What would blogger Bernanke have said in 2009?

Ben Bernanke has started a new blog.  That’s obviously good news.  At the same time I can’t help wondering what Bernanke would have blogged about in 2009, had he not been at the Fed.  In posts here and here I discuss a 1999 paper that is highly critical of the BOJ monetary policy, and pretty close to 100% market monetarist in its analysis. Here are a few examples, but read the entire two posts:

I do not deny that important structural problems, in the financial system and elsewhere, are helping to constrain Japanese growth. But I also believe that there is compelling evidence that the Japanese economy is also suffering today from an aggregate demand deficiency. If monetary policy could deliver increased nominal spending, some of the difficult structural problems that Japan faces would no longer seem so difficult.  (italics added.)


The argument that current monetary policy in Japan is in fact quite accommodative rests largely on the observation that interest rates are at a very low level. I do hope that readers who have gotten this far will be sufficiently familiar with monetary history not to take seriously any such claim based on the level of the nominal interest rate. One need only recall that nominal interest rates remained close to zero in many countries throughout the Great Depression, a period of massive monetary contraction and deflationary pressure. In short, low nominal interest rates may just as well be a sign of expected deflation and monetary tightness as of monetary ease.  (Italics added.)

Not much time today; I’ll have lots more to say later.  I do regret the snarky tone of these two early posts.  When I started blogging I didn’t fully appreciate the restrictions imposed on a Fed chair.



31 Responses to “What would blogger Bernanke have said in 2009?”

  1. Gravatar of David Pinto David Pinto
    30. March 2015 at 06:11

    It would be nice if Bernanke’s blog had an RSS feed.

  2. Gravatar of marcus nunes marcus nunes
    30. March 2015 at 07:07

    And this was what he said in 2008:

  3. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    30. March 2015 at 07:35

    Ben’s off to a poor start;


    ‘The Fed’s actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere. So where should that be? The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate. There is absolutely nothing artificial about that! Of course, it’s legitimate to argue about where the equilibrium rate actually is at a given time, a debate that Fed policymakers engage in at their every meeting.’

    As I told him, Milton Friedman and I say the Fed does NOT ‘set’ interest rates. It only influences them around a narrow range, and in the short run.

  4. Gravatar of Anand Anand
    30. March 2015 at 07:53

    Please keep the snark coming. Being “respectful” to people in authority is not a good thing. It doesn’t matter whatever Bernanke did as Fed chairman was under “pressures”: the only thing which matters is that he did them (good and bad things). Of course Bernanke is no longer Fed chair, so the tone now could change.

    If one doesn’t criticize someone for living up to his own prescriptions, what is the point of having a scholar of the Great Depression as Fed Chairman? Might as well put in some schmuck instead.

    Moreover, people like to read those speaking the unvarnished truth (as the writer see it). I know I do. It also makes for more entertaining reading. I doubt I would read a blog where everything is qualified by “on-the-other-hand”.

  5. Gravatar of Ray Lopez Ray Lopez
    30. March 2015 at 08:13

    @Patrick R. Sullivan – are you prominent? You imply you are on the same footage as Friedman, which in my mind is not such a big deal but others might disagree. BTW I fully share your views on the weak powers of the Fed. I was not always that way about the Fed, and used to believe the conventional wisdom that they have far-reaching powers, but I changed my views based on the evidence.

    @Sumner – “I do regret the snarky tone of these two early posts” – don’t be. Let’s face it, you’re an opinionated, bombastic, confirmation bias loon talking his book, and that’s why we readers “love you”. Don’t change; please keep up the good work.

  6. Gravatar of Michael Byrnes Michael Byrnes
    30. March 2015 at 08:46

    I liked this debut post. I hope he has lots more to come.

    Patrick Sullivan is absolutely right. My guess is that Bernanke was just oversimplifying but I wish he hadn’t. It is such an important point.

  7. Gravatar of benjamin cole benjamin cole
    30. March 2015 at 09:20

    Bernanke did have to contend with an FOMC with some full-on tight-money lulus, and a huge staff of economists whol told him in 2008 (it is in transcripts) that unit labor costs would rise at 2% a year.
    Instead, unit labor costs have risen by 1.4% since 2008. No, that is not annually compounded, that is it.
    I said then the Fed should print more money, really let it rip. I say it now. it is reasonable to ponder whether an open economy such as that of the United States—which can import capital, services, labor, goods, equipment—can experience demand-pull inflation. It would be fun to find out.

  8. Gravatar of Brett Brett
    30. March 2015 at 09:43

    You totally need to petition him to do a post on NGDP level targeting.

  9. Gravatar of Adam Adam
    30. March 2015 at 11:04

    I’d rather read why the Fed has been so accepting of below target inflation since 2008.

