January 26, 2012
The print edition gave the headline, “they squabble: he rescues the economy,” to a Dana Milbank column on Federal Reserve Chairman Ben Bernanke’s loose money policies. Milbank’s point is that Bernanke has clearly been shown to be right in having relatively expansionary monetary policies, as opposed to Republican critics who complained that this was debasing the currency and would trigger massive inflation.
However the notion of Bernanke and the Fed rescuing the economy would seem to require a bit of qualification. After it, it as Bernanke and the Fed who ignored the growth of the housing bubble until it grew so large that it eventually imploded and took the economy with it.
This is sort of like a doctor who misses the huge cancerous tumor growing out of a patient’s forehead during a check-up. If he later performs the surgery that removes the tumor successfully, that could be said to save the patient’s life, but it would be a bit of a stretch to give the doctor credit for rescuing the patient.
Even after the collapse the Fed has arguably been too limited in its response. When he was still a professor at Princeton Bernanke argued that Japan’s central bank should deliberately target a higher rate of inflation (e.g. 3-4 percent) in order to reduce real interest rates further and thereby spur growth. Bernanke has been unable or unwilling to follow his own advice as Fed chair.
As a result of weak Fed policy, inadequate stimulus, and an over-valued dollar the economy remains horribly depressed four full years after the beginning of the recession. The first President Bush was booted from office due to an economy that looks fantastic compared to the one we have today.
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