Ben Bernanke was just asked by the NYT’s Binyamin Appelbaum about whether there’s an inconsistency between his current policy and what he used to advocate years ago as an academic.
If you don’t know, this is a direct question about Paul Krugman’s big NYT Magazine story called “Earth To Bernanke” in which he slams the Fed chair for not listening to his old self, particularly his old writings about Japan.
To clarify some more: As an Academic, Bernanke famously told Japan that they had to throw the whole kitchen sink and more at the problem. These days, Bernanke seems far more cautious.
Bernanke says that’s totally wrong. Specifically he says that’s “Absolutely incorrect.”
Why? Japan was in deflation. We’re not.
Here’s the full comment, via a livestreaming text service:
Yeah, let me tackle that second part first. So
there’s this, uh, view circulating that the views I
expressed about 15 years ago on the Bank of Japan are
somehow inconsistent with our current policies. That is
absolutely incorrect. My views and our policies today
are completely consistent with the views that I held at
that time. I made two points at that time. To the Bank
of Japan, the first was that I believe a determined
central bank could, and should, work to eliminate
deflation, that it’s falling prices.
The second point that I made was that, um, when
short-term interest rates hit zero, the tools of a
central bank are no longer, are not exhausted there, are
still other things that, um, that the central bank can
do to create additional accommodation.
Now looking at the current situation in the United
States, we are not in deflation. When deflation became
a significant risk in late 2010 or at least a moderate
risk in late 2010, we used additional balance sheet
tools to return inflation close to the 2% target.
Likewise, we’ve been aggressive and creative in using
nonfederal funds rate centered tools to achieve
additional accommodation for the U.S. economy. So the,
the very critical difference between the Japanese
situation 15 years ago and the U.S. situation today is
that, Japan was in deflation and clearly, when you’re in
deflation and in recession, then both sides of your
mandate, so to speak, are demanding additional
Why don’t we do more? I would reiterate, we’re doing
a great deal of policies extraordinarily accommodative.
You know all the things we’ve done to try to provide
support to the economy. I guess the, uh, the question
is, um, does it make sense to actively seek a higher
inflation rate in order to, uh, achieve a slightly
increased pace of reduction in the unemployment rate?
The view of the committee is that that would be very,
uh, uh, reckless. We have, uh, we, the Federal Reserve,
have spent 30 years building up credibility for low and
stable inflation, which has proved extremely valuable,
in that we’ve been able to take strong accommodative
actions in the last four or five years to support the
economy without leading to a, [indiscernible]
expectations or destabilization of inflation. To risk
that asset, for, what I think would be quite tentative
and, uh, perhaps doubtful gains, on the real side would
be an unwise thing to do.
UPDATE: Krugman responds >