  10. Gravatar of ThomasH ThomasH
    30. March 2015 at 14:52

    Both quotes could have non-MM interpretations.

    The first does not say that monetary policy CAN deliver higher nominal spending which I think MM would claim it can

    The second may be taken to mean that real rates not nominal rates are important with the implication that the Fed cannot affect real rates.

  11. Gravatar of ThomasH ThomasH
    30. March 2015 at 14:57

    I’d like to see him discuss the political constraints that prevented the Fed from more aggressive policy that actually aimed at a 2% inflation target and not a 2% inflation ceiling.

  12. Gravatar of Major.Freedom Major.Freedom
    30. March 2015 at 17:39

    “When I started blogging I didn’t fully appreciate the restrictions imposed on a Fed chair.”

    Really no excuse for that lack of appreciation, because on multiple occasions over the years I have explained that the Fed works for the banks and government, not “Main Street”.

    No excuse. You can claim that those pressuring the Fed chair are theoretically wrong, but that has no bearing on the above.

  13. Gravatar of ssumner ssumner
    30. March 2015 at 19:14

    Marcus, I seem to recall you were the one who first discovered the 1999 Bernanke paper.

    Thomas, Read the two posts I linked to. It’s 100% clear that Bernanke had a very MM view of Japan back in 1999. He was contemptuous of the argument that they were out of ammo. I didn’t have time to do justice to his earlier views this morning, as I had to rush to DC to try to spread the good news about NGDP targeting.

  14. Gravatar of Ray Lopez Ray Lopez
    30. March 2015 at 21:13

    There is no Fed. The Fed is dead. Sumner is performing a magicians trick on you people, who are fooled by randomness. And it’s not some crazy ‘internet Austrian’ saying this, it’s among others a 2011 Nobel Prize in Economics winner, C. Sims. Read the below, well worth it. Behavioral economics backed by statistics. The man won a Nobel for his work. Do you believe him or Sumner? Duda are you reading this? Others?

    What Does Monetary Policy Do? ERIC M. LEEPER (Indiana University) CHRISTOPHER A. SIMS (Yale University, Winner of the 2011 Nobel Prize in Economics) TAO ZHA (Federal Reserve Bank of Atlanta) P. 17 “Part of the strength of the view that monetary policy has been an important generator of business cycle fluctuations comes from certain patterns in the data, apparent to the eye. For example, as figure 1 shows, most postwar recessions in the United States have been preceded by rising interest rates. If one therefore concludes that most postwar reces- sions in the United States have been preceded by periods of monetary tightening, the evidence for an important role of monetary policy in generating recessions seems strong. While it can be shown that one variable leading another in timing is neither a necessary nor a sufficient condition for its being predetermined in a bivariate system of the form of equation 1, it is often assumed, probably correctly, that the two conditions are at least likely to occur together; so a graph like this influences beliefs about the effects of monetary policy. But a little reflection turns up problems of interpretation-identification problems-that are pervasive in this area. In general, interest rates were rising from the 1950s through the 1970s, but interest rates fall sharply after business cycle peaks. How much of the pattern that strikes the eye comes simply from the rising trend interacting with the post-peak rate drops? The only cyclical peak that is not preceded by an increase in interest rates is also the only peak since the early 1980s- that is, the only one to occur during a period of generally declining interest rates. Interest rates are cyclical variables. A number of other variables show patterns like that in figure 1. For example, the producer price index for crude materials (PCM), shown in figure 2, presents a pattern very similar to that in figure 1 for the period since 1960, if anything, with more clearly defined cyclical timing. In order to control inflation, monetary policy must set interest rates systematically, react ing to the state of the economy. If it does so, then whether or not it influences real activity, a pattern like figure 1 could easily emerge. In what might be regarded as an early real business cycle model,James Tobin showed that the timing patterns that monetarists had been documenting in order to support models in which monetary policy contributes to generating cycles could also emerge in a model in which monetary policy plays no such role.”

  15. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    31. March 2015 at 02:21

    I think your argumento favors looking at NGDP as opposed to interest rates …

  16. Gravatar of Scott Sumner Scott Sumner
    31. March 2015 at 04:58

    Ray, Tobin’s partly right about the money business cycle correlations, which is why I’m not a monetarist, but rather a market monetarist.

    Please find me some papers that say NGDP shocks don’t impact RGDP, as I’m rapidly losing interest in your non-funny, excessively long, and clueless posts.

  17. Gravatar of Ray Lopez Ray Lopez
    31. March 2015 at 05:54

    Sumner: “Ray, Tobin’s partly right about the money business cycle correlations, which is why I’m not a monetarist, but rather a market monetarist.” (Nice dodge…in computer science this is known as “security by obscurity”–just change your feathers when the heat is applied).

