Ben Bernanke — VOICES for REASON

Another day, another major news story about Ben Bernanke’s economic prognostications. I find these stories bizarre on two levels. One, they never mention Bernanke’s obvious incentive to paint an overly-rosy picture of the economy’s future given that he wields more power over it than any other person. And two, they never give convincing evidence that Bernanke is a credible forecaster.

It’s taken for granted that Bernanke is an economic genius–a claim backed by everything but his actual track record as an economic forecaster. We hear of his distinguished academic career, the admiration in which he is held by the profession, even a near-perfect SAT score in high school. While these would be relevant if Bernanke were applying for more column-inches in Who’s Who, or a job at The Princeton Review, neither Bernanke’s academic popularity nor his IQ tell us whether his predictions hold water.

In this regard, his track record of predictions, by contrast, proves a lot:

• March 2007: “the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”
• February 2008: “I don’t anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”
• July 2008: Fannie and Freddie “…will make it through the storm,” are “in no danger of failing,” and “adequately capitalized.”

Why not write news stories about the prognostications of economists who actually predicted the financial crisis?

Image: Wikimedia Commons

Ben Bernanke won a second four-year term at the head of the Federal Reserve yesterday with a 70-30 vote in the Senate. Alex Epstein pointed out the absurdity of reconfirming Bernanke on foxnews.com. Bernanke is among the individuals most responsible for the financial crisis, and he hasn’t changed his financial philosophy in the least. Yet nearly three-quarters of the Senate—and President Obama—think he saved us from disaster. To use one of Alex’s metaphors, we just elected the arsonist to put out the fire.

Image: Gage Skidmore on Flickr

Ben Bernanke recently penned an op-ed in the Washington Post sounding the alarm that the powers of the Federal Reserve might be undercut by pending legislation, and thereby undermine its ability to prevent future financial crises.

The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.

In Bernanke’s view of the Fed—the same view that is shared by most narratives of the financial crisis—the Fed was a force for good in minimizing the crisis, which was caused fundamentally by greedy, reckless financiers. The only criticism of the Fed in this narrative, is that it did not use its powers strongly enough. As Bernanke puts it:

The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis.

Thus, the Fed is a financial firefighter that simply needs more resources to put out fires set by financial arsonists in the free market—and Bernanke is Financial Firefighter in Chief.

Hardly.

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