Nice guys finish in the middle of the pack

Here’s a thought: Was Ben Bernanke the most powerful “nice guy” in all of world history?  Not all powerful people are as egotistical as Trump, or as ruthless as Nixon, but as far as I can tell nice mild-mannered college profs are almost never put in positions of great power.  The world really is a pretty brutal place.

There is much to say about Bernanke’s memoir, so I’m splitting this up between TMI and Econlog.  And I’ll skip the banking crisis, which is where Bernanke focuses most of his narrative.  Eric Posner says he was authorized to bail out both Bear Stearns and Lehman.  George Selgin says he lacked authorization (at least on Bagehotian grounds) for bailing out either bank. Bernanke says he was authorized to bail out Bear Stearns, but not Lehman.  And I’m not qualified to have an opinion.  So I’ll focus on monetary policy, something I do know a little bit about.

There is one big mystery that us policy nerds wanted answered in the memoir, and I did not find an answer.  This is from a paper by Lawrence Ball, a highly respected macroeconomist:

The analysis starts with a puzzle about Ben Bernanke. From 2000 to 2003, when Bernanke was an economics professor and then a Fed Governor (but not yet Chair), he wrote and spoke extensively about monetary policy at the zero bound. He suggested policies for Japan, where interest rates were near zero at the time, and he discussed what the Fed should do if U.S. interest rates fell near zero and further stimulus were needed. In these early writings, Bernanke advocated a number of aggressive policies, including targets for long-term interest rates, depreciation of the currency, an inflation target of 3-4%, and a money-financed fiscal expansion. Yet, since the U.S. hit the zero bound in December 2008, the Bernanke Fed has eschewed the policies that Bernanke once supported and taken more cautious actions-primarily, announcements about future federal funds rates and purchases of long-term Treasury securities (without targets for long-term interest rates).

A number of economists have noted the difference between recent Fed policies and Bernanke’s earlier views- usually critically. In discussing one of Bernanke’s early writings on the zero bound, Christina Romer says “My reaction to it was, ‘I wish Ben would read this again'” (quoted in Klein [2011]).

Paul Krugman (2011b) asks “why Ben Bernanke 2011 isn’t taking the advice of Ben Bernanke 2000.” In criticizing Fed policy, Joseph Gagnon echoes Bernanke’s criticism of the Bank of Japan: “It’s really ironic. It’s a self-induced paralysis” (quoted in Miller, 2011).

That’s also my view, and I think it misses an even bigger issue, level targeting. Bernanke recommended the BOJ consider level targeting to make up for previously falling short of the inflation target. Level targeting can be seen as the justification for a higher inflation target in Japan, one of Bernanke’s ideas that Ball did mention.

I have a hard time believing that Bernanke is not aware of this paper, which contains lots of fascinating information, and the view out there that his views moderated after he became Fed chair.  But he doesn’t really give us an answer in the memoir, particularly for the 2003 meeting that Ball insists was pivotal:

Sections IV-VI review the broader evolution of Bernanke’s views. I find that they changed abruptly in June 2003, while Bernanke was a Fed Governor. On June 24, the FOMC heard a briefing on policy at the zero bound prepared by the Board’s Division of Monetary Affairs and presented by its director, Vincent Reinhart. The policy options that Reinhart emphasized are close to those that the Fed has actually implemented since 2008; Reinhart either ignored or briefly dismissed the more aggressive policies that Bernanke had previously advocated.

In the discussion that followed the briefing, Bernanke joined other FOMC members in agreeing with most of Reinhart’s analysis.

Shortly after the meeting, Bernanke began writing papers that took positions very close to Reinhart’s-some with Reinhart as a coauthor. Clearly, the analysis of the Fed staff in 2003 was critical in changing Bernanke’s views about the zero bound.

At first glance, Bernanke’s sharp change in views is surprising. In 2003, he was a renowned macroeconomist who had studied the zero-bound problem extensively and expressed strong views about it. Yet he quickly accepted a different set of views when Reinhart presented them.

Why did the positions of the Fed staff influence Bernanke so strongly?

This question is difficult to answer, as we can’t observe Bernanke’s thought processes. Yet we can develop hypotheses based on research by social psychologists, who study group decisionmaking.

Based on this research, Section VII suggests two factors that may help explain Bernanke’s behavior. The first possible factor is “groupthink” at the FOMC, a tendency of Committee members to accept a perceived majority view rather than raise alternatives that might be unpopular.

The second is Ben Bernanke’s personality, which is typically described as “quiet,” “modest,” and “shy”- traits that might make him unlikely to question others’ views.

