March 2, 2021

Common Sense: Vitriol for Bernanke, Despite the Facts

On Aug. 16, while speaking in Iowa, Gov. Rick Perry of Texas, a Republican presidential candidate, took the demonization of Mr. Bernanke to a new level. He declared in much-quoted remarks — and to appreciative laughter from the crowd — that “we would treat him pretty ugly down in Texas,” and that Mr. Bernanke’s monetary policy was “almost treacherous — or treasonous, in my opinion.”

The next day, in New Hampshire, Mr. Perry was less inflammatory but more pointed. “They should open their books up,” he said of the Fed. “They should be transparent so that the people of the United States know what they are doing.”

Despite getting in “trouble” for calling Mr. Bernanke a traitor, as Mr. Perry subsequently put it, Mr. Perry vaulted to the top of polls and is now the unofficial Republican front-runner. Representative Michele Bachmann, the winner of the Iowa straw poll, has been burnishing her anti-Bernanke credentials, too, criticizing the Fed as “opaque” and reminding voters in South Carolina that she’s against “printing” money.

Nor are such sentiments confined to Republican presidential candidates looking for quick political gain. Last week, I bumped into an acquaintance I’ve always considered thoughtful and intelligent. He, too, lit into Mr. Bernanke and the Fed with great fervor. He quoted the Austrian School, the once-obscure but newly vocal group of zealous free-market economists who trace their roots to the Hapsburg Empire, disdain the scientific method in economics and blame the Fed for the financial crisis and the faltering recovery.

No one in government, including the quasi-independent Federal Reserve chairman, should be above criticism. But if Mr. Bernanke is going to be the centerpiece of such a heated debate, it should be conducted on the facts. And in that respect, “The level of ignorance among some of the Republican presidential candidates about monetary policy is stunning,” Mark Gertler, a professor of economics at New York University, said this week. “Mr. Perry has been taken to task for his choice of language, but not for the substance of his remarks, which is outrageous.” (Mr. Gertler said he was a political independent but considered himself a friend of Mr. Bernanke, a Republican.) Even President Obama was curiously restrained in coming to Mr. Bernanke’s defense, saying in a CNN interview only that Mr. Perry should be “a little more careful about what you say.” Although the Fed only belatedly identified the banks that received many billions of dollars of emergency loans during the crisis — for which it has rightly been taken to task — the Fed could hardly have been more transparent than it was recently about monetary policy.

It’s hard to believe the Fed’s critics have read the minutes of the Aug. 9 Fed Board and Federal Open Market Committee meeting, which were released this week. They may not read like a Robert Ludlum thriller, but they’re nothing if not transparent. They spell out in great detail the Fed’s reaction to the latest discouraging unemployment data, tepid economic growth and stock market volatility, including specific measures that might be used to address these problems.

Some members thought none of these measures would do any good. A majority nonetheless thought that something needed to be done, and chose to announce that the Fed would keep interest rates low for at least two years — “forward guidance,” in Fed-speak — as a “possible way to reduce interest rates.” Others wanted to peg the duration of low rates to a specific unemployment target, something that the board deferred to an expanded two-day meeting in September, when it will also consider other policy options.

The minutes provide a detailed portrait of a well-intentioned group of economists struggling to eke the maximum benefit from a dwindling and largely untested arsenal of monetary options, hardly a treasonous cabal bent on secretly conspiring to inflate its way to — what? World domination?

The Fed has never in its history provided such explicit forward guidance, and so far that has had exactly the effect the Fed hoped for. Longer-term interest rates have dropped, with two-year rates dipping below 2 percent for the first time in over half a century. This is significant, since it reduces borrowing costs for consumers and businesses. The stock market seems to have stabilized, at least for the moment. Though the Fed has been moving toward more openness for some time, Mr. Bernanke “has been the most open and transparent Fed chairman in history,” Mr. Gertler asserted.

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