The Weird Cult of Ben Bernanke
I would say that ever since some time last year when it become absolutely undeniable that Ben Bernanke was had been completely wrong about “The Great Moderation”, Bernanke has done an admirable job of trying to clean up the mess created by the errors of the school of thought to which he adhered. But like Kevin Drum I feel that this is a strange basis on which to rest the burgeoning Cult of Bernanke. In a reasonable world, I would think that Bernanke would probably fade away after his term ends to be replaced by someone else, and then return to the public eye a few years hence with an interesting memoir taking stock of the whole situation. Instead, he’s weirdly become an iconic figure and a shoo-in for another term.
Beyond the specifics of the case, I think this Bernanke-love is a symptom of what John Quiggin is talking about when he says that “history teaches us that we rarely learn from history.” Instead of looking at the recent past as an era of “moderation” we can look at it as an era of crisis management, in which successful emergency central bank operations helped clean up first the ‘87 stock crash then the Asian crisis then the dot-com boom. In each instance, events in the world that clearly contradicted elements of “efficient markets” thinking got erased from official memory since the ex post cleanup worked well. But we seem to be seeing an escalating series of financial crises, to the point where even a successful cleanup of the great housing bubble is still leaving us with double digit unemployment. Nevertheless, in lieu of learning the lessons of history—even really recent history—the ruling class in the United States is instead constructing a new cult around a new central banker and denying the need for any structural change in how we deal with the financial services industry or its role in the economy.
34 Responses to “The Weird Cult of Ben Bernanke”
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August 20th, 2009 at 12:16 pm
—the ruling class in the United States is instead constructing a new cult around a new central banker and denying the need for any structural change in how we deal with the financial services industry or its role in the economy.
This parallels Simon Johnson’s critique pretty closely, doesn’t it?
August 20th, 2009 at 12:22 pm
I agree, we build cults around our central planning leaders. We endow them with knowledge that they cannot possibly have. Then when we discover that one of our central planning leaders has faults, we begin to question the others.
August 20th, 2009 at 12:22 pm
“…Ben Bernanke was had been completely wrong…”
Matthew, dear, proof reading is a virtue! EDITOR?!
August 20th, 2009 at 12:26 pm
Instead of looking at the recent past as an era of “moderation” we can look at it as an era of crisis management,
Greenspan & Bernanke both aided and abetted speculative bubbles with excessively (sl)easy credit policies in the belief that when the bubbles burst they could manage the resulting crises. This was/is a dangerous and irresponsible way to run a central bank, but is ever so profitable for the big Wall Street banks, the Fed’s true constituency.
August 20th, 2009 at 12:31 pm
Nevertheless, in lieu of learning the lessons of history—even really recent history—the ruling class in the United States is instead constructing a new cult around a new central banker and denying the need for any structural change in how we deal with the financial services industry or its role in the economy.
replace “central banker” with “consumer protections” and “financial services inductry” with health insurance industry” and you have, in a nutshell, Matt’s weirdly conservative position on the public option.
August 20th, 2009 at 12:35 pm
Nevertheless, in lieu of learning the lessons of history—even really recent history—the ruling class in the United States is instead constructing a new cult around a new central banker and denying the need for any structural change in how we deal with the financial services industry or its role in the economy.
I don’t really see much of cult being constructed. Drum and Matt seem to be a little pissy here (however much it thrills me to see Matt raging against the rulign class.) The fact is Bernanke did what was needed to be done and saved the global economy. I don’t think people realize how bad it could have been. Drum and Matt are minimzing what Bernanke did, I guess b/c they want Larry Summers as Fed Chair.
Hopefully Bernanke or whoever is appointed will restructure the archaic Fed system. I can see Bernake do a Nixon to China after the close call.
August 20th, 2009 at 12:37 pm
In each instance, events in the world that clearly contradicted elements of “efficient markets” thinking got erased from official memory
Can someone explain the “efficient market theory” in a way a six-year old could understand? Sorry for the basic question/request.
