The Shorter Education of Ben Bernanke

Roger Lowenstein has 7,995 words about Ben Bernanke in this weekend’s NY Times Magazine, which the paper has obligingly gone ahead and run for the rest of us today. It is really, really long, and I haven’t had time or energy to read it, so it’s time to bring out Microsoft Word and do a quick auto-summary.

Here is Roger on Ben in four paragraphs:

Bernanke has gotten close. Inflation has failed to fall as the Fed expected. Bernanke’s exam looks like a doozy.

As Bernanke notes, the public has high expectations for what the Fed can do. (Conversely, to tighten rates, the New York Fed borrows money.) Only the central banker, the Fed, can create new money.

So Greenspan switched the Fed’s methodology. Bernanke has also shown his academic bent in how he runs the Fed. (In Fed parlance, hawks want to tighten rates; doves favor easing them.) Volcker tightened the money supply so much that the fed funds rate soared to 20 percent. In 2002, President Bush asked Bernanke to become a Fed governor. Bernanke said, “Actually, I’m a Republican.” This meant that the Fed’s rate cut hadn’t worked: credit conditions had not really eased.

Bernanke invariably insists that the Fed is not concerned with investors per se. Bernanke’s education has just begun.

Ooooh, scary stuff. Better than the Perils of Pauline.


Somewhat more seriously, this article will fuel both prevailing views of Bernanke. The anti-Ben sorts will see in Lowenstein’s piece precisely the sort of consensus-driven, slow-moving overly academic sort that they "knew" was at the Fed’s helm; fans of Ben will like his empirical, thoughtful approach to monetary policy.

As for me, I generally liked the piece, but I am discomfited by how little understanding anyone seems to have for the past quarter-century has seen such moderation in recessionary cycles. Because I don’t do think it has very much to do with the supposed prowess of the Fed.


  1. We need to abolish the Fed and return to a gold standard. Inflation properly measured would be running in double digits right now. We shouldn’t allow a statist government to confiscate our wealth by debasing the currency.

  2. Josh Stern says:

    People like to travel in crowds, so critics and defenders of the Fed tend to exaggerate the quality of their agreement with other like minded folk. As I see it, there is at least a 2x2x2x2x2 matrix of different thoughts:
    C1: Fed is powerful vs. Fed is weak;
    C2: Fed uses inflation metrics appropriately vs. Fed has wrong metrics or uses them inappropriately;
    C3: Fed’s effect is mainly short term psychology vs. Fed’s effect is medium/long term macro;
    C4: Fed reacts too much to little economic jitters vs. Fed is too focused on lagging data;
    C5: Fed effect works mainly through money/credit supply vs. Fed effect works mainly through indirect effect on prime rate and 30 yr. mortgage rate.
    If critics realized how few others are actually in their choice among the 32 possible boxes, they would likely be more muted.

  3. Josh Stern says:

    I forgot
    C6: People who are mad the unelected Fed even thinks about doing anything proactive vs. people who are mad the Fed didn’t push/favor tighter regulations to protect people from themselves.

  4. franklin stubbs says:

    Bernanke will ultimately be viewed as a failure (in my opinion) because his hopes and ambitions run counter to the Fed’s true role.
    One of the reasons Greenspan was so successful — besides being damn lucky — was his Delphic Oracle schtick. Inscrutable pronouncements allowed Greenspan to preserve a shamanic aura of infallibility. He was a dashboard icon the markets could take comfort in — a quirky little demigod that nervous investors could supplicate and pray to.
    By throwing back the curtain and revealing the whole operation to be smoke and mirrors, Bernanke is eradicating the psychological crux — the useful illusion — that previously made the Fed so effective. That, and ol’ Ben just has ridiculously bad luck. He came on just in time for the Maestro’s 100 tons of garbage swept under the rug to be unloaded on his head.
    Seems like a nice earnest guy though.