As I general rule, I feel somewhat uncomfortable looking for psychological explanations.  And in the end I’m going to defend Bernanke, or at least 80% defend him from the charge that he caved in to the FedBorg.  But first I’d like to push ahead with this line of thought.

What are we to make of the fact that Bernanke’s memoir doesn’t explain this 2003 turnabout?  One possibility is that he’s embarrassed, and would just as soon cover up what happened.  But I don’t think that is correct.  The memoir is often brutally honest, and there are cases where he blames himself for things that (in my view) he should have blamed others.  He’s too hard on himself.  Furthermore, I believe that a close reading of the text provides a more nuanced interpretation of what when on.

Here’s my reading:

1.  Bernanke came to the Fed with lots of ideas about how policy could be improved. He also had lots of ideas about the appropriate policy process—which he thought should be more collegial, less dictatorial than under Volcker and Greenspan—more like a college committee.

2.  Bernanke quickly found out that the Fed is a very powerful institution, with a life of its own.  And it’s embedded in a difficult and highly complex policy environment in Washington.

3.  Bernanke felt that policy was most effective if credible, and that meant you needed to avoid lots of close 6 to 5 votes.  You wanted enough support so that the markets would believe the Fed would carry through with its policies.

4.  In this difficult environment, Bernanke decided to pick his battles, and focus on implementing as many reforms as he could, given the political constraints.  BTW, in a book of very few revelations, the biggest comes near the very end, where he talks about the struggle to implement QE3.  There was intense pressure within the Fed to “taper”. Bernanke had to use all his political skills to keep it going throughout 2013. And where does Bernanke say this pushback came from?  Not Fisher, not Plosser, but rather the Obama appointees, Stein and Powell!  In the end they were team players that went along, but he knew he could only push them so hard.  If you don’t think Bernanke faced intense political pressure, just think about the fact that even the Obama appointees were highly skeptical of his monetary stimulus.  (Even weirder, the people he could rely on (Rick Mishkin, Don Kohn, etc.) were typically Bush appointees.)

5.  Bernanke decided to focus first on fixing the financial system, which was a mistake in my view.  The Fed (and Bernanke) sort of assumed that rescuing the banking system would rescue the macroeconomy.  By March 2009 they discovered that that assumption was wrong.  And it wasn’t just because of the rising unemployment, which is a lagging indicator.  Stocks kept plunging lower and lower, reaching levels that suggested fear of an outright depression.  And they are not a lagging indicator.  The recession was far worse than expected.  The big stock rally did not occur after banking was saved, it occurred after the Fed turned its attention to monetary stimulus, in March 2009 (i.e. QE1).  BTW, Bernanke mentions stock prices a lot in the memoir, which reminds me of my narrative of the Great Depression.

6.  In addition to implementing his academic research on the importance of saving the banking system, he also implemented some of his monetary research.  Most notably, he did QE and then he got the Fed to adopt an explicit 2% inflation target (a bit higher than some wanted.)  He got the Fed to try to reduce long term bond yields, by buying long-term bonds.  Then he got the Fed to commit to low rates for a long period.  And then low rates until the economy improved, and then QE that was open-ended, until the economy improved.  That’s a lot, and I wouldn’t blame Bernanke for being exasperated by critics like Ball, Krugman and yours truly.

7.  But . . . you knew there was a but.  He didn’t adopt the more controversial ideas, such as a higher inflation number, or level targeting, or NGDP target (perhaps combined with level targeting).  It would have been really hard to sell these controversial ideas to the Fed, they would have been highly controversial in Congress, and he didn’t want a badly split Fed implementing a policy that required credibility.  A policy that the markets would have to trust the Fed to persevere with.  Unfortunately, those more controversial ideas were the most effective options, indeed one reason they were so controversial is that they are quite powerful.

It might help if I put my views on Bernanke into perspective.  Here’s how I would grade some major central banks, and central bankers:

A:  Reserve Bank of Australia (with an easy test)

B:  Bernanke, Draghi, Carney, Kuroda

C:  Fed under Bernanke

D:  Pre-Kuroda BOJ, the ECB under Draghi

E.  Trichet, and ECB under Trichet

You might notice that in some cases I grade central bank heads higher than the institution they lead.  Bernanke was working very hard on the inside to push the Fed in a more dovish direction.  I’m not sure those of us on the outside appreciate how difficult his job was.  Ditto for Draghi.

Am I getting soft?  Hell no!  I’m just as critical of the Fed as before.  If they had been more supportive of Bernanke, policy would have been more expansionary.

