Ben has a job to do, and so does Paul

Binyamin Appelbaum recently made that following claim:

It’s worth reading the entirety of this response from the Federal Reserve chairman, Ben S. Bernanke, to a question I raised at a news conference on Wednesday. It’s a very clear statement of his views on what is probably the most important current question of economic policy: Why won’t the Fed do everything in its power to reduce unemployment?

Actually, it’s as clear as mud.  Let’s start with what we know for a fact:

1.  If the Fed never aims for an inflation rate that is higher or lower than 2%, then it’s an inflation targeter.

2.  If the Fed had a single mandate to produce 2% inflation, with no regard for unemployment, then it would not have a dual mandate.

3.  The policies described in points one and two are identical.  Two policy regimes that call for exactly the same policy in 100% of all cases are actually a single policy regime, perhaps with two names.  That which has no practical implications, has no theoretical implications.

4.  Ben Bernanke has repeatedly emphasized that he supports the dual mandate, and puts equal weight on both components of that mandate.

5.  Because of points 3 and 4, we know for a fact that Ben Bernanke does not support a 2% inflation target on all occasions.

6.  Bernanke’s response to Binyamin’s question seemed to suggest he supports a 2% inflation target under all circumstances.  But we know that is not true, hence there is nothing “clear” about Bernanke’s response.

Now let’s talk about what we don’t know for sure, but seems likely:

1.  Bernanke has indicated in the past that policy may need to aim for more or less than 2% inflation over the short run, with the proviso that the Fed would gradually bring inflation back to 2% in the longer run.  (BTW, this occurs when AS problems lead to above 2% inflation despite economic slack.  With no AS problems, inflation targeting is all you need.)

2.  He’s suggested that the Fed might need to temporarily shoot for slightly higher than 2% inflation when unemployment is high, and vice versa.

3.  We also know that the Taylor Rule, which almost everyone seems to believe was roughly the Fed’s approach during the Great Moderation, calls for slightly higher than 2% inflation during periods of high unemployment, and vice versa.

4.  Putting these three points together, it seems overwhelmingly likely that Bernanke would prefer slightly above 2% inflation during periods of high unemployment, and slightly below 2% inflation during periods of low unemployment.

So why didn’t he say so?  Now we need to get even more speculative:

1.  One possibility is that this answer should be seen as a response to Krugman’s argument that we should not just aim for slightly higher than 2% inflation in the short run, but should actually raise the long term inflation goal to something like 4%, in order to lower real interest rates, and also to make liquidity traps less likely.  Bernanke probably sincerely opposes that policy, but that doesn’t mean he wouldn’t prefer to see a bit more NGDP growth and inflation right now.

So why didn’t he make both points, why not say he wants a bit more inflation right now, but also wants to keep the Fed’s long term 2% inflation target?  I can think of several reasons:

1.   In late 2010 he ran into a firestorm when he called for higher inflation.  At the time he was merely calling for boosting core inflation up from 0.6% to 2.0%, which should have been incredibly uncontroversial—even the hawks should have applauded.  Now imagine he says “we are going to try to push inflation a bit above 2%.”  That actually is the implication of the dual mandate, but nonetheless all hell would break lose.  I think he might honestly believe that it could be a setback for the doves.  He’d rather move quietly in that direction.

2.  A Fed Chairman, like virtually all top officials in government, is essentially forced to defend the policy of the institution they head.  Or resign.  He probably feels he can do more good from the inside than the outside.  Some people complain that I am being too charitable to Bernanke.  Actually, I’ve had lots of exactly the sort of highly critical posts that others have provided.  But let’s get real for a moment.  There are numerous press reports from journalists with access, like Jon Hilsenrath, that paint a clear picture of Bernanke being a dove who is constantly trying to nudge the Fed in a more expansionary direction.  All the Fed actions (QE1, QE2, Operations Twist, the 2014 low rate promise, etc, were things that Bernanke came up with, and pressured the Fed to adopt.  There’s absolutely no reason to think the picture painted by these well-informed journalists is wrong.

3.  In the previous press conference there were two pointed questions that basically criticized the Fed for not doing more.  And both times Bernanke answered something to the effect that “no one can deny we’ve been extraordinarily accommodative, blah, blah, blah, but your point is well taken, the economic data do suggest reason for even more stimulus.  It’s under active consideration.”  That’s from memory, not exact words.  Now take a look at the exact words in this recent conference:

Likewise, we have been aggressive and creative in using non-federal-funds-rate-centered tools to achieve additional accommodation for — for the U.S. economy. So the — the very critical difference between the Japanese situation 15 years ago and the U.S. situation today is that Japan was in deflation. And, clearly, when you’re in deflation, and in recession, then both sides of your mandate, so to speak, are demanding additional accommodation.

