I find Ben Bernanke endlessly fascinating. This is a guy that built his entire academic career around studying the exact situation we now find ourselves in.
Seriously, and by all accounts this was a first rate career, too.
Yet now he finds himself in a position where he is dismissing the most important conclusions of his most important research. I think it is hard to overstate how mind boggling this is.
Here is Scott Sumner:
Bernanke keeps insisting that the Fed is never really out of ammo. I know that some people think he’s lying, but he also passionately believed that as an academic.
…The Fed’s newly transparent forecasts make it quite clear that we will fall short of almost anyone’s definition of a desirable level of demand growth over the next few years. And yet the Fed holds back from doing more. Reporters are beginning to probe this inconsistency at press conferences. He answers the queries the only way he can—mysterious “costs and risks” of aggressive unconventional stimulus. That basically means that if they bought up a large chunk of the national debt, they might later have to sell it at a loss.
Does Bernanke actually believe these costs and risks are more important than millions of unemployed? Based on his work on Japan as an academic, almost certainly not. But other people at the Fed certainly do worry about this, and he must speak for the entire Fed at the press conferences. What else could he say?
I figure that Bernanke’s research may have convinced him (and some others) but it has not convinced enough of the rest of society (median economist, median politician, median voter, whatever) for it to make a difference in policy. The idea of the fed as an independent institution is complete BS. Bernanke is forced to give voice to a consensus he believes is totally wrong.
So Bernanke was a failure as an academic. Which means he will fail as a central banker.