Do I have any evidence to justify being such a softy regarding Bernanke?  First of all, I’m not that soft.  I regard his memoir as having fallen short in its monetary policy analysis.  He needed to point out more forcefully that the Fed should have done more. He admits to some mistakes, such as not easing policy in September 2008, but he should have said the policy regime was not up to the task of what needed to be done in 2008-09.  So I think being at the Fed did change him somewhat.  A Professor Bernanke looking at the Fed from the outside could have written a better narrative of what went wrong with monetary policy, and almost certainly would have had views similar to many of us who favored more “Rooseveltian resolve”.  But if I am grading him on the actual job he did, under the circumstances, I have to say that he worked really hard, and got an institution that was as stubborn as an old mule to do far more than the ECB, or some other central banks.

And finally, I have one powerful piece of evidence for giving Bernanke somewhat of a break.  No one can doubt the views of Janet Yellen.  She has always been extremely worried about unemployment.  She’s sided with the doves.  And yet now some consider her a hawk, given her recent statements on the likely increase in interest rates.  A theory that the FedBorg did some sort of mysterious brain transplant on Bernanke might be just barely credible.  But two consecutive brain transplants?  Much more likely the Fed is far more inertial than we on the outside tend to assume.

If Bernanke was not able to implement an appropriately stimulative policy, with all his vast qualifications as a Depression scholar, and his reputation as a dove on Japan, then we need to stop looking for perfect Fed chairmen and start thinking about a policy regime that makes massive and persistent demand shortfalls less likely.  A regime that makes the Chairman’s job as easy as in Australia.  I believe that regime is NGDP, level targeting.  But it will only happen AFTER the economics profession as a whole reaches a consensus that this is a sensible policy.  At Econlog I have some further thoughts on that issue, and on the memoir as a whole.

This post from a few years ago (based on a Marcus Nunes post) examines the Ball hypothesis in more detail.



43 Responses to “Nice guys finish in the middle of the pack”

  1. Gravatar of marcus nunes marcus nunes
    9. November 2015 at 06:56

    Scott, Yellen has not had a “brain transplant”. She´s the same old PC Yellen!

  2. Gravatar of benjamin cole benjamin cole
    9. November 2015 at 08:09

    There were also the regional Fed presidents on the FOMC, including Plosser and Fisher.

    Forgotten today is that Fed Chairman Paul Volcker was once out-voted by his own board, and had to relent for lower interest rates.

    I can see a Bernanke wanting to avoid that situation, in the even-more highly politicized environment he operated in.

    I think the Fed is deathly afraid of the right wing, and the possibility that central banking will be reduced to counting gold bars in a vault.

  3. Gravatar of Kevin Erdmann Kevin Erdmann
    9. November 2015 at 08:26

    The focus of so much attention on Bear and Lehman is like having a national policy of bloodletting patients who have the flu, then when the hospitals are full of people on death’s door, having a national debate about doctor assisted suicide.

  4. Gravatar of Ironman Ironman
    9. November 2015 at 08:26

    Scott – I wonder if you could clarify the timeline for QE1 discussions, namely:

    The big stock rally did not occur after banking was saved, it occurred after the Fed turned its attention to monetary stimulus, in March 2009 (i.e. QE1).

    From contemporary news sources, it would appear that the precipitating factor behind the stock market rally after bottoming on 9 March 2009 was China’s announcement for how it would deploy its massive 4 trillion yuan stimulus plan.

    The first time we see a mention of QE becoming actual policy wasn’t until 18 March 2009:

    Was there an earlier announcement that directly coincides with the timing of when the rally began?

  5. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    9. November 2015 at 08:27

    I think your analysis of what happened at the Fed during Bernanke’s tenure is very plausible. Still, it’s disappointing that Ben Bernanke, scholar, didn’t honestly tell us what Ben Bernanke, politico-central banker, had to do.

  6. Gravatar of Bonnie Bonnie
    9. November 2015 at 10:34

    If you could point out to me where Bernanke admits that not lowering rates in September 2008 was a mistake I’d appreciate it. I see where he talks about fighting the hawks to keep them from raising interest rates at the September meeting, pg 257-8, but that, at least to me, does not translate to the idea that not lowing rates was a mistake.

  7. Gravatar of Kevin Erdmann Kevin Erdmann
    9. November 2015 at 10:57

    “about fighting the hawks to keep them from raising interest rates at the September meeting, pg 257-8”

    Oh, good Lord.