In this case, we are not in deflation. We have an inflation rate that’s close to our objective.

Now, why don’t we do more? Well, first, I would, again, reiterate that we are doing a great deal. The policy is extraordinarily accommodative. We — and I won’t go through the list again, but you — you know all the things that we have done to try to provide support to the economy.

Here’s how I translate that:

“Give me a break Paul; you know I can’t throw my colleagues under the bus at a public press conference.  But I’ve worked really hard to persuade them to do one unconventional move after another.  And I’m still working for additional accommodation later this year.  But we don’t live in a perfect world; it’s much harder to lead a big institution like the Fed than take pot shots from a NYT column.”

Just to be clear, I agree with Krugman’s criticism of the Fed.  And I can even agree with his specific criticism of Bernanke in one sense.  Just as Bernanke is almost forced to defend polices that may not be 100% optimal in his eyes, a journalist is duty-bound to criticize the public statements of government officials—regardless of what they think the official privately believes.  I’ve also criticized Bernanke.

Free Exchange has an anti-Bernanke piece by Ryan Avent and a pro-Bernanke piece by Greg Ip.  Both are excellent, and in a sense both are correct.  They are simply looking at the picture from a different perspective.

Without the criticism of Bernanke from us market monetarists, and without the criticism of Bernanke from Krugman, DeLong, Avent, Yglesias, Duy, Thoma, etc, etc, Ben Bernanke’s job would be much harder.  Without that criticism, all the pressure on the Fed would be coming from the right, and would be pushing the Fed in exactly the opposite direction from where Bernanke would like to go.  We are helping him, whether he knows it or not, and regardless of how annoying he finds our criticism.


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38 Responses to “Ben has a job to do, and so does Paul”

  1. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. April 2012 at 06:11

    As I said in a previous post, Charles Calomiris, in his FCIC testimony, mentioned how the public’s unfocused anger had paralyzed policy makers, not excluding The Fed.

    Alan Blinder (himself formerly at The Fed) said something like that in his testimony;

    http://fcic.law.stanford.edu/interviews/view/61

    He called it ‘inchoate anger’.

  2. Gravatar of flow5 flow5
    29. April 2012 at 06:13

    The U.S. has just gone thru the widespread deleveraging of U.S. consumers (liquidations, redemptions, account balance transfers, & conversions to currency).

    This was expressed by depositors raiding their savings/investment (interest-bearing) type accounts, & shifting these balances into transactions based (non-interest-bearing) type accounts. This represented an overall increase in the transactions velocity, or turnover, of the money stock.

    This consumer behavior (one-time phenomenon) changed the composition of the money stock & distorted Vi (increasing the numerator & decreasing the denominator of income velocity). This represented another case where VI moved in the opposite direction of Vt.

    Now, the impact from these money flows has virtually dissipated. Funds “saved for a rainy day” have largely been depleted & the accompanying deposit classification shifts have ended.

    That’s why Bernanke needs to buttress nominal gDp right now.

  3. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. April 2012 at 06:14

    Also, the (longer) Calomiris interview being here;

    http://fcic.law.stanford.edu/interviews/view/171

    While I appreciate that Scott hasn’t the time free, anyone interested in the views of well-informed economists will be rewarded by listening.

  4. Gravatar of flow5 flow5
    29. April 2012 at 06:15

    sorry got that backwards numerator decreased & denominator increased.

  5. Gravatar of StatsGuy StatsGuy
    29. April 2012 at 06:53

    “There are numerous press reports from journalists with access, like Jon Hilsenrath, that paint a clear picture of Bernanke being a dove who is constantly trying to nudge the Fed in a more expansionary direction.”

    Why do you insist on the notion that Bernanke’s signalling is honest, when everything we know about economic theory suggests that he will signal whatever is advantageous to achieve his true goals?

    Whatever happened to revealed preference theory? In short, judge him by his actions, not his speech – and we now have 3 years of very consistent action which indicates that the Fed is inflation targeting.

