...I think Ben Bernanke is a really nice guy. His heart is basically in the right place. He doesn't wake up each morning like Dick Cheney wanting to screw the poor. But, for a variety of reasons, he is just not up to the job of being Fed Chairman. Part of this has to do with the worthlessness of Academic Macro, the culture from which Bernanke came, the failed job PhD programs do in training their students, and the fact the discipline is still largely psuedo-scientific. Due to this culture, a guy w/ Bernanke's pedigree -- Harvard undergrad, MIT PhD, and very good math skills -- was predestined to be at the top of the field. As I've mentioned before, however, it's very difficult to look at his academic papers and say "this guy is really bright". Here is an example I blogged about before. ...All I can add is "right on, brother! sock it to 'em!"
Brad DeLong has pointed out four mistakes of Ben Bernanke as Fed Chairman:
* Not supporting Ned Gramlich's push for tighter regulatory oversight of mortgage financing and associated securitizations and derivatives.
* Not moving immediately in early 2008 to nationalize more of the banking system and support asset prices to a greater extent.
* Believing in the late summer of 2008 that the big problem was that the Federal Reserve had pumped too much liquidity into the economy, and believing that a bankruptcy on the part of Lehman Brothers would send a healthy message to bankers that they would not always be bailed out by the government and would send that maessage without having damaging consequences for the economy as a whole.
* Failing to walk down the strategy tree in the fall of 2008 and thus to place a high priority on ensuring that if the government's interventions in financial markets worked to stabilize asset prices and avert depression then the government would profit and would be seen to profit healthily from its interventions.
To which I'd add 4 more mistakes, which really could all be lumped together and are ongoing...
#5. After 12/31/2008, to shrink the Fed's Balance sheet... The Fed's Balance sheet is still below where it was at the end of last year. This corresponds to net tightening in a severe recession.
#6. To wait until March -- March! To start QE in long-term government bonds. As it happens, I was actually under the impression that the Fed had started doing this much sooner. Especially since Bernanke's own academic research suggested that the Fed could influence the economy in a liquidity trap via QE, it did not occur to me that the Fed was not doing this. And then to do only $300 billion of QE... Paul Samuelson argued that Monetary Policy was basically worthless in a liquidity trap. Paul Samuelson was no fool -- to have real effects, QE has to be done on a large scale. $300 billion is only slightly better than nothing. Joe Gagnon has estimated that $2 trillion in QE is roughly equivalent to a 75 basis point cut in normal times, and he may be optimistic.
#7. This summer, the labor market was doing waaay worse than he'd expected the previous winter. And yet, there was no recalibration of Monetary Policy. As the information came in that inflation was still at bay and unemployment was still rising fast, he ... did nothing. And on top of that, he predicted unemployment would not rise to 10%.
#8. Now w/ unemployment at 10%, way worse than he predicted, once again, and with inflation still under control and below target, there is still no re-calibration of monetary policy. The Fed's predictions for Q4, 2010 are unemployment at 9.3-9.7% and inflation at 1.4-1.7%.
It is tragic that central banks protect the interests of the bond holders while ignoring the interests of the population. But this is history. And it keeps repeating.