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Ben Bernanke

The economy, as a great big thing, is mysterious.  The lives of millions of people connect into one big system that has its own ways apart from any one of them.  But there are people who have positions of power and influence, those whose job it is to keep it all keepin’ on.

Chief among them is the Chief, Ben Bernanke.  Who is this guy?

More people every day are asking that question.  The press, for its part, gave his introduction a long time ago – and rarely go back over the same ground.  That’s a shame because now we have a track record to examine.

Bernanke was born in 1953 to one of the few Jewish households in North Augusta, South Carolina.  His dad was a pharmacist and his mom a schoolteacher.  As a kid, young Ben worked many odd jobs, even waiting tables at the classic tourist trap “South of the Border” in Dillon, SC.  He was the class valedictorian and went on to Harvard, eventually earning his PhD in economics at MIT in 1979.  After that he became a professor at NYU and later Princeton.

As an economist, Bernanke has always been particularly concerned with the Depression of 1929 and the Federal Reserve’s inability to prevent it.  His most famous work is a 2000 book, Essays on the Great Depression, which is credited with landing him a spot on the Federal Reserve Board of Governors in 2002.  When Greenspan retired in 2005, Bernanke seemed like a natural choice to replace him and the nomination was quite uncontroversial.

If it sounds to you as though people in government were thinking about the last Depression over the last decade, even if the press and public were not, you are far from alone.  Bernanke’s expertise was clearly considered valuable.

Over the last six years the public has been able to see what this quiet professor can do, and the record is interesting.  Far from theoretical in his approach, Bernanke has been pragmatic but apolitical – fitting the model of a very independent Fed.  Given that his most famous work outlined in great detail how paralysis at the Fed led to the Great Depression of 1929 as we know it, Bernanke’s willingness to try nearly anything to keep the economy running is very much in character.

His real test came in March 2008, a crisis many people didn’t even know happened.  Brokerage houses were in big trouble because the overnight loans that kept them in money were not being made the whole system was starting to fall apart.  Bernanke made the call to allow them to borrow from the Fed at rates normally reserved for big banks, and take just about all they wanted.  It wasn’t enough.  Six months later the failure of Lehman and subsequent collapse of much of the system showed why the Fed had been panicking for much of 2008.

After that event, Bernanke quickly steered the Fed to a zero interest rate policy which has been in place ever since.  He directed the Fed to start buying us Treasury debt and, for the first time ever, shares from the stock market.  No one was going to say that Ben Bernanke sat back and watched another Great Depression happen on his watch.

As we all know, it more or less worked and we’ve avoided the soup lines and hobo camps of the 1930s.  Yet this was still not quite enough, even with zero interest from the Fed.  That’s where Quantitative Easing comes in, the direct injection of first a trillion dollars and later 600 billion, done by buying even more US public debt with money created from nothing.  And that gets us to today.

The personality of Ben Bernanke is important not just because he has more control over our economy than anyone.  He has hard-working roots that propelled him into academic excellence, a quiet demeanor that leads him to be outspoken, and most importantly a careful read of history that biases him toward action.  Bernanke is a man who might seem to be full of contradictions outside of one essential aspect of his character – he clearly has a desire to serve more than to selfishly promote himself.

But is this enough to get us through today?  The current inability of the Fed to promote stable currency and prices has to be just killing Bernanke by now, but it is far from his fault.  He’s been out there, doing what he can, but it hasn’t been enough.  Where this latest crisis takes us is something we’d all like to know, but where it takes the most powerful man in our economy is another very telling and compelling story on its own.

What do you think of Bernanke?  Is trying just about everything his proper job, or should he be more cautious and careful?

28 thoughts on “Ben Bernanke

  1. You want to talk about ‘adult supervision’ over the gang of idiots in congress Bernanke comes as close as we have. At least he is doing something.

