professionals often go along with the crowd. Why? Professionals in any field have similar training, similar socialization, and similar views of the world. In time, when they are proven to have been wrong, they chant the big lie, “No one else saw this either.”
Think of other knuckleheaded expert advice you’ve heard recently. We are entering the flu season; more and more studies confirm that deficiencies of Vitamin D are associated with depressed immunological systems. Still, many doctors advise sunscreen. (No, I’m not advising sunbathing. When the sun shines, get out for your normal activities.) Do you remember when experts assured us that housing prices could only go up? Weren’t we all told that ethanol was good for the environment? It was going to solve our energy problems, wasn’t it? Perhaps you grew up with “expert” nutritional advice to eat margarine with “healthy” hydrogenated vegetable oil and drink four glasses of artery-clogging milk a day. This summer, were you impressed by the Food and Drug Administration (FDA) expert pronouncement that silver mercury fillings are safe, even for children and pregnant women? Did you think, “Oh, silly me for switching to composite fillings”?
Last week, as President Obama nominated Ben Bernanke for another term, he described Bernanke as approaching the crisis “with calm and wisdom, with bold action and out-of-the-box thinking.”
What is wisdom? In their book Sanity, Insanity and Common Sense Rick Suarez, Roger Mills, and Darlene Stewart write:
Wisdom is a level of intelligence, innate in every human being, which is deeper and more comprehensive than what we associate with an IQ score. Wisdom exists outside of individualized frames of reference, which is why it has not been more readily realized by a humanity that is wedded to fixed patterns of thinking and perceptions of reality. When wisdom is realized by an individual, it frees him from his own fixed views of life…
In short, we are not the source of wisdom; wisdom sets us free from our in-the-box thinking. The authors add:
Wisdom cannot be realized through mental struggle of the intellectual process of trying to figure out problems. The reason that wisdom is not more frequently recognized is that human beings have traditionally idolized intellectual and analytical reasoning, and wisdom does not come from these thought patterns.
Ben Bernanke may have a high IQ, but he is in-the-box. In-the-box thinkers see things in systemically distorted ways. A wise person doesn’t pour unprecedented levels of credit on a problem caused by excessive credit.
Ben Bernanke is not wise. A wise man recognizes a problem and the false beliefs behind it. As late as 2006, Ben Bernanke didn’t recognize the housing bubble. A wise man—because he sees but doesn’t share delusions—offers the world the keys to a fresh start, if that is what people desire.
Out-of-the-box thinkers do not become Fed chairs. Ben Bernanke is a man of his time. He is a manifestation of the collective delusion, held by the public, that it is possible to get something for nothing. If Ben Bernanke were not on the stage, does anyone doubt that many other functionaries would stand-in to play his part, ready to do the same in-the-box job?
In a few weeks, Ron Paul’s out-of-the-box book End the Fed will be published. Read the book for yourself; decide whether Paul or Bernanke is the wise man. Paul’s training was in medicine, and he practiced as a physician. As an avocation he studied economics. After all, does not a member of Congress have an obligation to be economically literate? The branch of economics Paul studies is the Austrian school—a branch of economics which long ago developed theories to explain how business cycles are distorted by central banks as they manipulate the money supply and interest rates.
Before this bear market is over, Ron Paul may be considered wise by many people; Ben Bernanke may be disgraced. My prediction implies a happy ending. Unfortunately, things are not that simple. A deep economic crisis produces wise men, but it also produces demagogues. People angry their dreams of something for nothing are not fulfilled will support demagogues. Those willing to change their “fixed patterns of thinking” will listen to solutions proposed by the wise. Our collective choice will determine the future of America.