    I’m highly inclined to believe Tim Duy’s interpretation:
    http://economistsview.typepad.com/timduy/2012/04/bernankes-shift.html

    “Bottom Line: Bernanke is being disingenuous in his defense. Despite his claims that his earlier views only applied to deflation, his writings still appear at odds with his willingness to embrace a new price and aggregate demand paths. Moreover, the Fed’s own forecasts clearly do not support his contention that the target is symmetric, but indeed a hard ceiling. The Fed must also know that the by reducing the path of inflation they have knowing altered the distribution of outcomes in a way that is likely to slow the pace of recovery. Finally, with inflation near 2 percent, I suspect the bar toward another round of QE is higher than many believe.”

  6. Gravatar of StatsGuy StatsGuy
    29. April 2012 at 06:57

    Flow5 – Total US consumer debt vs. gdp is still well above trend.

    http://www.mybudget360.com/wp-content/uploads/2012/01/debt-and-gdp.png

    If we continue at the current rate of work-off, we have until 2014 perhaps until we return to the trendline from 1980-2000. 2000-2007 broke everything. More concerning, really, is the distribution of debt (or, net wealth), particularly as workers approach retirement and new workers enter the work force with high-rate debt on low-value degrees.

  7. Gravatar of ssumner ssumner
    29. April 2012 at 07:36

    Patrick, There’s certainly plenty to be angry about, but I’d add that this is why Bernanke shouldn’t be talking about raising inflation, but rather raising NGDP.

    Flow5, Yes, more NGDP.

    Statsguy, You misinterpreted me, I am saying we shouldn’t judge him by his speech, but rather by his actions. I don’t think he is telling the truth, I put far more weight on the fact that in private his actions are aimed at pushing the rest of the FOMC is a more dovish direction. That’s what matters. I find the press reports to that effect to be highly credible.

    Having said that, I’d like to see him push even more aggressively.

    I only believe his recent speech on one point–I think he’s telling the truth when he says his views haven’t changed since his was an academic. His speech has changed, which is why I don’t believe his speech.

    I know his academic views very well, as we researched in very similar areas. I know how he thinks about these issues.

  8. Gravatar of Basil Basil
    29. April 2012 at 07:51

    Professor Sumner, I find most of your analysis on economic issues incredibly insightful, but it boggles my mind that you continue to give Chairman Bernanke the benefit of the doubt. To be frank, you seem to have a terrible case of the fantasy based he’s-secretly-one-of-us syndrome mixed with hardcore confirmation bias. All the objective evidence – all of Bernanke’s actions – points to one thing: Bernanke is supportive of a strict inflation target.

    Actions speak louder than words.

  9. Gravatar of ssumner ssumner
    29. April 2012 at 08:18

    Basil, I’ve been very critical of Bernanke, just a few posts back. And in this post I said he deserved the criticism he got from Krugman, and I meant that. So I think you misinterpreted my remarks.

    I also think my reply to Statsguy applies to you as well. I am judging him by his actions, not his words. But I discriminate between his actions and the Fed’s actions–which are two entirely different things.

    I appreciate your comment, but all I can say is that I have criticized Bernanke, and will continue doing so. I hope my criticism will strengthen his hand as he tries to nudge the Fed in a more dovish direction (which he is clearly trying to do.) He needs to do much more.

  10. Gravatar of Bill Woolsey Bill Woolsey
    29. April 2012 at 08:53

    “2. A Fed Chairman, like virtually all top officials in government, is essentially forced to defend the policy of the institution they head. Or resign. He probably feels he can do more good from the inside than the outside.”

    I disagree with this statement.

    Political appointees must defend the policies of their superiors, or resign.

    If we just ignore the supposed “independence” of the Fed, then Bernanke would need to defend the overall economic polcies of the Obama administration. Presumably, he would be proposing monetary policies to his bosses in the Whitehouse. If they insisted on something he didn’t like, he would have to carry them out, and “defend” them. If he wasn’t up to that, he would resign, and Obama would appoint someone else to the Fed to carry out his policies.

    Now, Bernanke is supposed to be in charge of the Fed, and not be carrying out Obama’s policies.

    Now, suppose that the Chairman of the FOMC was elected by the members of the FOMC. Then, we could say that while he could have his own opinions of proper policy, it would be his job to carry out the will and defend the policies of his bosses– the majority of the FOMC.

    But, he wasn’t elected by the FOMC. He was appointed by Obama (most recently) and confirmed by the Senate.

    Why do this rather than simply have the FOMC choose a spokesman that serves at their pleasure?