    Sumner: “Please find me some papers that say NGDP shocks don’t impact RGDP, as I’m rapidly losing interest in your non-funny, excessively long, and clueless posts.” – I’m not here to entertain you, just to keep you from losing my family’s hard earned or otherwise money. It’s people like you who start revolutions. Well intentioned, but clueless. In fact, here’s a blog post that rebuts your entire ‘NGDP shocks cause RGDP shocks’ *hypothesis*, from the Head of Emerging Markets Research at Danske Bank: http://marketmonetarist.com/2014/05/10/the-monetary-transmission-mechanism-causality-and-monetary-policy-rules/ (“Old-school monetarists like Milton Friedman were basically saying the same thing [as Scott Sumner]”).

    If you read this Danske Bank chief post critically, it attempts to rehabilitate Sumner somewhat, but fails to show why Sumner’s NGDPLT scheme is anything other than data mining. The singular example of Sumner’s success is apparently Israel post 2008. Under central banker S. Fischer, apparently the Israeli economy weathered the Great Recession a wee bit better than other countries. This however is hardly a compelling reason to try Sumner’s radical NGDPLT proposal, as Israel could be simply a data mining artifact. For example, data from the World Bank on Google for GDP by year shows S. Korea and Australia also had small GDP shocks in the Great Recession, and recovered as nicely as did Israel. Also this paragraph: “This causality [of NGDP changes will cause a drop in real GDP growth, assuming sticky prices] was what monetarists in the 1960s, 1970s and 1980s were trying to prove empirically” [and failed].

    As for long posts, it’s the fault of your WordPress based blog. Switch to Simple Machines forum software and you can even filter my name so you don’t have to read anything I post (your loss).

  18. Gravatar of Daniel Daniel
    31. March 2015 at 06:43

    Gresham’s law applies to internet comment sections, as well as money.

    Perhaps a judicious use of the ban-hammer is called for.

  19. Gravatar of Bob Murphy Bob Murphy
    31. March 2015 at 09:11

    I thought you guys should know that I credit Scott when it’s due. (It also helps if it involves criticism of Brad DeLong.)

  20. Gravatar of TravisV TravisV
    31. March 2015 at 11:21

    Warren Buffett: If I were in charge of monetary policy, ‘I probably wouldn’t do much’


    What exactly does it mean to “not do much”? Hmmmm…..

    By the way, Buffett has noted the remarkable stability of the recovery many times. If only Buffett could connect that with the remarkable stability of NGDP growth…..

  21. Gravatar of TravisV TravisV
    31. March 2015 at 11:33

    Wow, that new Brad DeLong column Bob Murphy linked to above is shocking!

    Does anyone know whether DeLong agrees with Krugman about the following (which to me illustrates that Krugman is a Market Monetarist):


    “Beckworth offers as an example of how it should be FDR’s exit from the gold standard, which was expected to “” and actually did “” signal a permanent increase in the monetary base. Indeed, if you want to get monetary traction at the zero lower bound, that’s how to do it.”

  22. Gravatar of Steve Steve
    31. March 2015 at 11:35

    Warren Buffett: “Ideally we would have a progressive consumption tax.”

  23. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    31. March 2015 at 13:07

    J. Bradford is one of my favorite people for, if nothing else, his stupendous self unawareness. He ends his book review with;

    ‘The result was a host of policies based not on evidence, but on inadequately examined ideas. And we are still paying the price for that intellectual failure today.’

    Like the ideas behind the Clinton Admin’s housing initiative (which occurred partly during DeLong’s tenure as a Deputy Asst’ Treasury Sec’y under Lloyd Bentsen)?

  24. Gravatar of TravisV TravisV
    31. March 2015 at 13:51

    David Glasner just wrote a post on DeLong’s column. If you Google, Glasner’s post is titled “Milton Friedman, Monetarism, and the Great and Little Depressions”.

  25. Gravatar of Donald Pretari Donald Pretari
    31. March 2015 at 16:14

    Yeah, I’ve been saying the same thing since 08, not just since 2010. I still stick by everything I wrote back then. It’s amazing to read old comments. I’m especially pleased that my favorite blogs have not only survived, but thrived, as they justly deserved to. And I don’t see economic blogging dying or becoming irrelevant.

