There a good discussion about Fed Chairman Bernanke on a post by Marcus Nunes having to do with Bernanke’s responses to questions posed by Ryan Avent about whether the FOMC is considering changing the nominal variable target and about the Bernanke/Evans rule.
I made a comment about Bernanke’s responses, calling them Tobin-esque, partly because I was shocked; and I mean blindsided-silly shocked by the response to the question about changing the target because Bernanke did so well in his testimony to Congress. In a nutshell, Bernanke, by his responses, still appears to be firmly wedded to the 2% inflation target.
Perhaps people who understand the institution of the Federal Reserve better than I aren’t surprised at all. And perhaps I have some nerve to be surprised; but I genuinely believed IT was dying on the vine given all of the heartbreak and misery it has caused.
To put it another way, when all of the errors of execution and vulnerabilities of that policy are laid out on the table, would any rational person who understands the options choose it as the policy we should live by? What is rational about capping price movement at 2%? It seems rather arbitrary when so many different things impact prices, from productivity to supply factors; and error causes real financial harm to average people. Why not 2.5% or 3.5%? How much is enough and are we talking long run, short run, or somewhere in between? Do we even know? I don’t think we do.
And I dare say that the political minefield that now exists around doing the necessary things to remedy the multiple monetary disasters is a derivative of inflation targeting itself. Perhaps Bernanke and Mishkin should have thought about the uproar that would result when presented with a need to make up for undershooting before they decided on explicit IT. It is pretty difficult politically to unpaint one’s way out of the deflationary corner with IT.
I think it is entirely appropriate to expect more from the Fed Chairman than to defend a policy that has so obviously failed in the way that it has. He has come a long way in changing his stripes; there is no doubt about that. But there is something seriously wrong with what was said in the Q&A that I believe borders on being unprofessional. Bernanke’s job is NOT ABOUT HIM. His job is about average Joe.
Perhaps the Bernanke defenders are comforted by finally having something to defend, at last. But what is to be said to the people who still can’t find a job or the people who lost everything they worked for all their lives because Bernanke maintains the visage of a policy that is rife with moral and political hazard? It’s wrong to know it’s wrong and defend it anyway. The entire affair is just WRONG and I don’t know of any other way to say it.