    Now, suppose Congress passes a tax cut for “the rich,” and Obama vetos it. Yes, he is obligated to instruct the Treasury and IRS to carry out the law.

    But Obama is not required to “defend” the policy as a good one. He can continue to complain about it. It can call for its repeal. He can call for the replacement of the members of Congress and the Senate who voted for it.

    And so, it would be quite appropriate for Bernanke to carry out the policy approved by the FOMC, while explaining that it is the wrong policy. He could publicly criticize the views of the other members of the FOMC who are preventing an appropriate policy from being carried out. So and so doesn’t undestand anything about monetary policy and is only insterested in community banking services. So and so really believes in instant market clearing. Etc. Why the bankers in Minnesota chose this guy is beyond me. Maybe they should pick someone with more common sense and less math intuition.

    The real problem is that this sort of open debate and criticism would cause people to lose faith in the Fed. The Fed would endanger its independence.

    And that is the real story. The Fed never does anything wrong. It’s the economies fault. Everyone on the FOMC is wise, deliberate, and public spirited.

    And Bernake wants to perpetuate the myth.

    But imagining that he is like a cabinent officer who disagrees with the President is wrongheaded.

  11. Gravatar of Full Employment Hawk Full Employment Hawk
    29. April 2012 at 09:02

    “The policy is extraordinarily accommodative.”

    The policy may be extraordinarily accomodative UNDER CONVENTIONAL ECONOMIC CONDITIONS. But economic conditions are not conventional. We are stuck in a little depression and, in light of this reality, the policy calls for a lot more accomodation and has not been extraordinarily accomodative at all.

    The proof of the pudding is in the eating. The Fed’s own projections about the course of the economy for the next several years proves that the Fed is not being extraordinarily accomodative at all.

  12. Gravatar of dwb dwb
    29. April 2012 at 09:18

    “2. A Fed Chairman, like virtually all top officials in government, is essentially forced to defend the policy of the institution.”

    the political incentives built in these offices strongly encourage the chair to defend the commitee. does not make it right, just a fact of life. the chair does have to defendthe feds credibility.

    fomc members give speeches but dont get the tough questions. so whereas the chair has to defend the feds credibility, individual members rarely have to defend their own.

  13. Gravatar of Full Employment Hawk Full Employment Hawk
    29. April 2012 at 09:26

    The Fed’s own projections about GDP growth for the next several years show that it is in blatent violation of its congressional mandate to achieve maximum employment. The FOMC is essentially a group of scofflaws.

  14. Gravatar of Full Employment Hawk Full Employment Hawk
    29. April 2012 at 09:28

    The Fed shows strong signs of targeting a 2% inflation ceiling, rather than a 2% average rate over several years. If it were doing the later, it would now try to achieve more than 2% inflation for a time to make up for the times that inflation was below 2% and even negative in recent years.

  15. Gravatar of Morgan Warstler Morgan Warstler
    29. April 2012 at 09:42

    “But I’ve worked really hard to persuade them to do one unconventional move after another. And I’m still working for additional accommodation later this year.”

    Which brings us again to my gamed hypothetical:

    1. Assume Ben wants Obama to win and is determined to do something.

    2. Ben assumes he has ONLY one bite at apple before now and Nov. 2012.

    Without deviating from my specific assumptions:

    WHAT date is optimal?

    WHAT does he do?

    Does it need to be hardcore QE3, instead of some weird twist kind fo thing?

    I think it is helpful for you folks to go on record, and really think about that date now.

    If we can agree out loud now the optimal Pump Obama timeline… then we can watch and see if just-by-chance, the future pump Scott is predicting coincides with politicized date.

    C’mon Scott, Stats, Benji, dwb, MF, et al… just say a date.

  16. Gravatar of Kevin Johnson Kevin Johnson
    29. April 2012 at 10:25

    On Monday’s Bloomberg Surveillance, PIMCO’s Neel Kashkari says “…the Federal Reserve is pursuing a policy to increase nominal GDP growth…” (at 1:55).

  17. Gravatar of Benjamin Cole Benjamin Cole
    29. April 2012 at 10:32

    BTW, I just guest-opped a piece over at Marcus Nunes’ house.

    It is fascinating to compare the reaction in 1984 of the Reagan White House to perceived too-tight money—a full-on declaration of war against the Fed—and the myopic mincing about of Team Obama.

