In a lengthy column to be published in this week’s New York Times Magazine, Paul Krugman compares the Federal Reserve to a Borg—a race of beings from Star Trek that act based on the wishes of a hive mind, and present major threats to the Starfleet and the Federation.Krugman argues that Fed Chairman Ben Bernanke has succumbed to this Borg mentality, subduing the beliefs he espoused during his career as an academic.
Bernanke’s career as an economist focused on analysis of the Great Depression and the Japanese “Lost Decade.” Since the financial crisis, he has faced many of the problems he studied, but he has fallen short of taking his own advice, Krugman writes.
For example, Bernanke once argued that the Bank of Japan should set “a target in the 3-to-4-per cent range for inflation, to be maintained for a number of years” in order to boost economic growth in a deflationary slump. Further, he criticised the Bank for not “try[ing] anything that isn’t absolutely guaranteed to work.” [Quotes from Bernanke]
While the implementation of similar policies in the U.S. right now would draw dissatisfaction from lawmakers and economists worried about a potential new rise in inflation, they are also the policies others argue might bolster a shaky and (as Bernanke and the Fed have said) “frustratingly slow” economic recovery to date. However, the viewpoints of Professor Bernanke have been cowed since he wrote about Japan years ago.
When did Bernanke change his tune? Krugman writes:
Within a year of his arrival at the Fed, he seemed to have been assimilated by the Fed Borg, like Capt. Jean-Luc Picard in a famous “Star Trek” episode, converted into a half-robot servant of a hive-mind….
Recently Laurence Ball of Johns Hopkins University made waves among monetary economists by looking through Fed minutes to determine how and when Ben Bernanke’s views changed. According to Ball, Bernanke’s big retreat from F.D.R.-like resolve happened way back in 2003, less than a year after he arrived at the Fed. That month, a Fed staff report rejected many of the ideas Bernanke previously supported — and ever since, Bernanke has spoken only of limited responses to the problem of the zero lower bound. What’s puzzling about this apparent conversion is the fact that while Bernanke may have been a newbie at the Fed, he was a towering figure in his field. Why should he have taken his cues from a staff report?
In contrast to the beliefs of some analysts, Krugman argues, Bernanke and the Fed can and should do more. Indeed, the political restraints put on the Chairman and the organisation as a whole in fact distort their true purpose:
Maybe, then, Bernanke still wants higher inflation and other unconventional policies but knows that there’s no point in pursuing or even advocating them. But there are two problems with this supposition. First, that’s not the way the Fed is supposed to work. It’s meant to be insulated from political pressure — so why would people so calmly accept the notion that it could be pressed to avoid doing what it thinks it should do? Second, Bernanke has gone out of his way to insist that his current position reflects an economic judgment, not political compromise — that it’s all about preserving that “hard-won inflation credibility.”
On some level, Bernanke’s failure to take stronger action to address economic weakness may reflect the hostile political environment. But Krugman finds it hard to believe that Bernanke’s hawkish Congressional critics alone have been intimidating enough to make him back down.
Bernanke may have pulled back from his earlier activism years ago, but given the scale of our economic catastrophe, he might well have returned to his earlier views if the political climate hadn’t been so hostile. So I wouldn’t fully discount the importance of right-wing bullying. As for his insistence that it’s not about politics — could he really get away with saying, or even hinting, that pressure from the likes of Paul Ryan is keeping him from pursuing full employment?
Instead, Krugman writes, the Fed’s timidity comes from a desire not to rock the boat:
My best guess is that the disappointing response of the Bernanke Fed represents the effects of both bullies and the Borg, a combination of political intimidation and the desire to make life easy for the Fed as an institution. Whatever the mix of these motives, the result is clear: faced with an economy still in desperate need of help, the Fed is unwilling to provide that help. And that, unfortunately, makes the Fed part of a broader problem.