-g
August 20th, 2009 at 12:39 pm
Matt 3 days ago:
Since Volcker, the Fed’s worked quite well
Matt today:
the ruling class in the United States is instead constructing a new cult around a new central banker and denying the need for any structural change in how we deal with the financial services industry or its role in the economy.
August 20th, 2009 at 12:41 pm
Re poptarts at 6: “The fact is Bernanke did what was needed to be done and saved the global economy.”
————-
Which he did by issuing much of the $23 TRILLION in UNSECURED loans and UNFUNDED GUARANTEES for which WE are on the hook!
See how fucking long the “Cult of Ben” lasts if those chickens come home to roost.
On the other hand, Goldman Sachs stock has soared from $50 to $160 per share in the last 6 months as they handed a smelly bag of shit off to the US taxpayers.
So THEY are happy.
They LOVE Bennie.
August 20th, 2009 at 12:46 pm
Re g at 7: “Can someone explain the “efficient market theory” in a way a six-year old could understand?”
————
A Six year old child is too SMART to fall for the efficient market theory.
It takes 4 years of brainwashing instilled by a $200,000 Harvard education (sleep-deprived cramming, etc.) to suppress the “But..but..”
August 20th, 2009 at 12:47 pm
I think the ruling/rich class likes a continuous series of financial crises. With each iteration, someone escapes basically intact (top executives, hedge fund and financial managers), and someone gets royally screwed (the average guy on the street). With a few more interations, more and more of the residual money from the guy on the street will get transferred to the executives at the top. Which is exactly how free-market capitalism and clever financial instruments are designed to work. keep the party going and the tap flowing until there’s nothing left to pump.
August 20th, 2009 at 12:48 pm
Yikes. This is like those idiots who learned the phrase “unitary executive” and then used it to describe pretty much everything they didn’t like. Matt, the “Great Moderation” theory wasn’t about EMH.
My god, in his now apparently infamous “great moderation” speech Bernanke cites Romer and Romer more than anyone else. Is Romer being thrown over as well?
Some of these discrediting attempts are self-discrediting.
August 20th, 2009 at 12:50 pm
BTW, it really isn’t very hard running a central bank when you know that if you fuck up royally you can run to your pals at Goldman Sachs and its wholly owned subsidiary, the U.S. Treasury, and get the taxpayers to pony up unlimited $$$$ to bail you out of your fuck ups.
August 20th, 2009 at 12:57 pm
Cultish, true. Truth be told I couldn’t get past the first couple of paragraphs of this morning’s Times “profile” — couldn’t believe someone actually wrote that crap about Bernanke working 7 days a week and taking time off only for his son’s wedding. Shades of GW Bush’s ridiculous “working through the weekend” blather.
August 20th, 2009 at 12:58 pm
Point-of-view is key here.
If you are a banker like Bernanke, things were pretty sweet the last 30 years. The financial sector doubled in size and bankers became entrepeneurs, raking in more and more money. All sorts of new businesses, like hedge funds and LBOs made it possible for financiers to borrow money from the public and invest/gamble with it. If things worked out, they were wealthier. If not, they declared bankruptcy, incorporated a new company and started over.
In the meantime, wages were stagnant, jobs that paid a middle-class wage disappeared and the average Joe went deeply into debt.
But not to worry. The people that count in the eyes of the media did very well and the festering sores were covered with a nice white bandage of censorship.
If the republicans or the DLC democrats were concerned about their constituents, they might have been concerned about the steady slide. But hey, the Fed pumped liquidity and assets appreciated, so what’s the big deal.
The people that count were happy.
August 20th, 2009 at 1:00 pm
Re kafka at 13: “you can run to your pals at Goldman Sachs and its wholly owned subsidiary, the U.S. Treasury, and get the taxpayers to pony up unlimited $$$$ to bail you out of your fuck ups.”
———-
Actually, the Fed doesn’t bother with talking to the grubby taxpayers — it just prints the money.
August 20th, 2009 at 1:04 pm
Nobody on the Efficient Market Theorem?
Use the Kling hydraulic analogy. The economy is a plumbing system and the water always settles such the the low spots fill up. Business men try to make little ponds to collect excess water flow.