  26. Gravatar of Ray Lopez Ray Lopez
    1. April 2015 at 06:52

    OT–Why Sumner hates me, LOL. Carnival of ideology. Won’t surprise me if Sumner bans me and MF someday. Paper by Bordo and Schwartz, IS-LM AND MONETARISM (2003): “Instead of directing his criticisms to the shorthand version of the General Theory (1936), represented by IS-LM [from Hicks], Friedman directly attacked the thinking on which the book was based. For Friedman, the gist of Keynes was that money did not matter. Keynes believed that any change in the supply of money in the main would be offset by a change in velocity. Thus he regarded the quantity theory equation in its Cambridge cash-balance version, M = kPY, to be valid as an identity but useless for policy or for predicting short-run fluctuations in income, which Keynes treated as if there were no difference between nominal and real income.”

  27. Gravatar of TravisV TravisV
    1. April 2015 at 13:55

    Anyone else concerned that the 10-year treasury yield has fallen lately to 1.86%?

  28. Gravatar of Major.Freedom Major.Freedom
    1. April 2015 at 21:51

    What would Bernanke the blogger have said in 2009?

    Well, assuming present day blogging Bernanke is the same as the 2009 Fed chair Bernanke, he would have said this:

    “The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate. There is absolutely nothing artificial about that! Of course, it’s legitimate to argue about where the equilibrium rate actually is at a given time…”

    “The state of the economy, not the Fed, is the ultimate determinant of the sustainable level of real returns. This helps explain why real interest rates are low throughout the industrialized world, not just in the United States. What features of the economic landscape are the ultimate sources of today’s low real rates? I’ll tackle that in later posts.”


    And let’s see what is in those later posts that will explain Bernanke’s supposed “actual beliefs” shall we?

    “My greatest concern about Larry’s formulation [MF: meaning Summers’ secular stagnation hypothesis which is predicated on insufficient domestic aggregate demand], however, is the lack of attention to the international dimension. He focuses on factors affecting domestic capital investment and household spending. All else equal, however, the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home.”


    “Putting all this together, the global savings glut hypothesis remains a useful perspective for understanding recent developments, particularly the low level of global interest rates.”


    And poof goes Sumner’s attempt to rewrite history as Bernanke being a closeted Market Monetarist.

    Too bad Sumner played his chips with a hand composed of appeals to authority.

    Now what? Bernanke the blogger is quite clearly claiming that the BEST Fed policy is setting short term interest rates closest to the natural rate, which is exactly what Sumner has spent years trying to claim is not Bernanke’s real view but was only pressured into saying it and abiding by it, and that his actual view for optimal Fed policy is stabilizing domestic aggregate demand.

    I won’t have this problem, ever, because I don’t need to misrepresent other people’s views in order to promote my own views. Sumner clearly does misrepresent other’s views, and in this case he misrepresented the views of a former Fed chair.

    Let this be a lesson ladies and gents.

  29. Gravatar of Major.Freedom Major.Freedom
    1. April 2015 at 22:10

    Also look at what Bernanke wrote in his very first blog post:

    “A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates “artificially low.” Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by “the markets.” The Fed’s actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere.”

    I have been saying exactly this for quite some time on this blog, that the Fed cannot NOT determine interest rates because of the fact that interest rates are determined in part by the very activity the Fed engages in with its OMOs.

    I always knew it was absurd to believe that the Fed merely looking away from interest rates and towards NGDP instead, is somehow the same thing as the Fed not determining interest rates but rather “the market.”

    In that one paragraph, Bernanke just let the cat out of the bag that the Fed makes capitalism (which of course includes market determined interest rates) impossible.

    And people had the gall on this “economics” blog to ponce on my use of the phrase “socialist” to describe our monetary system?

    How can we have capitalism without market determined interest rates? The answer is we cannot.

    Every criticism from Keynesians to Monetarists about the alleged flaws of capitalism that the last 100 years of history have allegedly borne out has been one gigantic straw man the size of the wicker man.

    Constantly we have been told by Sumner that “the Fed should target NGDP and leave interest rates to the market.”

    I said right away that is impossible as long as the Fed exists. And what did I get? Loud mouths and arrogant sheep playing game of thrones political hackery.

    I guess Sumner is now going to have to start distancing himself from the Bernank. He’s clearly “insane” as defined by Sumner.

  30. Gravatar of Major.Freedom Major.Freedom
    1. April 2015 at 22:25

    Lesson #1:

    You are not any worse off by advocating for an ethic that nobody follows but is good, and you are no better off for advocating for an ethic that everyone follows but is bad.

    One need not “participate in history” by way of aligning one’s active mind to prevailing political or economic conditions. You don’t “win” anything by communicating a moral or intellectual support yesterday for what occurs today.

  31. Gravatar of ssumner ssumner
    2. April 2015 at 17:16

    Ray, Lars would find it pretty funny that you think his post refutes MM, given that Lars was the very first market monetarist, indeed he invented the name.

    TravisV, The fact that people think the term “not doing much” has any sort of coherent meaning, pretty much tells you why we had the Great Recession.

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