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Sunday, January 24, 2010

Can Ben Bernanke's Policies be Explained by Conservative Ideology?

Mathew Yglesias says that Ben Bernanke's polices are attributable to his conservative ideology, and Kevin Drum echoes this charge:

I think a lot of apparently mysterious things about Ben Bernanke’s career can be solved if you just assume that Ben Bernanke is doing things that a conservative Republican would do because he is a conservative Republican. For example, remember when conservative Republican George W Bush was president and made Ben Bernanke chairman of the Council of Economic Advisors? And remember when Bush put Ben Bernanke in charge of the Fed? ... If it looks like a duck and quacks like a duck, then it’s probably a duck. ...

I note that liberals, in their condescension toward conservatives, sometimes wind up tying themselves into knots about guys like Bernanke. Bernanke is very smart and incredibly accomplished. Many smart liberals think conservatives are dumb. So if Bernanke is so smart, it must be that he’s not really a conservative! But no. Smart conservatives are a very real phenomenon. And in politics the general idea is to give positions of authority to well-qualified people who share your political objectives.

Liberals think Bernanke can't be conservative because he's smart? Let me suggest that the support for Bernanke among some liberals is not the result of unfounded prejudice that only Matt Yglesias is free of, it instead results, at least in part, from the opinions of people who have spend a lot of time with him. 

What do those people think, people who have had plenty of time to observe how he walks and talks, and whether he quacks Republican?:

Fed Official Moves Up and Into Politics, by Edmund L. Andrews, New York Times: For years, some of his closest friends did not know that Ben S. Bernanke was a Republican. It is not that Mr. Bernanke has been shy about his views. As an economist at Princeton, he broke new ground on the causes of the Depression. And as a governor on the Federal Reserve Board since 2002, he spoke bluntly about weakness in the job market, the dangers of deflation, the impact of higher oil prices and the need for the Fed to reduce uncertainty by being more open. ... But now Mr. Bernanke ... is moving directly into the political arena, taking over next week as chairman of President Bush's Council of Economic Advisers. He is also on the short list of potential candidates to succeed Alan Greenspan as chairman of the Federal Reserve. The two jobs are related, if only because Mr. Bush will be looking to name a new Fed chairman that he knows well and trusts. Two other possible candidates to succeed Mr. Greenspan, who has been atop the Fed for nearly 18 years, are also former council chairmen: Martin Feldstein, who served under President Reagan; and R. Glenn Hubbard, who worked for President Bush from 2001 to 2003.
Mr. Bernanke built a sterling reputation while at Princeton, and has won widespread praise for his cogent analyses while at the Fed. But he has studiously avoided partisan political issues, at least in public. He has said little about issues at the top of Mr. Bush's agenda,... and his economic writing betrays few hints of political ideology. "If you read anything he's written, you can't figure out which political party he's associated with," said Mark L. Gertler, a professor of economics at New York University who has written more than a dozen papers with Mr. Bernanke. Mr. Gertler, who said he did not know his close friend's political affiliation until relatively recently, added: "He's not ideological. I could imagine Ben working with economists in the Clinton administration." Alan S. Blinder, a longtime colleague at Princeton who has advised numerous Democratic presidential candidates, also said he had worked alongside Mr. Bernanke for years without having any sense of his political views. "We wrote articles together and sat at the same lunch table thousands of times before I knew he was a Republican," Mr. Blinder recalled. ... Mr. Bernanke enjoys enormous credibility among economists in academia as well as on Wall Street..."I think Wall Street would be more comfortable with Bernanke as Fed chairman, if only because he isn't viewed as being ideological," said William C. Dudley, chief United States economist at Goldman, Sachs. The disadvantage is that Mr. Bernanke may not be able to build up close ties in the White House, where Mr. Bush's inner circle places high priority on personal loyalty and passionate support for the White House's policy goals. ...

There is this:

People who know Mr. Bernanke say he is entirely comfortable in supporting President Bush's economic policies. He has expressed little worry about the current budget deficit,... and he has supported Mr. Bush's call to overhaul Social Security. ...