    Bernanke is swimming in a perverted milieu, filled with toxins leeched by FOMC members such as Richard Fisher. Obama should throw a life-raft to Bernanke, and support Bernanke in a push for a more growth-oriented Fed policy.

    Morgan–I don’t think Bernanke is in Obama’s camp. Check out the dollar’s exchange rate all through the Bush jr. years—it went down. It bottomed with Obama’s arrival in DC, and stayed there since. And Bernanke is swimming a pool of anti-Obamaism, people who obviously want Obama to lose.

    If Romney wins, look for the right-wing to drop its Chicken Inflation Little routines, while also remembering that “deficits don’t matter.” Ain’t no GOP’er going to talk about inflation when Romney is president. They will talk about the need to get the country moving again.

    In that regard, I am hoping for a Romney win. And so each of us can have our own planet when we die.

  18. Gravatar of AFG AFG
    29. April 2012 at 11:50

    “Without that criticism, all the pressure on the Fed would be coming from the right, and would be pushing the Fed in exactly the opposite direction from where Bernanke would like to go. We are helping him”

    I love that you implied that you are part of the left.

  19. Gravatar of Morgan Warstler Morgan Warstler
    29. April 2012 at 12:41

    Benji, all correct answers contain this,

    “Morgan, assuming your HYPOTHETICAL assumptions are correct, this is the date and method, I (Benji) believe Ben would pull trigger… and these are my reasons”

    Date:
    Type:
    Reasons:

  20. Gravatar of marcus nunes marcus nunes
    29. April 2012 at 13:14

    Scott: My take from your post
    1. It´s ever more clear that uttering the word “inflation” is damaging (sometime ago you even said that no comments with the I word would be answered)
    2. Greenspan was “unclear” all the time. That even gave rise to a new specialty: Fed Watcher that specialized in parsing Greenspan. Maybe Bernanke does not know How to be unclear.
    3. His leadership qualities are weak.

  21. Gravatar of marcus nunes marcus nunes
    29. April 2012 at 13:39

    And:
    4. MM´s have provided a public service.

  22. Gravatar of Cassander Cassander
    29. April 2012 at 15:30

    > A Fed Chairman, like virtually all top officials in government, is essentially forced to defend the policy of the institution they head.

    This is why we can’t have nice things. Most of my liberal friends do not seem to understand situations like this. Some of them do, but still think we should give political institutions and politicians more power. I’m not sure which group scares me more.

  23. Gravatar of Rien Huizer Rien Huizer
    29. April 2012 at 17:31

    Scott, dwb, Benjamin,

    Mr Bernanke is not forced to to this job. The FOMC has a membership with a variety of views and doctrines; they are not the Chair’s subordinates and their position relative to their sponsors requires that they defend sponsor interests (there may be a conflict there). Add to that that
    1. the dual mandate lacks a coherent doctrine with the capacity for logical policy responses to events, or logical anticipation of predictable events. One reason I am in favour of NDGPLT (and especially level) is that it appears to be the only one that avoids prioritization of one objective over the other. In the absence of MM I would choose for inflation targeting and leaving employment and in general output to the dynamics of the markets (essentially assuming it follows a random walk; an approach consistent with Liberalism);
    2. The institutional structure of US governmental bodies tends to reflect the relative weaknesses of Federalism vs a centralized state: imbalances between responsibility and authority. The FOMC reflects a variety of constituencies, but those constituences fiffer from, eg the constituencies of House members, Senate members and Federal agencies also involved in the financial sector. FOMC members cannot afford to ignore constituent’s preferences and they cannot ignore the fact that they are involved in a team effort.
    3. The political cycle affects the interests of individual member constituencies heterogeneously and that adds further complication, since it leads to games entailing a time barrier (for instance, close to an election we do not want to afford Pres X any kind of stimulus while our candidate Y criticizes her performance, but after the election we want to go all out, something that some suspect to play a role currrently.

    With a clearer mandate these sociological/political issues would be less of a problem. This mandate and this structure may well be dysfunctional, but how did Volcker manage? And Greenspan’s period spanned many elections, two recessions. The ECB had an excellent solution: forget output and concentrate on the price level. And cap fiscal policy space. Unfortunately, the ECB has become a victim of constituent’s fractional interests, resulting in poorly designed programmes that are unlikely to boost output (which is none of their business anyway) and will undermine the ECB, thus turning it into a tool of vulgar democratic politicians…

  24. Gravatar of Benjamin Cole Benjamin Cole
    29. April 2012 at 18:23

    Morgan-

    I do not think Bernanke will goose the economy to help Obama. He will wait until Romney is President, and then bow to pressure from the right to get aggressive.

