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Ben Bernanke as 'Person of the Year'


I'd like to stop linking to Matt Yglesias today, but it's hard to do that if he refuses to stop writing good posts. For instance, he could have taken a long lunch rather than writing this analysis of Time's decision to name Bernanke its "Person of the Year."

Bernanke takes office in February of 2006 holding what’s probably the second most-important job in the United States and the most important job for determining overall macroeconomic conditions. He follows basically conventional thinking and doesn’t make any unusual errors. Unfortunately, conventional thinking and normal errors lead into a major financial panic and the worst recession in 70 years. Then during the desperate fall of 2008 Bernanke takes decisive action and helps put a floor on the collapse. By spring 2009 it’s clear that this will be the worst recession since the end of the Great Depression rather than, as some had feared, the second-coming of the Depression. At this point he basically unfurls a “Mission Accomplished” banner, says ten percent unemployment is okay by him, and if congress wants to do anything fiscally it should look at cutting Social Security benefits.

That’s not nothing. That’s not the worst record of any 21st Century public official (I dunno…Robert Mugabe?) or even of any major 21st Century central banker (Jean-Claude Trichet) or any Bush administration appointee (Don Rumsfeld) or anything. But it’s really not all that great. And it demonstrates a very specific class skew — extraordinary intervention into the market place just long enough to fix the situation from the point of view of asset-owners while leaving wage-earners holding the bag.

Over at Newsweek, Annie Lowrey explains what's missing from the Senate's debate over Bernanke's renomination. And Brad DeLong worries that Bernanke will fall to the "magazine cover curse."

Photo credit: By Linda Davidson/The Washington Post

By Ezra Klein  |  December 16, 2009; 4:40 PM ET
Categories:  Federal Reserve  
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Next: Is health care the stimulus redux?


Something happened between the time Yglesias posted his post and you linked to it: the Fed announced it would keep the federal funds rate at its near-zero level and that labor market concerns currently trumped inflation concerns. What more do you propose the Fed do to combat unemployment?

Posted by: mjp8 | December 16, 2009 5:21 PM | Report abuse

Matt has been making this mistake all the time - to hold Fed Chairperson responsible for employment.

Yes, Fed's job is 'asset protection' and viability of banking. Bernanke made mistakes. But he is not responsible for what Administration or Congress need to do - change taxation, change incentives of investments in particular industries and in that sense to be responsible for employment.

I just don't see how in the world Fed can increase the employment. Fed can primarily put in place liquidity (printing notes) or come up with TALP and other 'debt purchasing measures' and other 'asset market making moves'.

What Administration did for GM and Ford (to some extent to prevent unemployment as much as possible even at the cost of bond holders); how can Fed do that? That is for Administration and Congress to do.

Very well, hold Bernanke accountable for all the mistakes he did earlier in his tenor (he was late to reducing rates, he continued Greenspan lax policies towards securitization etc.); but beating him for 'employment'? I do not understand how that works. It seems to me Matt and Krugman here are simple irresponsible.

Fed has 'employment' mandate, that I also know. But beyond a point, keeping stability of financial system and inflation in check; these are the primary responsibilities of Fed.

Posted by: umesh409 | December 16, 2009 5:32 PM | Report abuse

i think you can convince more people that Tiger Woods is the "celibate athelete of the year."

Posted by: visionbrkr | December 16, 2009 6:15 PM | Report abuse

No other figure captures the zeitgeist of 2009 than Glenn Beck, and Time magazine should have made him Person of the Year.

This entire year is one of the darkest in modern history, and Beck represents the worst of all of it.

Posted by: zeppelin003 | December 16, 2009 6:32 PM | Report abuse

Ezra, I like both your and Matt's work, but the Trichet line above is ridiculous. I'm more of a "dove" than Trichet, but I think you at least would recognize at the begining of the crisis he was very creative and helpful. I think he could have done a bit more quantative easing later and dropped the interest rate to zero, but 1% is not bad for the ECB. In any case, is he really worse than Zimbabawe's central banker?

Posted by: Castorp1 | December 16, 2009 6:44 PM | Report abuse

It's not a "mistake." Maximizing employment is explicitly one of the Federal Reserve's responsibilities. It's in the statute.

First, it's not like he's completely out of bullets. Krugman's column points to the Gagnon plan, which he argues would spur faster growth, as something Bernanke could do.

But even if Bernanke does believe he's out of bullets wrt unemployment, then part of living up to that responsibility is to *say so* and endorse fiscal measures. He just had hearings and not a peep. And it's not like he stayed away from making fiscal recommendations either, as he squarely advocated cutting entitlements.

