11:05 PM
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MAKE MONEY BLOG$~I am taking a bit of down time but wanted to comment on a few things I couldn’t help taking notice of.
John Roberts and Ben Bernanke
Tyler Cowen writes
There are some who understand Roberts but damn Bernanke for not “doing his job.” I see fewer who understand Bernanke but damn Roberts for not “doing his job.” You may think Bernanke has committed a worse sin of omission, or you may believe that Bernanke Apologetik is somehow a higher and more difficult art to master.
I certainly fit into the camp of those who are more understanding towards Roberts than Bernanke. A few reasons why:
The core issue, handling a massive global financial crisis and associated economic slumps, is one that has been debated since the Great Depression. The detailed issue, a central banker operating up against the zero lower bound, is one that has been debated since the Japan Depression.
Ben Bernanke was a student of all of this and indeed articulated the position he is now being criticized for not following. For some time he was given a fair bit of deference on the grounds that he was an expert, operating in a difficult situation.
Yet, it has now been over 3 years since the crisis proper began and Bernanke has still not given us an indication as to why he appears to have changed his stance. Indeed, when challenged on this, he simply flatly denied that he has changed his stance.
He has not even offered something to the effect of “There are those who may draw parallels between the academic criticism of central banking offered in the early 1990s and the current policy stance of the Federal Reserve. These parallels fail to take into account . . .”
Moreover, the roles of Bernanke and Roberts are reversed. The Supreme Court does not set policy, but checks policy. The Central Bank sets policy and is checked by the Congress and the White House.
To decline to check a contentious policy which you have no ability to redesign, is entirely different then declining to set a policy, whose design you have been mulling over your entire life, for fear that you may be checked.
Lastly, Robert’s primary power operates through precedent, which he applied in a way consistent with his larger objectives. Bernanke’s primary power is in setting the policy instruments of the Fed while he is Chairman. We are left to wonder what goals are consistent with the application of that power.
The Limits of Monetary Policy
Mungowitz argues
5. The key for [expansionary monetary] policies like that to work, even in theory, is that [Ben Bernanke] must, in Paul Krugman’s words, "credibly promise to be irresponsible" and I see no way for the Fed to do so in general, let alone in this political environment. It’s a lot harder than it might seem (to get an idea of how hard, check out Svensson’s "foolproof way" paper).
Lets consider what Svensson’s and Krugman’s policy gets us. If we can credibly commit to a specific long range monetary policy then we can end a liquidity trap of any size, at any time, almost overnight.
It is conceivable that given the current framework Ben Bernanke would not be able to achieve that. However, adjusting expectations so that the markets expects inflation to be more likely to run above 2% than below 2% as long as unemployment is elevated is a much more modest goal.
Yet, it is one that the Fed, according to its own projections, expects to fail to meet.
source: forbes.com
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