Bernanke Returns to Academic Roots to Defend Fed’s Existence
Federal Reserve Chairman Ben S. Bernanke returned to his roots as a university professor today, seeking to explain and justify the existence of the central bank ahead of the 100th anniversary of its founding next year.
Bernanke told 30 students at George Washington University that central banks play a key role in the modern monetary system as guardians of economic and financial stability.
His hour-long lecture, followed by questions from the students, is the first of four planned talks on the history of the Fed and is part of what public relations specialist Richard Dukas called a “P.R. offensive” to buff the central bank’s tarnished image. The Fed is being attacked from both the left and the right, with liberals criticizing it for not doing enough to bring down unemployment, and conservatives blaming it for doing too much and risking faster inflation.
Bernanke’s return to the milieu where he spent more than two decades will give the Fed’s top policy maker an opportunity to “set the narrative” on the central bank’s role during and after the financial meltdown, said Princeton University professor and former Fed Vice Chairman Alan Blinder. “The question of who gets to write the history is an important one.”
If Americans lose faith in the Fed’s ability to manage the economy and contain inflation, that will rob monetary policy of some of its potency, according to Dana Saporta, director of U.S. economics research for Credit Suisse Securities in New York. Policy has “less effect the less confidence the public has in the Fed,” she said.
Daniel Lippman, a 21-year-old senior taking the class, said that a “main takeaway” from Bernanke’s lecture was that prior to the Fed’s creation, the government did not have much influence on the economy and that ”created a lot of turbulence.
“One of the main purposes of the class and his participation is to reach out to the public and lay out his case for why the Fed is important today and shouldn’t be ended as some politicians say,” Lippman, a political science major, said. “I really liked the presentation and learned a lot about the history of central banking,” he said.
“Bernanke is getting beaten up and the Fed is getting beaten up,” said Dukas, who heads Dukas Public Relations in New York and has 25 years of P.R. experience. “It’s smart on his part to try to clearly communicate to the public the role of the Fed during the crisis and what it’s been able to do to stabilize the situation.”
Education and Outreach
In anticipation of the centennial next year of the 1913 legislation founding the central bank, the Fed has set up an advisory council to discuss ways to mark the occasion with “public education and outreach,” said Lisa Oliva, vice president of corporate communications at the Federal Reserve Bank of Richmond. The panel is headed by former Fed chairmen Paul Volcker and Alan Greenspan and includes representatives of academia, business, labor and the public.
Bernanke got a head start on the commemoration as he delivered his lecture just blocks away from the Fed’s headquarters on Constitution Avenue in Washington. The first talk by the former Princeton professor’s covered the origins and mission of the Fed. It will be followed on March 22 with a discussion about the central bank after World War II. The final two presentations, on March 27 and 29, will focus on the recent financial crisis and its aftermath.
Live Streamed Lectures
The lecture series -- the brainchild of the Fed and the first by a sitting chairman -- will be streamed live through the central-bank’s website on ustream.tv. Afterwards, it will be posted on the Fed’s YouTube page. The central bank said transcripts also will be available.
“I understand he’s excited about coming back and being in the classroom,” said Tim Fort, the professor in charge of the half-semester class.
Bernanke began preparing in December for the lectures, organizing his thoughts and putting together slides and PowerPoint presentations. Unlike his speeches and Congressional testimonies, he won’t be reading from a prepared text.
His return to the classroom comes amid signs that the job market is strengthening. Unemployment has fallen to 8.3 percent, the lowest in three years, while payroll gains during the last six months have been the strongest since 2006.
The venue is a good one for Bernanke, said Dukas, whose firm represents GAMCO Investors Inc. (GBL), founded by Mario Gabelli, Raymond James Financial Inc. (RJF) and other financial-service, asset- management and technology companies but isn’t involved in the Fed centennial.
“It has a neutral, authoritative type of feel and doesn’t come across as too promotional,” he said. It is also a good choice because “a lot of Ron Paul’s followers are younger.”
Paul, a Texas Representative and Republican presidential candidate, has vowed to abolish the Fed and reinstate the gold standard, under which the dollar would be backed by the metal.
The Fed chief told the students today that a return to the gold standard ”wouldn’t be feasible for both practical and policy reasons.”
