Everyone loves to hate Federal Reserve Chairman Ben Bernanke. But is this derision unwarranted?
Roger Lowenstein strives to answer this question in The Atlantic’‘s April cover story, entitled “Hero or Villain.”
Privileged enough to speak with Bernanke one-on-one, Lowenstein presents the central banker as a deeply conflicted, but unfathomably human character, and tries to demonstrate that Bernanke’s academic and personal contradictions have manifested in his approach to monetary policy.
On one hand, the financial crisis took Bernanke by surprise because of his almost religious faith in markets:
Bernanke had an academic’s faith in the market’s essential rightness. He was so sceptical of the notion of mass-market folly that in his scholarly writings, he referred to bubbles in quotation marks. He was not, like Greenspan, ideologically opposed to government intervention, but he was dubious that anyone could identify, in real time, when markets were off course.
But on the other hand, Lowenstein writes that Bernanke does not believe in the markets completely. He is not sado-monetarist, believing that unruly market participants must give an eye for an eye before the economy can recover. Lowenstein writes:
I pushed him, in one of our interviews, to elaborate, and he said, “There is a thesis that the only way to restore the economy is by a necessary purging of previous excesses. In disagreeing, I am not saying there are not imbalances that need to be fixed. That said, there is still scope for policy to ameliorate the effects of necessary rebalancing on the public, to help shorten the recession. A massive decline in employment slows the rebalancing and deleveraging processes rather than speeds them; people don’t have the income to pay their debts. So the argument is: where you can, you try to short-circuit the process by urging banks to take losses and modifications, and recapitalize. Obviously, you need to get bank balance sheets healthy, and individual consumers healthy—but subjecting the system to high unemployment and high rates of bankruptcy and foreclosure is a very inefficient way to get there.”
But perhaps the most interesting insight Lowenstein presents concerns Bernanke’s character. Beset by both right and left, he believes that Bernanke is fundamentally scared of runaway inflation like the Republicans but sympathetic to the Democrats’ calls to ease unemployment.
Thus, Lowenstein suggests, Bernanke is constantly at odds with his own views, an academic stumbling around in uncharted territory. Yet amid Congressional deadlock the Fed holds unprecedented power, and so everyone expects Bernanke to be an economic god.
And in some ways, Lowenstein believes, he is. He is the veritable messiah of fiat currency, the bulwark against those who would insist that the United States revert to gold as legal tender. Indeed, his belief in fiat currency ultimately represents a deeper faith in the competence of man:
Originalists who are unhappy with quantitative easing are unhappy with elastic currency and with fiat money itself; nothing but gold will do. This has been true, of course, for 40 years—since the U.S. went off the gold standard—but only Bernanke has had to implement with such vigor the Fed’s original missions of “lender of last resort” and “coiner of an elastic currency.” And he is up there now, in the helicopter, showering us with money, as the Fed didn’t do but should have done in 1933. Yet even as this comforts, it elicits in most of us a spasm of wonder, or anxiety, that a single Ph.D. or a building full of them could calibrate such a mystery as the proper quantity of money, particularly in an economy as dynamic as ours is today. Bernanke does not use gold as a measuring stick; he does not count the money in circulation as a basis for determining interest rates, as Volcker did, or tried to do. His mentor, Milton Friedman, thought the business of adjusting interest rates was so tricky, it would be better to yield the job to a computer. But Bernanke thinks a human can do it. He sticks to his notion of what inflation should be, and his prediction of where it is headed, trusting that his judgment will tell him when to add more liquidity, when to subtract.
Yet while Bernanke is a pillar of strength publicly, Lowenstein emphasises that there is a human—troubled and confused—behind the steadfast and unflinching figure we see on TV.
Bernanke is bothered by attacks that seem to be little more than smears; conversely, he is buoyed when strangers stop him in airports to offer an encouraging word. Rising to his own defence, he told me, “I would argue that everything we have done has been in the interest of the American public and, broadly, of the global economy. A lot of people get that.” (Privately, Bernanke and Timothy Geithner, the treasury secretary, have shared mutual wonder that the financial rescue, which they consider a success, has been so widely panned. Geithner told me that recently, when he informed Bernanke that yet another officeholder had asked for each of their resignations, Bernanke wryly quipped, “Well, that’s a step up from being accused of treason.”)
Photo: The Atlantic