The scapegoating of Ben Bernanke
Among Republican presidential hopefuls, bashing Ben has become a sport of choice. That’s Ben Bernanke, chairman of the Federal Reserve Board. First, Texas Gov. Rick Perry said it would be “almost treasonous” for Bernanke to embrace the so-called Quantitative Easing 3 (QE3). Then former House speaker Newt Gingrich said at Wednesday’s GOP debate that he’d fire Bernanke, calling him the most “dangerous and power-centered chairman” in Fed history. This rhetoric is beyond over-the-top. Its distortions are so grotesque and its judgments so poor that they should suggest disqualification for the White House.
All presidents want to create economic confidence. Indeed, improving confidence is crucial to boosting today’s lackluster recovery. The easiest way to destroy confidence is for the White House and Fed to get into a public brawl. By law, the Fed is “independent.” The Fed chairman, for example, is not a member of the president’s Cabinet. The reason is to insulate the Fed from short-term political pressures. It is to allow the Fed to take actions that, though perhaps initially unpopular, are judged necessary for the economy’s long-term health and stability.
“Independence,” of course, is a term of art. The Fed is ultimately accountable to Congress, and Fed officials — led by the chairman — frequently testify before Congress, whose members are not shy about expressing their views. Every administration also tries to influence the Fed and conveys its views through regular meetings of top- and lower-level officials. But an open fight is the last thing a president provokes, because it would almost certainly roil financial markets and frighten investors and business leaders.
Presidential candidates face different incentives. Just about everyone is unhappy with the state of the economy, and it’s convenient to have a scapegoat who won’t — because the Fed stays above the political fray — fight back. Bernanke qualifies, especially given his identification with the highly unpopular rescue of Wall Street banks and financial institutions in late 2008 and early 2009.
But the choice is particularly inapt. As much as anyone, Bernanke contained the crisis by having the Fed provide short-term credit to besieged markets. If the Fed hadn’t acted, chances are that today’s horrendous unemployment rate of 9.1 percent would be much higher.
Considering this, the most obvious way to make Bernanke a political target is to invent facts. To get the full flavor of this, it’s worth quoting Gingrich’s outburst in full. At the debate, NBC’s Brian Williams noted that Bernanke’s term as chairman expires in 2014 and asked whether Gingrich would reappoint him.
Gingrich: I would fire him tomorrow.
Gingrich: I think he’s been the most inflationary, dangerous and power-centered chairman of the Fed in the history of the Fed. I think the Fed should be audited. I think the amount of money that he has shifted around in secret, with no responsibility, no accountability, no transparency, is absolutely antithetical to a free society. And I think his policies have deepened the depression, lengthened the problems, increased the cost of gasoline, and been a disaster.
Where to begin? Since Bernanke became Fed chairman in 2006, annual consumer price increases have averaged 2.2 percent. Under Arthur Burns from 1970 to 1977, they were 6.5 percent; Paul Volcker’s 1979-87 average was 5.3 percent, and Alan Greenspan’s 1987-2006 average was 3 percent. (To be sure, Volcker’s record is distorted unfavorably by inherited high rates in his early years.)
Under Bernanke, the Fed is more open than ever. Its major policy decisions are announced publicly; the minutes of its policymaking meetings are released after three weeks; the chairman holds a regular quarterly news conference; the Web siteis crammed with details about Fed lending. Power-hungry? Actually, Bernanke is widely regarded as being more low-key in the Federal Open Market Committee than were Burns, Volcker or Greenspan.
There is no evidence that Bernanke’s policies “have deepened the depression.” Precisely the opposite (see above). During the crisis, the Fed did disclose the amounts of its loans but withheld the names of specific borrowers for fear of worsening the panic. Much of this information has now been released under congressional and legal pressure. In short, Gingrich’s indictment is an almost complete fabrication.
No one is infallible. Since the panic, Bernanke’s policies — essentially zero percent short-term interest rates and vast securities purchases to inject cash into the economy — have disappointed in spurring recovery. These policies, including the possibility of unintended inflation, are a legitimate source of debate and disagreement. They may be ultimately judged a failure. But it’s not clear anyone else could have done better. The basic conclusion may be that the Fed’s economic powers are limited.
Whatever history’s verdict, the Ben-bashing is pure politics. It’s a cheap shot that reflects more on the attackers than the attacked.