29 June 2009

I come to praise Ben Bernanke

With all the opprobrium being dumped on the hapless Federal Reserve chairman, a little balance is in order. Ben Bernanke is not some evil spirited monster, salivating at ways to nationalize the economy, or enable world domination. I fully believe he is honestly trying to prevent economic catastrophe by the best means he knows of.

Neither do I believe that Ben is a mental midget. Not only does he have PhDs, but many of the studies he has written show a deep intellect and sharp mental processes.

I don’t even blame the Fed chairman for the financial crisis and recession. For that matter, I don’t really blame Alan Greenspan either. I think a quote from the CalculatedRisk blog sums it up nicely.

It is one thing to have different views from those of the Fed Chair on particular decisions that have been made-- I certainly have plenty of areas of disagreement of my own. But it is another matter to question Bernanke's intellect or personal integrity. As someone who's known him for 25 years, I would place him above 99.9% of those recently in power in Washington on the integrity dimension, not to mention IQ. His actions over the past two years have been guided by one and only one motive, that being to minimize the harm caused to ordinary people by the financial turmoil. Whether you agree or disagree with all the steps he's taken, let's start with an understanding that that's been his overriding goal.
Of course, this doesn’t mean I am in agreement with the chief US central banker on much (although his suggestions that congress reign in spending are welcome). To a great extent I see the leaders of the Federal Reserve in much the same light as the technocrats who tried to steer the Soviet economy. I am sure that many Soviet officials were true believers, and many of them were highly educated, but that still didn’t make their belief in communism as the solution to economic problems correct.

Likewise, US central bankers (and treasury officials) may well believe that stimulus and loose credit are good for the economy, but that doesn’t negate the fact that they are only succeeding in making the recession worse, and saddling future generations with even larger debt loads. The solution to the economic mess requires a purging of bad debt, and a return to savings. Unfortunately, these are the very things that policy makers are trying their level best to avoid. It’s akin to a heroin addict taking more narcotics when the start to feel the pangs of withdrawal. It may help you feel a bit better in the short term, but it is no solution the underlying problem.

That said, the vilification of Ben Bernanke, or other economic officials, is counter-productive in the larger debates over policy. Casting aspersions on the motives, or integrity, of the people you disagree with merely serves to undermine your own arguments. Let’s just admit that it’s possible Ben Bernanke really is a nice person, trying to do good for his countrymen. Then we can engage in a real debate over the efficacy of the policy measures being taken (or the very existence of the Federal Reserve itself).

1 comment:

  1. Your praise sounds somewhat superficial. Might it be more appropriate to liken Bernanke to a modern doctor who, in spite of extensive medical training, still recomments the ancient practice of bleeding his patients extensively to heal them, albeit with the best of intentions? Good intentions alone offer but limited justification for dangerously misguided policy by well-educated practitioners.