For one thing, he said in response to a student’s question, there isn’t enough gold available in the world. More importantly, though, such a system would tie the Fed’s hands in combating unemployment, he added.
Bernanke isn’t a “flashy” teacher, Blinder said of his former colleague at Princeton, in New Jersey. “Some people get up there and are sort of performers,” he said. “Ben does not. He’s much more straight-laced. You just hear what’s coming out of an incredibly well-ordered mind.”
Former students who were interviewed agreed.
‘Vision Built Up’
“He had this whole vision that he built up over the semester, and at the end you felt you really knew something,” said Bryan Caplan, who earned his doctorate in economics at Princeton in 1997 and is now a professor at George Mason University in Fairfax, Virginia.
“His door was always open, and students could just pop up to chat with him,” Ilian Mihov, another former student who is now deputy dean in Singapore at the Insead business school, said in an e-mail. “Outside of the classroom and the school, he was also accessible; every Thanksgiving, we would be generously invited to their place.”
Bernanke is “the kind of guy who can check his ego at the door,” added Jeffrey Rosensweig, who studied under Bernanke when the Fed chief was a visiting professor at the Massachusetts Institute of Technology in Cambridge.
Abstract with Practical
Rosensweig, who is now an associate professor of finance at Emory University’s Goizueta Business School in Atlanta, Georgia, also praised Bernanke for his ability to marry verbal and pictorial class presentations and the abstract with the practical.
The lectures are the latest effort by the Fed to explain its actions to the public. During the last three years, Bernanke has given television interviews and appeared at town hall-style meetings. He toured a Philadelphia shipyard and a Tasty Baking Co. cupcake factory in 2010 and last year traveled to El Paso, Texas, to speak to soldiers at the military’s Fort Bliss. He also began holding press conferences in 2011, after each of the Fed’s four two-day policy meetings.
So far, his efforts have had limited success. Twenty-seven percent of Americans viewed Bernanke favorably in a Bloomberg National Poll this month, down from 34 percent a year ago and below Paul’s 38 percent rating.
“Middle America may not be a beneficiary of this campaign yet,” said Gerry Corbett, head of Redphlag LLC, a San Bruno, California-based communications company, and chairman and chief executive officer of the Public Relations Society of America. “It’s a very, very, very long road.”
Most of the criticism has been that the Fed is too aggressive in loosening monetary policy, Blinder said. “He’s getting a much bigger volume and higher level of vociferousness on that side,” and it’s “clear which flank he has to protect.”
Texas Governor Rick Perry, a Republican who was also in the presidential race until Jan. 19, said last year it would be “treasonous” if Bernanke eased policy further.
The Fed has cut short-term interest rates effectively to zero and has suggested it will keep them “exceptionally low” at least through late 2014. It also has undertaken two rounds of bond buying, boosting its balance sheet to $2.9 trillion.
That big portfolio is a “sword of Damocles” hanging over the economy, said Allan Meltzer, a Carnegie Mellon University professor who has written a two-volume history of the Fed. He charged that Bernanke doesn’t have a plan for dealing with it, so inflation is headed higher.
“What is the Bernanke policy doing in practice?” Meltzer asked. “It’s providing capital to American banks.”
Bernanke has defended his record as an inflation fighter by noting that price increases during his six-year tenure as Fed chairman have been below those of his predecessors.
Consumer prices have risen by an average annual 2.4 percent since he took over as chairman in February 2006. That compares with 3.1 percent under Greenspan, chairman from August 1987 through January 2006, and 6.2 percent under Volcker, who headed the central bank in the eight years starting August 1979.
Bernanke has acknowledged the rebound from the deepest recession since the Great Depression has been disappointingly slow, while arguing there are limits to how much the Fed can help. Even though unemployment has fallen from as high as 10 percent in October 2009, it has stalled above 8 percent for 37 months. Gross domestic product rose 1.7 percent last year after a 3 percent increase in 2010.
As long the recovery is lackluster and the jobless rate high, there’s just so much Bernanke can do to change the Fed’s image, said Eric Dezenhall, co-founder of communications consultant Dezenhall Resources in Washington.
“It’s not like if Bernanke did a really good PowerPoint presentation and wore a terrific tie any of this would change,” Dezenhall said. “He is not going to accomplish miracles with his fireside chat equivalents. His goal is damage control, not damage elimination.”
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