  2. Jim: It took me 800 words to say that, but I was trying to be a lot nicer. 🙂 No, really, I think people should know a lot more about Bernanke because I think that it’s unfair to dump on the one guy who seems to be trying to do something other than preen himself and make speeches. What he does may not always work, but he shares the stage of history with FDR in that department – a place where he’d much rather be than sitting around watching everything fall down.

  3. Thank you for posting this because I never thought about Ben Bernanke as a person before. It helps a lot to understand what he is saying and doing. I agree with Jim that he is the adult we want in charge. Interesting that they (Bush?) picked someone who wrote about the Depression as Fed Chairman back in 2005. I wonder if that was on purpose & they knew a lot more than they were telling us then.

  4. Anna: Yes, it was Bush, and I do believe that Bernanke was chosen for some good reasons. He had been talking publicly about deflation for a solid 3 years at that point, so his expertise was very clear to everyone.

  5. Bernanke has printed trillions of dollars for the benefit of the rich. The resulting inflation threatens to destroy everything that the rest of us have but no one cares. He is just one of the criminals who have stolen our nation away from the people.

  6. Interesting story. He doesn’t seem like very academic especially compared to Greenspan. I admit I often wonder where he came form.

    I would not call him a criminal but the Federal Reserve is there to keep the system we have working and mostly for the benefit of the rich. It is not all about one man but a vote of the Board of Governors. It is far from a perfect system and it needs to be more transparent.

  7. The quality of life and security for the citizens has been largely restored and we are a large part of why that has happened.

  8. Kevin: I’ll agree that the Fed is far more beholden to on the rich, but a stable currency benefits everyone. I know that Bernanke is trying to achieve that, even if it’s not clear that it’s working. Volatility is an easy way for traders to fleece small traders, both on the way up and the way down.

    Dale: I’m still not sure what to make of Greenspan. The big complaint I have about Big Al was that he was a seriously political animal, which Bernanke tries hard not to be. But he’s been stuck in this activist role lately that ropes him into pseduo-politics. Not good, really.

  9. It seems like Bernanke can’t or won’t do much more to boost the economy. There was a good primer on macro economics in the Strib yesterday, Republicans: Hands off the economy, that looks ahead to 2013 and what economic policy under a GOP pres might be (which will also be near the end of Bernanke’s term as Fed chair.)

  10. Laurie: Contrast that article with the earlier comment by Kevin. The Fed is the only body trying to do anything, and people at both ends hate them for it. If the Republicans really want a Fed to sit back and do nothing they have, once and for all, aligned themselves with Hoover. It’s very stupid.

    More to the point, I think people will see though that nonsense and reject the Republicans in part to the extent they rip on Bernanke. Right now people don’t have a strong opinion of the guy, but I think that raising his profile will raise his support

    And yes, you read through me a little bit when I made this post. People have been dumping on a good man for long enough, IMHO.

  11. Our current policies are failing. The fact that we have avoided soup lines up until now is not evidence of victory. Propping up failing banks is not going to end well, and like evolution, we need to rely on survival of the fittest, not survival of those chosen by the fed. The depression of 20-21: Harding cut the federal budget in half, the Fed did nothing, and unemployment went from over 6% to under 3% by 1923. The depression of the 30’s: Roosevelt did the New Deal, the Fed intervened, and it lasted a decade. Then, like now, people keep saying “But we’re just not doing ENOUGH”.

    “Insanity: doing the same thing over and over again and expecting different results.”

    • This is sort of an apples to oranges comparison:
      The Dow Jones Industrial Average reached a peak of 119.6 on November 3, 1919, two months before the recession began. The market bottomed on August 24, 1921, at 63.9, a decline of 47%.
      The Dow fell 89% during the Great Depression.
      Harding also raised taxes by broadening the base and lowering the rate. Harding signed into law the Emergency Tariff Act of 1921 and the Fordney–McCumber Tariff.
      Can, or should we do something similar, or is this a case of different times – different circumstances?