August 20th, 2009 at 1:19 pm
“Business men try to make little ponds to collect excess water flow.”
Which ignores the fact that periodically someone on high throws a big tub of warm piss out the window.
http://en.wikipedia.org/wiki/Efficient-market_hypothesis
August 20th, 2009 at 1:25 pm
“history teaches us that we rarely learn from history.”
See, for example, our troops trying to control Afghanistan.
August 20th, 2009 at 1:34 pm
I think that what’s missing from this analysis is the apparent fact that, in order to keep financial markets from collapsing, a progressive administration needs an orthodox conservative at the helm of the Fed.
Now, before my fellow progressives toast me to a crisp for saying that, I’d like to point them to the word “apparent” in that first sentence, and then explain my reasoning.
I think that the basis of the Cult of [insert Fed Chief]is the conservative idea that “liberals” can’t run an economy (nevermind the empirical evidence suggesting that the economy significantly outperforms during Democratic Presidencies–those are facts, and these are conservatives that we’re talking about). Given that generally more conservative attitudes tend to dominate in business circles, it is understandable that these conservative executives would begin to fetishize what they see as the “one sane man standing between the ‘crazy left’ and their bottom lines.”
The flip side of this thinking clearly explains why Bernanke is now a “shoo-in” for reappointment. See, Barrack Obama really needs the economy to make a pretty big comeback, and he needs it to show concrete signs of such before next year’s mid-term. Therefor, it is in his interest to keep in place a traditional, conservative economist like Bernanke, if for no other reason than simply to keep the Bernanke-Cultists on Wall Street from panicking again and throttling the recovery in its crib out of sheer terror that “the liberals are gonna come take my money.”
I don’t personally like this line of thinking, but I think that it’s a pretty important part of the economic and political calculus that is currently all but guaranteeing a second Bernanke term.
August 20th, 2009 at 1:34 pm
Cults emerge around Alan Greenspan and Ben Bernanke — who kept interest rates low — and none around Paul Volker, who raised them to fight stagflation. Hmm.
August 20th, 2009 at 1:35 pm
Bernanke is like a firefighter who encourages people to toss lit cigarettes out their windows.
August 20th, 2009 at 2:06 pm
Maybe I’m grading on a curve, Bernanke did so much better than Mike “heckuva job” Brown.
I think keeping Bernake on would improve Obama’s bipartisan cred (like the Sec of Def. and Transportation and the Army) at a time when it appears the Dems will go partisan on health care reform.
Bernanke thought outside the box and went above and beyond doing an FDR and throwing everything he had at the problem. Of course Obama and the Dems helped with the Stimulus. And he made the effort to do a PR tour.
Bernanke could help his cause by a) critizing Greenspan over Greenpan’s backing of the Bush tax cuts b/c the “surplus was too big”. b) admitting his mistakes and c) pledging to restructure the Fed’s archaic system.
But of course it’s Obama’s perogative who he appoints. Elections have consequences.
August 20th, 2009 at 3:30 pm
If it is indeed the case that recent history consists of bursting bubbles, the results of which are quickly mitigated by central bank intervention, wouldn’t that be consistent with the “Great Moderation?” I thought the Great Moderation was the idea that through macroeconomic policy-making, the business cycle has become less severe in the relevant senses: frequency of recessions and amplitude between boom and bust.
I guess that Matt is referring to “efficient markets thinking” as some more general school of thought than the particular Efficient Markets Hypothesis, which in a nutshell says that asset prices in one time period perfectly reflect all known information, so any difference between the total discounted payoff actually received from the asset, sum(t+k), k=1….infinity and the asset price at time t is the result of random error.
August 20th, 2009 at 3:57 pm
I’m not a fan of an Independent Fed or such reliance on the Chairman, but, if you read economics blogs, you know that some people believe that Bernanke’s actions saved us from a Debt-Deflationary Spiral, while some don’t. Some of us attribute his actions to his being a follower of sorts of Irving Fisher. To some of us, the idea that someone who doesn’t believe that a Debt-Deflationary Spiral was imminent and we needed to raise hell to avoid it could have been the Fed Chairman,is terrifying. Hence, we’re shell shocked. At least when we faced a recession or a depression, Bernanke made some good, if timid, choices. From my point of view, given where we were, that’s a lot to recommend him.
