Ben Bernanke

[Dave Wright]

Excellent cover story on Ben Bernanke in the latest Atlantic magazine:

"The Villain"

"The left hates him. The right hates him even more. But Ben Bernanke saved the economy—and has navigated masterfully through the most trying of times."

http://www.theatlantic.com/magazine/...-villain/8901/

[David G]

That is an excellent article. A few quibbles, but overall quite astute, and even-handed. Good find!

[JBreeze]

That is an excellent article. A few quibbles, but overall quite astute, and even-handed. Good find!

How do you reconcile Bernanke's approach with the Keynesian economists you promote daily on this forum?

A direct quote from one of the links you posted:

Under Keynesian theory, active fiscal policy may be necessary
to break out of a liquidity trap, a situation in which monetary policy (tools aimed
at boosting liquidity and lowering interest rates) are effectively useless.

[David G]

JBreeze,

First - I find it easier to engage in potentially contentious conversation with someone if we at least start out without hyperbole and over-reach. What do I mean? I mean three words in your first sentence that are not accurate, and serve only to provoke: promote; daily; Keynesian.

Promote. When I post something, it may be because I subscribe 100% to the content. Or not. I may be posting it because I tentatively agree, but wish to provoke discussion and counterpoint.

Daily. Well, that's false on the face of it. You could certainly have been accurate if you'd said: frequently; lately; tend to... frequently; etc. Why the overkill? Are you trying deliberately to convince me/others that accuracy and precision mean little to you?

Keynesian. If you review my posts, I think you'll find a fair sprinkling of viewpoints beyond Keynesian. I read, and post from, sources that I'd consider to be: libertarian; Keynesian; conservative; liberal; and non-partisan. I don't expect you to review my total posting history before you comment, and the bulk of what I've posted lately may well have come from Keynesian sources... so I'm not too offended. But... since you obviously did NOT review my posting history - you could at least allow for the possibility in your comments that your unverified impression might not be totally accurate.


Second - the meat of your inquiry. How do I reconcile Bernanke's approach with my seeming approval of Keynesian analysis?

Well... I don't want to duck answering you, and several comments spring to mind. But... truthfully... I'm not sure what parts YOU see as inconsistent? Can you elaborate a bit, and I'll respond to your points? Or... would you rather I just jumped in?

[JBreeze]

Just jump right in ....

And maybe I'll go back and count the number of Krugman articles you linked in the past couple of weeks. Or maybe not.

[Dave Wright]

How do you reconcile Bernanke's approach with the Keynesian economists you promote daily on this forum?

A direct quote from one of the links you posted:

Under Keynesian theory, active fiscal policy may be necessary
to break out of a liquidity trap, a situation in which monetary policy (tools aimed
at boosting liquidity and lowering interest rates) are effectively useless.

JB, if possible, could you provide the link to that specific article please? I'd sure like to see the sentence in full context to evaluate it. Thanks!

[David G]

JBreeze,

Gonna make ME do all the work, eh <G> OK, I'll review the article and comment later. Headed off to the shop now.

[David G]

JBreeze,

Though he is a Republican, and (in some ways) a very cautious and conservative economist... I don't see Bernanke's approach - in general - to be antithetical to Keynesian prescriptions. He has a certain (limited) toolkit, and has used it well. His portfolio doesn't include fiscal policy, just monetary policy. As an aside, the article notes that it might just be the case that - once the Fed has used all the tools... shot all the bolts in its quiver... it might still be insufficient. That's not inconsistent with Keynes/Krugman and their liquidity trap analysis.

One way Bernanke has acted in accordance with Keynesian thought is his willingness to ignore the deficit hawks and the inflation hysterics. His actions have expressed his belief that they were wrong, and the net results buttress that belief. I think most Keynesians would agree.

Another thing I like - that Keynesians favor, and hawkish sorts seemingly do not - is the willingness to 'try something'. The article notes the parallels between his creativity, and the same non-dogmatic flexibility shown by FDR - a trait I've always admired in his efforts to overcome the Great Depression.

He has shown himself willing to defy red-state Anti-Fed populism in order to follow his best judgement as an economist. This, I believe, most liberals would approve of. I know Krugman disagrees, and feels Bernanke has NOT been dovish enough (and therefore the recovery is tragically wimpy instead of as robust as it could be). Well, Krugman may be correct as to policy, but Bernanke had the task of balancing the politics. At any rate... I tend to credit Krugman's comments that the two of them are basically on the same page.

OK - that's enough for now. Does that help address the conflicts that you see?

[David G]

Here's a bit more --

http://krugman.blogs.nytimes.com/200...-trap-wonkish/
This older article from Krugman talks about the liquidity trap. Germane to our topic here is the second to last paragraph:

"What’s the answer? Huge fiscal stimulus, to fill the hole. More aggressive GSE lending. Maybe a “pre-commitment” by the Fed to keep rates low for an extended period — that’s a more genteel version of my “credibly promise to be irresponsible.” And maybe large-scale purchases of risky assets."