I don't like the Social Security statement either, but in general I don't think we can explain Bernanke's monetary policy stance by blaming it on his being a conservative republican.

Does it even make sense to say Bernanke's economic policies have been ideologically conservative? 

This charge that Bernanke is ideologically motivated is all about the fact that Bernanke has not gone above and beyond the massive bailout of the financial system that has distressed conservatives and endorsed aggressive quantitative easing. The idea is that quantitative easing - the purchase of long-term securities by the government - will bring down long-term real interest rates, which is then supposed to spur investment (despite the recession), which then in turn will increase employment (with a considerable lag). Despite the massive intervention that the Fed has undertaken so far - one that has not pleased conservatives at all - the fact that Bernanke won't take policy as far as some, but by no means all on the left think, causes him to suddenly be tagged with the  ideological conservative label to explain this resistance?

Sorry, but it just doesn't fit. If you want conservative, listen to someone like John Taylor who would likely already be raising interest rates and winding down asset purchase programs. Listen to someone like former Federal Reserve Bank of St. Louis President William Poole who would have likely let the too big to fail banks fail, Main Street be damned, and elevated inflation over all other goals. Ideological conservatives in general, and the inflation hawks among them in particular, do not approve of what Bernanke has done. Go ahead and criticize Bernanke for his policies, I think there is a genuine debate about quantitative easing that we can have, and it could be that not moving more aggressively is, in fact, a mistake, but don't blame it on his politics.

If you disagree with current policy, if you think it should be taken further, then explain why (and Matt Yglesias has done some of that). But don't take the lazy way out and simply tag Bernanke with an ideological conservative label  that doesn't fit, and then use it to explain his policies. If we really had an ideological conservative as Fed Chair, there would be no need to wonder about the underlying politics, there would be no "probably a duck" about it, those policies would likely mean much worse conditions in labor markets right now. I think more could be done to help labor markets with both monetary and fiscal policy (though I should add that I think fiscal policy is a much more effective means of increasing employment, and I'm skeptical about the degree to which quantitative easing would actually work). But I don't believe that the barrier to pursuing these policies is Ben Bernanke's conservative ideology. It's his economics, and he has done far more than most in his career to have those views respected even when you disagree with his conclusions.

Update: Let me add one other thing. The other charge leveled against Bernanke is that his own work supports quantitative easing, yet he resists this policy, so it must be that his political ideology is in the way. Conservatives tried this with Christina Romer and her work on fiscal policy, but she made it clear that she was well aware what her own work said, that her position was fully supported by and consistent with her economics, and she swatted that charge way rather easily.

Bernanke also understands and is well aware of his own work, and of course he knows it better than anyone else, the charge against him is that he is abandoning his own research to serve conservative ideological principles. But the simpler explanation, the one that is actually supported by his past and all the testimonial above about his lack of political passion, is that it is his economics - which has been updated as the crisis evolves and he learns more - that is driving his policy choices. And his economics is not particularly conservative, it's fully consistent with the work that appears in mainstream journals. Again, that's not to say that there is no dispute here, different assumptions lead to different conclusions and there is plenty of room to argue over the best policy. But I just can't agree with the charge that he has abandoned his own research to pursue an ideological course.

Update: On a related note, from Paul Krugman:

Know Your Feds, by Paul Krugman: I’m hearing a lot from people who want Paul Volcker as Fed chair. (Consider the joke about exemplifying too big to fail as having been made). There really is nobody with his stature (literally, as it happens) and moral authority. And he’s a powerful advocate of financial reform.

You should know, however, is that Volcker is usually a hard-money guy. I haven’t had an opportunity to ask him, but my guess is that he’s suspicious of quantitative easing, and would be more likely to side with the Fed’s inflation hawks than with those of us who think the Fed should expand its balance sheet, target higher inflation, and in general do whatever it takes to bootstrap ourselves out of the liquidity trap.

This isn’t a simple question of good versus evil. There are substantive policy disputes, and some very good people are, in my view, on the wrong side of some issues.

[That is why this was in yesterday's list of links.]

    Posted by on Sunday, January 24, 2010 at 12:48 PM in Economics, Monetary Policy | Permalink  Comments (26)


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