How Bernanke the Scholar Became Fed Iconoclast
When President George W. Bush was considering candidates to be chairman of the Federal Reserve in the autumn of 2005, the rap on Ben Bernanke, a brilliant economist, was that he had never faced a crisis, might be too soft for a challenge and wasn’t politically astute.
As he prepares to conclude his eight-year tenure as central bank chief at the end of the month, Bernanke is one of the most significant figures in contemporary U.S. government. Few have risen more boldly to confront a crisis, his political talents were underestimated, and the 60-year-old scholar of the Great Depression is about as soft as cast iron.
“History will ultimately judge how effective all of the innovations he led were, but I think his leadership has been brilliant,” says Josh Bolten, who was Bush’s chief of staff. “He has led the Fed into new territory but probably territory where it needed to be.”
“He’s one of the best public officials I have ever seen,” says former Massachusetts Representative Barney Frank, a liberal Democrat who served 32 years in the House and was one of the authors of the Dodd-Frank financial reform legislation. “He was right during the crisis, has proven absolutely right about quantitative easing and the emphasis on employment, is opening up the Fed and has been cooperative on reforms.”
This praise isn’t universal. The Fed’s unprecedented intervention in the economy under Bernanke is reviled by some politicians on the right such as Senator Rand Paul, and is criticized by some mainstream conservative economists. On the left, critics such as Senator Elizabeth Warren praise his stewardship during the crisis but say he hasn’t done enough in the aftermath to rein in the power of big Wall Street banks. The five largest banks today have more total assets than they did six years ago.
Still, few dispute that Bernanke’s bold, decisive and sometimes experimental actions in 2008-09 saved the global economy.
“The Bernanke mantra: whatever it takes,” David Wessel wrote in his book “In Fed We Trust: Ben Bernanke’s War on the Great Panic.” He “would not go down in history as the chairman of the Federal Reserve who dithered and delayed during a financial panic that threatened America’s prosperity.”
As the global economy teetered, and with his unsurpassed knowledge of mistakes made during the Depression, he opened the spigots of credit, took interest rates to zero and rescued major financial institutions. Again with the 1930s in mind, he was willing to experiment much as Franklin D. Roosevelt did; some actions worked, others didn’t.
The supposedly naive academic was remarkably persuasive in getting Congress to go along with huge government intervention. And he persuaded some of his reluctant Fed colleagues to present a pretty united front.
After the meltdown, he played an important role in fashioning financial and banking reforms. He followed the advice of the central bank’s skillful spokesperson, Michelle Smith, by initiating greater transparency about the Fed’s policies and increasing public outreach to explain them. He even held periodic news conferences.
As the U.S. struggled to recover, Bernanke kept his foot on the gas. With interest rates at zero limiting monetary action, he pushed quantitative easing, the purchase of long-term securities, to stimulate the economy.
That controversial approach appears to have been modestly successful, spurring faster growth without inflation. When the chairman announced last month that the bank would begin cutting back its asset purchases, the market’s initial reaction was positive, though some experts still believe this transition will be difficult.
As Bernanke completes his service, here’s the picture: a financial system restored to health, an economy on the way back and doing better than those of Europe and elsewhere, one of his top picks, Janet Yellen, on deck to succeed him as chairman, and his professor and mentor Stanley Fischer stepping into the Fed vice chairman’s seat. And never again will anyone describe Ben Bernanke as soft or naive.
(Albert R. Hunt is a Bloomberg View columnist.)
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