So George Selgin has ‘new-ish’ post that includes an analysis of key monetary actions in 2008 that, in my own words and not Selgin’s, aided and abetted the development of the Great Recession. Selgin dubbed his post the Anniversary of a Fed Blunder. But I struggle with that sort of description and instead I add a modifier suggesting infamy to mine.
I actually think that Selgin’s post is superb and there aren’t any technical bones to pick. But I do have a somewhat of an issue with this:
Despite the financial system’s shaky state, what several Fed officials most feared that April was, not a looming recession, but inflation. Between the fall of 2007 and the Fed’s April 30th meeting the CPI inflation rate had jumped from about 2 percent to twice that level. Thanks mainly to rising oil prices, it kept going up well into the summer, when it peaked at 5.5 percent. In response the FOMC’s hawks, led by Dallas Fed President Richard Fisher and Richmond Fed President Jeff Lacker, having already opposed the Fed’s last rate cut in March, refused to support any further cuts, and would go on opposing them, successfully, until October.
Ben Bernanke, for his part, was determined to avoid any further public displays of inter-FOMC dissent. To Fed Vice Chair Donald Kohn he privately complained, in an email sent the day after the FOMC’s August meeting, that he found himself “conciliating holders of the unreasonable opinion that we should be tightening even as the economy and financial system are in a precarious position and inflation/commodity pressures appear to be easing.” But he did so, he says in his memoirs, because he worried that too many FOMC dissents would “undermine our credibility.
Not being involved in politics seems to have its drawbacks. In some circles, of which I have little knowledge, pinning the mistakes down to one person in particular, or perhaps suggesting complicity in the infamy appears to be the wrong thing to do even though, in many other types of acts that produce severe financial harm to others, being an accessory is pretty much the same thing as doing the act oneself.
I have a problem with the “blameless Bernanke” view presented here because the facts of the matter that are in the FOMC transcripts are really stubborn things. In none of the transcripts of the FOMC meetings in 2008 (I’ve read them all) does Bernanke voice reluctance or follow through with his professional responsibility to put warning labels on the policy items under discussion. This was something he could have done without the fear of airing dirty laundry in public because these transcripts are not released for public consumption until five years have elapsed. Instead, in all of the transcripts Bernanke appears to harbor the concerns of his colleagues regarding inflation, expressed in his own words. There is simply nothing in the public record that supports the “blameless Bernanke” view or that could reasonably demonstrate reluctance toward the policy options under consideration on grounds of severe impact; and I might add that Bernanke’s memoir that apparently shifts blame for policy mishaps of the period to regional presidents is not the public record.
Some may ask why this is even important or why I can’t just let the Bernanke thing go and turn the page because it now no longer matters. The biggest problems I have with that sort of thinking is that: 1) allowing Bernanke to skate through profound negligence is dishonest and, 2) accountability and the opportunities for understanding that come with it.
Bernanke came to the chairman’s position enamored with his explicit inflation targeting ideas over which he struggled with Congress to make a reality. Sadly, after ignoring the admonishments from Congress and implementing them anyway, those ideas didn’t work quite as planned. And really, that’s the forgivable part of all of this. I don’t expect him to be more than human, and as such, mistakes are inevitable. But shifting the blame in all of this is as counterproductive as it is dishonest. Nobody can learn the right lessons from the mistake if nobody understands what went wrong coming from the horse’s mouth, and all we seem to be able to get out of the guy who can understand it is hand washing.
There are too many people willing to accept Bernanke’s view that he was an innocent sheep in all of this that unwittingly enable the seemingly enduring opacity of the problems introduced with explicit inflation targeting, such as the reality of the ZLB and the messy business of arriving there. And here we are a decade later with the same faulty regime in place. Nothing that went wrong has been fixed, and nobody is held accountable while a lot of extra band aid complexities that are biased toward tight have been added. The monetary regime is currently a hawkish Frankenstein gong show that can only be understood and executed by a quantum computer, possession of which the Fed is lacking, rendering the next crisis as a matter of when, not if. What is now has everything to do with the fact that Bernanke failed to sober up toward the shortcomings of explicit IT and do his job when he really needed to, and has since only been interested in dodging blame while nibbling around the edges of the ZLB when the ZLB problem is a legacy of his preoccupation which he can’t seem to publicly admit.
Too, I am not hailing from the academic world and I have a very different perspective than most of the people talking about this. Economics would never have been my personal choice of topics to learn. I would have been very happy to go on living life as it was and remain in innocent ignorance, never having had an occasion or the time to educate myself about what was happening around me. Many of us learned hard lessons and experienced hardship of a degree quite foreign to us in the crisis and the ensuing Great Recession that we wish to God almighty that we never had to learn or experience. And I wonder why admitting a mistake and turning into an evangelist for the cause of many severely impacted people as to prevent such a thing from happening again is beyond reasonable expectation over a mistake that is infinitely more profound than a grammatical error.
Sometimes, the only thing that keeps me going is a firm belief in karma, and never more so than when I read about “blameless Bernanke.” I already got nailed to his cross of gold. Now, it really should be his to bear.