August 20th, 2009 at 8:48 pm
The Great Moderation was an offhand ad hoc sort of story to tide us over till the crash came. When the crash came Ben sprang into action and he has been vindicated up to this point. The banking and financial systems are healing with a mere $23 trillion in cash and guarantees. After all this was what his life’s work was all about.
Financial assets are inflating again and traders, not those icky hedge fund cowboys so much but gigantic banking corporations and uber insider private equity firms, are makeing huge money and picking up all the best assets. That’s why there is a Bernanke cult. He has saved corporate capitalism and it’s attached state, as we know it.
One suspects, well I do, he is having some regrets but he will always be able to console himself that there was nothing else to do. The smart thing for him to do is to retire. I don’t think he wants the job anymore and it’s better than being fired, even if most people think you were pushed.
Of course this whole story is contingent upon the capital markets not unraveling again which is a distinct possibility. For that outcome is contingent upon the rest of the world and even domestic politics if that should unravel in ugly ways which is out of his hands. Every day like today where the markets show themselves to be supurbly well managed adds to the probability that the next accident may be a couple of years off.
August 20th, 2009 at 9:51 pm
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August 20th, 2009 at 11:56 pm
In each instance, events in the world that clearly contradicted elements of “efficient markets” thinking got erased from official memory since the ex post cleanup worked well.
Talk about your moral hazard on a global scale.
August 21st, 2009 at 1:31 am
All the big players seem in agreement about metaphorical usage. Bush, Bernanke, Obama, Paulson, all the economists, almost everybody, including me, agree, the world economy was “hurtling toward the edge of a cliff” but we were able, through timely and heroic action, to stop -just short. Catastrophe was therefore avoided by the barest of margins because the economy did not topple over “the cliff” -depending on which expert you listen to- just a few “inches,” “feet,” “yards” away.
Now, when you hurtle toward something you are in a vehicle of some kind. And you stop a vehicle by applying the brakes. But clearly, the reason we were “hurtling” towards “the cliff” is because “the brakes” had been sabotaged. So, I take the “hurtling toward the cliff” metaphor to mean that, panic stricken, we resorted to applying the “emergency brake,” and luckily, in fact, unusually, in my experience, it worked.
Recently I have heard some talk that we have “backed off” somewhat from “the edge of the cliff.” But if we are to continue with the metaphorical narrative; we have not fixed the brakes nor dealt with the saboteurs, we are much closer to the edge of the cliff then we have ever been in history, and the only thing restraining us from sliding over the edge is a still hot and smoking Magical Emergency Brake.
August 21st, 2009 at 4:49 am
I must admit I am inclined to trust Bernanke because he has a beard. I have worn a beard for 30 years and have been trustworthy for much, if not most, of that stretch of time. Before I had beard, I was a low-down lying tomcat.
Also, Bernanke reminds me of Gates -which is ok- when he is getting grilled by committees. They both offer to resign five or six times per session. I am inclined to trust a man who is willing to offer his resignation. It could, of course, be a coldly calculated Machiavellian tactic, but in general, it usually assures me that the man pridefully tendering his resignation has a sense of honor, or, at the very least, the tenderer has a sense of pique -which is almost equally indicative of a man unlikely to be, a lousy louse.
August 21st, 2009 at 8:06 am
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August 22nd, 2009 at 7:09 pm
I wasn’t for Bernanke’s reappointment, until someone raised the specter of Lawrence Summers as his replacement. Suddenly Bernanke looked brilliant!!!
August 22nd, 2009 at 10:50 pm
I haven’t directly read Minsky but from a lot of the references, I get the impression that this is one of his primary arguments. You can’t ever have a crash-proof economy because of how mass psychology works. If nobody can remember really bad consequences to taking risks, they just end up taking more risks until they discover some new bad consequences.
August 25th, 2009 at 9:59 am
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