Hope and change was the basis of President Obama's successful campaign for the presidency in 2008. Rather than offering specific policy proposals, Obama offered promises. Some seemed overly optimistic, like claiming electronic medical records could drive a major transformation of the healthcare system.
Federal Reserve Chairman Ben Bernanke revealed in a recent speech that he too is relying on a strategy that depends on optimism rather than concrete policies.
Bernanke is in uncharted territory. Under his leadership, the Fed has dramatically expanded the money supply. Runaway inflation is a risk if the Fed is unable to effectively reverse its strategy at the right time. The stakes are high, and although Bernanke has stated he has a plan for an exit strategy, he has not provided any details.
The Fed chairman seems to be an optimist and may be counting on an expansion in the pace of economic growth to help the Fed.
In a recent graduation speech, Bernanke said, "As trade and globalization increase the size of the potential market for new products, the possible economic rewards for being first with an innovative product or process are growing rapidly."
By itself, this type of comment is not alarming. However, the example Bernanke chose to illustrate the potential rewards is troubling.
Rather than pointing to manufacturing or tangible goods, Bernanke noted that "A strong case can be made that the modernization of healthcare IT systems would lead to better-coordinated, more effective and less costly patient care than we have today."
With that comment, Bernanke joins Obama in believing that electronic records are an important component in fixing a multitrillion dollar industry.
Optimism is a positive personal characteristic, but it is not a substitute for policy. Hope, rather than policy, has led the current president to drift from issue to issue. Now, we should worry that the Fed is about to replace policy with hope.
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