      • Jack: Exactly – that sharp spike was all about a very sudden shift in the economy caused by demobilization. The government was careful to avoid a similar effect in 1946, but there was still some problem. In both cases loose money and lower interest rates eventually tapped pent-up demand by consumers that went unrealized during the war and recovery was swift. Protectionism was normal in 1920, so the (quite large) increases in tariffs was not a problem at all – but was clearly a greater tax on the rich than on the poor, it’s worth noting.

  12. Stealth: That’s not true. The “Depression” of 1920 is only called that because of a sharp decline in prices (deflation), but in all other ways was very similar to a common recession. It was caused primarily by the end of WWI and the end of government spending in the Wilson Administration in 1919. The Federal Reserve increased rates starting in 1919, but sharply reduced them in 1921 – and the crisis eased substantially right away. In addition the Harding administration greatly increased import tariffs (the biggest source of Federal income then) to pay for relief at the start of 1921. So it’s a special event that was generally caused by changes in Federal Reserve and Government policies (related to the end of the war) and then met with new changes in policy by both agencies, ending it fairly quickly.

  13. Everyone: I want to make it clear that my opinions of the Fed’s actions are not clearly expressed in this article – on purpose. I do have a lot of sympathy for Bernanke but I question much of what’s been done (which is, however, expressed in the two links to old Barataria articles).

    Our current Depression compares very well to the Panic of 1893, one of the true bona fide depressions in US history by any measure. An excellent article on it can be found here:

    It’s a lot of reading, but I think you’ll find it fascinating. Note also that the government response was pretty weak and GDP did not recover for 7 years.

  14. Americans save through their houses and we know the home prices deflated. The only way to give Americans some hope is to add some inflation to the system. I like what Bernanke has done. Better to have some upward price pressure than deflation. Who wants that. Negative interest rates are the way to go. Page 8 of the article link shows historial real interest rate.


    I suppose if cutting back current government spending gives people hope that may be the way to go. I don’t buy it. But apart from the federal budget, Decreases in local and state spending to me is demoralizing. After all Americans like local and state government more than the federal.

    When the right time comes along then we wring out the inflation.

  15. Smithson: I won’t argue with you – I’ll leave that to history when it’s all shaken out. What bothers me is the perverse logic that greeted QE more than the act itself. It was designed to lower TBill rates, but instead increased them – by increasing confidence that everything was under control. The Debt Ceiling debacle accomplished what Bernanke could not by making it clear that we’re in uncharted territory and there was real risk – again, the opposite of what a downgrade should have done. Yet, through it all, the sense that there’s already too much risk out there has dominated the inability to get QE cash out of the Fed vaults and into the economy.

    I’m not faulting Bernanke for his actions, but I am faulting leadership generally for not giving us a proper sense of urgency. I still don’t know how history will write this up – once we get out of Bizarro world, that is.

    Perhaps my empathy circuits are overloaded because I’ve got the worry everyone else should have bottled up in me, but this just isn’t going well. Psychology is beating out logic – and Bernanke is exhibiting cool logic all over the place. The reassurance he give us is actually disquieting. We’ll have to see how it all shakes out.

  16. The Euro zone is cutting budget deficits more deeply than the US, and this article suggests capital wants to flow in our direction.

    Perhaps the budget deal is a reasonable approach. Not too contractionary in the short term.

    I’m in with the Princeton economist and the Center for Budget and Policy Priorities.

  17. Smithson: I have no doubt that cutting off spending now would be a terrible mistake – while I’m trying to remain a bit centrist on some policy debates I don’t see any justification for balancing the budget right now. And I can see that, given the Euroworld’s tendency towards austerity, we’re going to be in a good position to grow. But I still think that Keynesianism – in the sense that spending, any spending, gets new money out there – has been proven wrong as well.

    Most of my writing in the last year has been focused on the kind of spending that we can do to transform the economy, as opposed to spending on propping things up as they are. I still think there is a distinction to be made. But we can’t turn off the tap and have a contraction, not at all. I don’t regard that as even remotely sensible.

    I hope that explains my (somewhat complex) view of QE without a lot of words, among other things.

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