  25. Gravatar of Morgan Warstler Morgan Warstler
    29. April 2012 at 18:34

    Benji, do you not understand hypothetical?

    good lord.

  26. Gravatar of Jim Glass Jim Glass
    29. April 2012 at 22:09

    Whatever happened to revealed preference theory? In short, judge him by his actions, not his speech – and we now have 3 years of very consistent action

    I think the point is that Bernanke is not the Fed nor the dictator of it. The actions of the Fed reveal the preference of its group leadership to not tolerate deflation but not be activist beyond that point, perhaps even to enjoy “opportunistic disinflation”. But Bernanke’s preferences may not map squarely on theirs.

    At least that’s the argument on Bernanke’s behalf.

  27. Gravatar of Jim Glass Jim Glass
    29. April 2012 at 22:14

    BTW, I just guest-opped a piece over at Marcus Nunes’ house.

    It is fascinating to compare the reaction in 1984 of the Reagan White House to perceived too-tight money—a full-on declaration of war against the Fed—and the myopic mincing about of Team Obama.

    Fair point overall — but remember that Volcker in his autobiography praised Reagan for giving him a free hand to do what it would take to break inflation, very much out of character with other presidents in Volcker’s opinion, saying he (RR) would take the heat from his own side and operating team as well as from the opposition. PV said RR, an economics major in college, was no economist but knew right from wrong on the issue. PV also related a whole lot about opposition from Reagan’s own staff and the Republicans to the tight money, especially re the off-year election, but the message from their boss gave him the security to do what it took.

    The difference with Team Obama remains striking, even more so. There’s no sign of Obama even knowing right from wrong in all this, much less showing any character in choosing between them.

  28. Gravatar of Full Employment Hawk Full Employment Hawk
    29. April 2012 at 22:57

    “Morgan–I don’t think Bernanke is in Obama’s camp.”

    Right on! Bernanke is a Republican who served in the Bush administration. The more plausible hypothesis is that he wants Romney to win.

    A very plausible explanation of what Bernanke is currently doing is that he wants to help Romney, but not be suspected of doing so. So he intentionally makes the economy grow as slowly as he can without causing people to suspect that is what he is doing. According to Friedman’s Methodology of Positive Economics, the above theory is a good theory because it predicts the observed behavior very well.

    One question that needs to be asked is “If McCain were up for reelection, would Bernanke make the economy grow more rapidly?” I strongly suspect that he would. If Romney wins we will have an empirical test of this. I would conjecture that if Romney wins Bernanke will pursue a more expansionary monetary policy.

    Obviously I definitely do not wish this test to take place.

  29. Gravatar of Morgan Warstler Morgan Warstler
    30. April 2012 at 04:22

    FEH,

    again, good lord, we are ALSO able to play out the same hypothetical for Romney.

    I’d suggest that means doing NO easing of any kind between now and Nov.

    —–

    Those who fear hypotheticals are not to be trusted.

  30. Gravatar of Full Employment Hawk Full Employment Hawk
    30. April 2012 at 05:36

    “I’d suggest that means doing NO easing of any kind between now and Nov.”

    Morgan:

    The problem with that is that no easing of any kind is likely to make a significant number of observers suspect, or even conclude, that Bernanke is trying to help Romney,something Bernanke definitely does not want. My conjecture is that, if the hypothesis that he is trying to help Romney is correct, he will let the economy grow just enough so that no significant number of people will suspect that he is helping Romney, but no more than that. This will require some easing but not enough to have a significant effect on the unemployment rate.

    This makes it difficult to develop a sharp test of the hypothesis.

    If Bernanke eases after the election, that will be evidence that this is what he was doing. This will be obvious if he eases if Romney wins. But even if he eases after Obama has won it will be evidence. Having failed to bring down Obama, Obama will be in a position to decide whether or not to reappoint him, so he will have a strong incentive to not alienate Obama.

  31. Gravatar of ssumner ssumner
    30. April 2012 at 05:41

    Bill, What makes you think he is “in charge” of the Fed? The news articles I read suggests that he has been frustrated by the attitudes of other Fed members. If he really was in charge, why would he care at all what the Richard Fishers think?

    dwb, I agree.

