How Bernanke staged a revolution

Last week the Washington Post published Neil Irwin’s long profile of Federal Reserve Chairman Ben Bernanke under the headline “How Bernanke staged a revolution.” I found the profile interesting in several respects,

The profile is extremely flattering to Bernanke. Apart from James Grant’s dissenting voice close to the top of the profile, Bernanke emerges as a man of professional competence, even temper and understated leadership skills. The Post applies the kind of Obaman contrast between Bernanke and his predecessor, Alan Greenspan, that Obama performs on his own behalf with respect to George Bush: Greenspan bad, Bernanke good.

Irwin obviously thinks highly of Bernanke. In Irwin’s profile of Bernanke, the man and the moment have met. Irwin doesn’t mention that Bush appointed Bernanke. Although Bush’s appointment of Bernanke might be thought to redound to Bush’s benefit in the eyes of the Post reporter who wrote the profile, Irwin offers no account of Bernanke’s appointment.

Irwin structures the profile on “a stark contrast” between Bernanke and Greenspan that is either express or implied throughout. Where Greenspan was hierarchical, Bernanke is egalitarian. Where Greenspan’s tenure was characterized by tightly controlled decision-making, Bernanke has enacted bold policy moves through measured intellectual debates and by making even those who are resistant to some of the new actions feel that their concerns are understood.

Where previous Fed chairmen have obsessed over the target for short-term interest rates, Bernanke has ranged high and low for big ideas to get the economy moving. Where Greenspan was ritualistic, Bernanke is loose and open. Where Greenspan had become a celebrity economist, Bernanke aspired to be an anonymous bureaucrat.

Irwin virtually eschews consideration of the substance of Greenspan’s or Bernanke’s actions. Did Alan Grenspan’s Fed cause the housing bubble by holding down those short-term interest rates too low in 2003 and 2004? What does Bernanke think about that widely discussed hypothesis? How does Bernanke’s engineering of low short-term rates now play against that backdrop? Irwin doesn’t ask and thus no answer is offered. The emphasis is on procedure over substance.

Despite the procedural emphasis, Irwin salutes the magnitude of the actions undertaken by Bernanke. He notes the creation of 15 Fed lending programs, “most of them unthinkable before the current crisis.” He characterizes Bernanke as “revolutionary” and his actions as “invoking rarely used emergency authorities.” irwin leaves it at that, with only the quirky James Grant raising any doubt about the substance of the Fed’s actions:

The Fed’s actions put the economy on a “perilous” course, said James Grant, editor of Grant’s Interest Rate Observer.

“The real risk is that he will wind up instigating rampant inflation” once the recession has passed, he said. “A related possibility is that the Fed has created incentives to overdo it in borrowing and lending . . . which is what got us into this mess in the first place.”

Interested readers will have to look elsewhere for elaboration or discussion of this troubling observation. Limitations of scope and space impose their own regimen, but Irwin’s apparent lack of curiosity is striking. Indeed, he fails to offer details on one of the most interesting items in the profile. Irwin reports: “In the early days of the crisis, sources said, he suggested solutions to the foreclosure problem that would have been more expensive than lawmakers would have ever considered.”

What were those suggested solutions? They must have been pretty “expensive” to be out of bounds in the current environment. Providing an idea of their nature would have offered insight into Bernanke’s thinking. As it is, Bernanke’s thinking remains mostly opaque in Irwin’s profile. irwin doesn’t go much beyond the notion that Bernanke is a man of big ideas and swift action.

If Bernanke emerges as a kind of world historic figure in Irwin’s account, Alan Greenspan recedes into the distance in a cloud of disparagement. The disparagement of Greenspan may be well deserved, as may be the effusive praise of Bernanke. But I wonder. While Greenspan was chairman of the Fed, did the Post ever portray him in the unflattering light Irwin casts in his profile of Bernanke? I seem to recall that Washington Post managing editor Bob Woodward profiled Greenspan in his 2000 book titled Maestro: Greenspan’s Fed and the American Boom.

UPDATE: Bernanke responds to some good questions posed to him by USA Today. The responses call for some follow up, and I’d still love to hear about those overly expensive solutions to foreclosure issues.


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