While the Fed isn't in charge of the level of fiscal stimulus, they have done the 'pre-commitment' bit.


http://krugman.blogs.nytimes.com/201...9/is-lmentary/
This one talks about the IS-LM graph, and how it can be used to illustrate a liquidity trap.

The point here - in terms of our discussion - is that monetary policy and fiscal policy are not (ideally) contending... but working in tandem. The extreme condition, such as our present situation, where the lower bound of interest rates is reached, and lowering rates further has no effect is what's known as the 'liquidity trap'. At such times, fiscal policy has to take up the slack. No contention... more like a passing of the baton... as I understand it.

[JBreeze]

Hope you all had a great St. Pat's Day,

Dave W. The link is embedded in this thread:

Keynes and the Great Recession - 3/11/2012

Are the previously widely and commonly accepted tenets of Keynes still relevant during this uncommon downturn? Why do they come into favor and fall out of favor?

http://www.henryfarrell.net/Keynes.pdf


Dave G.

Yup, I'm leaving the work to you - you're an ABD Economics, correct?

Thanks for the reply - I guess you aren't wedded to a particular school.

The overall problem I'm having is the adulation of the "rockstar" economist du jour. I remember the days that Lester Thurow appeared nightly on the business news. I'm not sure if policies become twisted when they are implemented in a political system, or the economist becomes political. For myself, I think they have way too much power for someone unelected and too many folks jump on a bandwagon. The article about Bernanke reminds me of another magazine issue:



My opinion is it is way too early to write a hagiography of Bernanke.

Here is a link to two Bill Moyers interviews that are interesting:

http://billmoyers.com/segment/john-r...and-influence/

http://billmoyers.com/segment/byron-...-by-the-rules/

The 1st, with John Reed of Citicorp, discusses how Citi was promised Glass-Steagall would be repealed and the eventual fallout. He now says it was all a bad mistake and G-S should be reinstated. A little surprising, too, which school he mentions as source of the models that eventually led to the meltdown.

The 2nd, with former Congressman Byron Dorgon, includes clips from his testimony against the repeal of G-S in 1999 and his position about Dodd-Frank. I particularly like Moyers' question about gov't "of the 1%, by the 1% and for the 1%" and Dorgon's response. Who knew that a politician from North Dakota had more insight than Greenspan, Summers, Gramm, Schumer, et al.

[Dave Wright]

Dave W. The link is embedded in this thread:


http://www.henryfarrell.net/Keynes.pdf


.............My opinion is it is way too early to write a hagiography of Bernanke........
.

Thanks for that JB, I remember the piece now. You may be right that it's too early to sanctify Bernanke, but I think it's getting close. I think he's done a remarkable job in an almost impossible situation. He's also quite an example of an intelligent Republican; a reminder to many that it's still possible to be that breed of cat in our current polarized environment (I'm a Democrat).

[Tylerdurden]

“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons…who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind.”– Edward Bernays, Propaganda, 1928

[David G]

JBreeze,

I just listened to the first Moyers interview. Great stuff. I think Reed was bluntly accurate about the period he describes.

On a minor point - I don't think he was saying MIT was the fountainhead of the mathematical hubris that led to the belief that G-S was no longer necessary, but rather one of the voices. I was in grad school at UT-Austin at the time, and I can testify that this infatuation with the marvels of econometric modeling seemed to be sweeping most campuses. I am NOT ABD, having finished but two years. One of the reasons is being ill-suited to departmental politics. Another was my distinct skepticism over the almost religious belief in the power of analytics that was sweeping the field. It got so bad that all the good data sets had been so analyzed, and increasingly tenuous information was being forced to conform to the models. It became a case of GIGO. Or... as I commented - too loudly, and too often - 'mathematical masturbation'.

[JBreeze]

I was surprised Reed even mentioned MIT ....he's the Chair of the MIT Corporation.

P.S. - The Dorgan interview is good, too (and shorter)....ironically, both he and his wife are lobbyists in D.C.

[David G]

I was surprised Reed even mentioned MIT ....he's the Chair of the MIT Corporation.

P.S. - The Dorgan interview is good, too (and shorter)....ironically, both he and his wife are lobbyists in D.C.

My sense - reading between the lines - is that he's at MIT as a bit of a reformer.

Dorgan interview was good. Not as comprehensive as Reed, but certainly backs it up. N. Dakota has a long history of productive populism, which Dorgan seems to carry on.

[David G]

Here are a few comments from the Atlanta-based Fed blogger on the article - with a variety of links to other comments as well:

http://macroblog.typepad.com/