    FEH, I agree the Fed is treating 2% more like a ceiling.

    Morgan. Now.

    Kevin. Link please?

    Ben, I just thought of a good title for a post. Instead of “Let Reagan be Reagan” it would be “Let Obama be Reagan.”

    Very good post.

    AFG, Don’t forget that the market monetarists were the first to push aggressively for monetary stimulus, the Keynesian piled on later, when it was clear that fiscal stimulus was not enough.

    Marcus, I agree with all 4 points.

    Cassander, I agree, but nonetheless still believe that gradual progress is possible. Ultimately we need to let the markets determine the money supply and interest rates, not the Fed.

    Rien, I strongly agree with your point 1. Regarding point two, I don’t see any correlation between the votes of FOMC members and the best interests of their districts. If anything the opposite. Those in high saving areas like Boston seem to vote more dovish.

    Jim Glass, Those are very good points.

    FEH, You said;

    “I would conjecture that if Romney wins Bernanke will pursue a more expansionary monetary policy.”

    Policy tends to be procyclical, so I expect a more exapansionary policy regardless of who wins.

  32. Gravatar of Mike Sax Mike Sax
    30. April 2012 at 05:48

    Got to admit Scott you’ve give us the most charitable while still at least somewhat plausible explanation of Bernanke’s comments yet.

    For more: Hope you had a good weekendl! Sumner explains Bernanke http://diaryofarepublicanhater.blogspot.com/2012/04/sumner-explains-bernanke.html

  33. Gravatar of flow5 flow5
    30. April 2012 at 06:33

    StatsGuy

    “new workers enter the work force with high-rate debt on low-value degrees”

    Congress should have only granted loans for those curriculums that had the biggest payback to the U.S. economy. If Congress can pass ObamaCare then it should be able to foster legislation which would actually contribute to our productivity.

    To reduce both the rate of unemployment and the rate of inflation is to acceptable levels requires fundamental structural changes in our product and labor markets. Some contribution to solving the problem of marginal unemployment could be achieved through measures that would increase the necessary qualifications of the labor force and that would produce a SPEEDIER MATCHING OF WORKERS & JOBS.

  34. Gravatar of Kevin Johnson Kevin Johnson
    30. April 2012 at 09:14

    In response to:
    > On Monday’s Bloomberg Surveillance, PIMCO’s Neel Kashkari says “…the Federal Reserve is pursuing a policy to increase nominal GDP growth…” (at 1:55).

    Scott wrote:
    > Kevin. Link please?

    Here’s the link:
    http://www.bloomberg.com/news/2012-04-23/pimco-s-kashkari-says-fed-will-tolerate-inflation-audio-.html

    (I tried to post the link in an immediate follow-up post but the second post wouldn’t appear)

  35. Gravatar of TheMoneyIllusion » Krugman on NPR TheMoneyIllusion » Krugman on NPR
    30. April 2012 at 10:01

    [...] someone finds a transcript I’d be glad to correct the quotation.  This reminded me of what I wrote just yesterday: Without the criticism of Bernanke from us market monetarists, and without the criticism of [...]

  36. Gravatar of Full Employment Hawk Full Employment Hawk
    30. April 2012 at 22:35

    “so I expect a more exapansionary policy regardless of who wins.”

    I also expect a more expansionary monetary policy even if Obama wins. Bernanke, having failed to defeat Obama, has to deal with the reality that Obama will be in a position to decide whether to reappoint him for another 4 years.

    But Obama will be making a big mistake if, after Bernanke almost caused him to lose the election, he appoints him again.

    In any case I cannot read Bernanke’s mind and know what his objectives are, but his actions look consistent with the hypothesis that he is doing all he can to help Romney without drawing people’s suspicion that that is what he is doing.

    In any case, since Bernanke is a Republican who served in the Bush adminstration, why would anyone think he is trying to help Obama?

  37. Gravatar of ssumner ssumner
    2. May 2012 at 07:20

    Thanks Mike.

    Kevin, Thanks, and check out my new post on Evans.

    FEH, Bernanke won’t be re-appointed, according to what I hear.

    Am I correct in assuming that if the Senate filibusters Romer in 2014, then Yellen will be the new Fed chair?

  38. Gravatar of » Bernanke and the Batman Money For People » Bernanke and the Batman Money For People
    4. May 2012 at 08:55

    [...] Sumner wrote the other day about how elevated criticism of Bernanke from the “left” (and the monetarist [...]

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