Is Ben Bernanke This Clueless?

Ben BernankeLast year, Matt Yglesias made one of the best political observations I’ve ever heard, “If the unemployment and inflation rates were reversed, would the Fed do something about it?” The point he was making was that the Fed is overly concerned about inflation. For the last four years, we have lived with unacceptably high unemployment while the Fed has worked to keep bond rates negative. It is madness and it speaks to elite thinking. Ben Bernanke seems to be saying, “No one I know is unemployed, so it must not be a problem. On the other hand, everyone I know has lots of money and they would be hurt by even a little inflation.”

Yglesias was back yesterday, pointing out a ludicrous boast that Bernanke made at the hearings, “My inflation record is the best of any Federal Reserve chairman in the postwar period”! Yglesias concedes that this is true—but only because we’ve had a pretty good economy since World War II. There weren’t any depressions. And again, he is able to cut right to the core of the matter, “No sensible person would look at America’s economic performance in the 1929-1933 period and say ‘man, they did a great job of fighting inflation.'”

There are two issues here. First, in a depressed economy it is a trivial matter to keep inflation low. So it is no great accomplishment for Bernanke to have done this. Second, allowing inflation to rise would have been a good thing. In fact, that is Ben Bernanke’s job. The Fed has a dual mandate: keep inflation low and employment high. Now these two things work against each other: rising employment pushes inflation up and and lowering employment pushes inflation down. So the Fed needs to balance these interests. Unfortunately, Bernanke hasn’t balanced them at all. He has done everything he could to keep inflation low and almost nothing to boost employment.

In the decades ahead, I’m sure that historians will look back at Bernanke and judge him very harshly. I doubt that he will be ranked below Greenspan. (How could he be?!) But whether because of cowardice or callousness, he has done a remarkably bad job for the country, but a great job for the bankers.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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