That's why Yglesias is right.

Posted by: ivanski | December 16, 2009 6:51 PM | Report abuse

Ezra's been trying to sell 10% unemployment as a sign that the stimulus is a success; Bernanke ought to get the same consideration.

Posted by: tomtildrum | December 16, 2009 7:15 PM | Report abuse

One can perfectly advocate entitlement reduction as a way to bring longer term fiscal sanity (which is what needed is everyone knows) without objecting short term specific, one time subsidies to make living for folks who are affected.

Meanwhile, about Gagnon plan - basically it asks Fed to expand the balance sheet so that long term bond interest rates go down, as a result overall borrowing becomes cheaper and that in result expected to kick start the business spending. Number of issues are here:
- Without bank reforms, reduced interest rates are only going to increase profits of incumbent banks.
- Are we saying that a business becomes attractive when interest rates go down from 3% to say 1%? Go check Alternative Energy Capital projects. Those are stalled because folks need 'loan guarantees' (preferably by Fed Gov) and more important taxation on Carbon.
- Reduction in 'interest payment' for Fed is real in Gagnon plan, but does that mean Fed Gov. continue to increase the Debt? Is it that not a political problem which Fed cannot address?
- Talking about Political problems, what about Ron Paul Audit of Fed books? With increased Fed balance sheet is it going to be any easier? Give me a break.

If a neophyte like me can see the issues in this Gagnon plan; I am sure experts will find many more problems.

The key problem there is Gagnon or no Gagnon plan; issues are political. Fed cannot be expected to create 'political problems' from back door when Obama Admin and Congress cannot deal with Tea Party folks in any credible manner. While that is happening, for Fed to be prudent and conservative is perfectly right.

Posted by: umesh409 | December 16, 2009 7:31 PM | Report abuse

Another in a long, growing list or American or European men, by far, usually selected. The other 90% of humanity has seldom been selected. Tells a lot about the criteria and "values" at "Time."

Would be really interesting to read a magazine in Beijing, Kyoto, New Delhi or Mexico city choose their "person of the year" since the 1920's. Somehow I think their lists would be quite different.

Posted by: Aprogressiveindependent | December 16, 2009 8:57 PM | Report abuse

The whole "Time person of the year" thing is really stupid to begin with, but as has been pointed out many times, including in Matt's comments, it is not an honor or an award for wonderfulness; it is a recognition of supposed consequentiality. Ben Bernanke has certainly been among the most consequential people of the last year, as Adolf Hitler was in 1938 and Joseph Stalin was in both 1939 and 1942. For good or ill.

Posted by: thehersch | December 16, 2009 9:01 PM | Report abuse

Yes, yes....Bernanke this, Bernanke that. Just call him "the Beard of Understanding" and leave it at that.

The most important bit of this post is actually a throwaway line at the end...about whom should we REALLY worry when it comes to the Magazine Cover Curse?

STEPHEN COLBERT, that's who.

Posted by: ajw_93 | December 17, 2009 10:20 AM | Report abuse

@umesh409, this is not all that complicated. The logic is inescapable.

- Bernanke's responsibilities include maximizing employment, contra your claim that Yglesias is wrong to hold him responsible for unemployment. It's in the frakking job description.
- It may be possible that Bernanke can take actions such as the Gagnon plan to ameliorate unemployment. If so, he should be taking them.
- Alternatively, it may be possible that there's nothing else the Fed proper can do (which seems to be your contention, given your statement that you "just don't see how in the world Fed can increase the employment"). But if so, then he should be advocating to Congress that they do take fiscal measures, doubly so if he's just sat through hearings that gave him the perfect opportunity.
- Now, one could counterargue that the Fed should not be taking a stance on fiscal policy, but if so, then what on earth is he doing talking about cutting entitlements? "Longer term fiscal sanity" is *not* in the job description. Maximizing employment is.

The logic is inescapable, and remains so irrespectively of the merits of the Gagnon plan or cutting entitlements. Algebraically substitute *any* expansionary monetary measures for the Gagnon plan and fiscal austerity measures for cutting entitlements in the explanation above, and the conclusion remains the same. Yglesias is right: Bernanke's actions amount to "extraordinary intervention into the market place just long enough to fix the situation from the point of view of asset-owners while leaving wage-earners holding the bag."

Posted by: ivanski | December 17, 2009 11:39 AM | Report abuse

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