  8. Gravatar of Danny Kahn Danny Kahn
    9. November 2015 at 11:14

    As you’ve been in the past you’re far too soft on Bernanke here. You’ve always parsed his statements favorably, interpreting them for signs that he “got it” and was sympathetic to Market Monetarist ideas and you were right to do so. But that is quite damning for the Fed’s performance under Bernanke. He flatters himself with the title of his memoir, “The Courage to Act”, but I see mostly cowardice. Willingness to do just enough to prevent disaster, but not the policies that would actually be effective. How did Stein and Powell end up on the FOMC at all? They were clearly mostly an afterthought, as those seats sat vacant for a long time. Why didn’t Bernanke lobby Obama to appoint people that would have been allies for him and with urgency?

    Kuroda has demonstrated that it’s far more important to have the correct policies than to keep the committee unified, but Bernanke did not have the courage to divide the committee, to publicly chastise the hawks for their ignorance and illogic. So in this case at least I think a chair with the forceful personality aspects of a Greenspan or Summers would have been beneficial.

    Lastly, it does not speak well of him that he was unable to persuade more members and staff of the merits of his more dovish views. The data and the policy experiments alone persuaded Kocherlakota. Thanks to your tireless advocacy and that of other MMs some big names endorsed NGDPLT and that was back in 2011. You’d think Bernanke could have at least gotten support for price level targeting or made more of an effort to hit the 2% target. But yes, he was better than many of his peers.

  9. Gravatar of marcus nunes marcus nunes
    9. November 2015 at 12:02

    @ Bonnie, Kevin
    At the June 08 FOMC transcrits we read that “the next move in rates will likely be up”!

  10. Gravatar of jknarr jknarr
    9. November 2015 at 13:01

    Or, as frequently happens in American politics, when officials get on the “inside”, they find out that their former outsider solutions do not apply. The outside perspective is incorrect, in short.

    Why do we care what they say, anyway? They are running a very consistent, very tight monetary policy alongside loose fiscal policies. Why is this difficult to accept? It’s been in place since Volcker. It’s right in front of your nose.

    The stranger thing to do is to spin your wheels wondering over the difference between actions and words. Actions speak, words mislead.

  11. Gravatar of Kevin Erdmann Kevin Erdmann
    9. November 2015 at 13:35

    Oh, I know, Marcus. It’s just shocking to think about how the horrible position they ended up taking that day came after they were talked down from their original intentions.

  12. Gravatar of Steve Steve
    9. November 2015 at 13:57

    “How did Stein and Powell end up on the FOMC at all?”

    Danny Kahn,

    Stein was Obama’s basketball buddy, and Powell was the token Republican allowing both to get Congressional approval.

  13. Gravatar of Steve Steve
    9. November 2015 at 14:04

    “then we need to stop looking for perfect Fed chairmen”


    You are unwittingly making the case for someone like Larry Summers.

    If the Fed is a politically ossified institution, overtaken by institutional imperative, then you need a chairman with the chutzpah and gravitas to shake things up. A shrinking violet academic like Bernanke or Yellen doesn’t do that.

    There’s no free lunch though. Summers might do something dumb, whereas Bernanke/Yellen would fail to do something smart.

  14. Gravatar of E. Harding E. Harding
    9. November 2015 at 14:08

    I’d replace Draghi with Trichet in that ranking:

    -Do you see any sign of excessive ECB tightness here? The ECB has an inflation target of close to and below 2% inflation, not an NGDP target. Considering that, the ECB performed more than fine under Trichet. Inflation averaged just over 2% throughout his time as President of the ECB, and was over 3% when he exited office! Not exactly a sign of major tightness here!

    Even if Trichet had been a firm advocate of NGDP level targeting, he could hardly have persuaded the ECB to get any looser in monetary policy than it already was. The entire Eurozone has really sticky prices! If the ECB’s target didn’t account for that, then, as with Bernanke, it’s best to blame the target and the framework, not the officially slightly-too-loose policy implementation of that target!

  15. Gravatar of E. Harding E. Harding
    9. November 2015 at 14:47

    I also think Scott is too soft on Bernanke. Why did NGDP start falling below trend right when Bernanke came into office? Was there any other reason for this to happen other than Bernanke’s presence and Greenspan’s absence? And I’m really intrigued by Scott’s claim that Greenspan would have been far worse at Bernanke at handling the crash. I strongly suspect Greenspan’s statements after his departure as Fed Chair do not at all reflect what he did or would have done when Fed Chair. Marcus Nunes points out, for example, that Greenspan admitted to effectively NGDP targeting in the 1990s, but refused to admit it after his departure as Fed Chair.

  16. Gravatar of Vaidas Urba Vaidas Urba
    9. November 2015 at 15:15

    Scott, in 2008 Trichet’s policy was much better than Bernanke’s. Trichet kept rates somewhat closer to the natural rate than Bernanke, Trichet did not let major banks fail without a safety net, and while Bernanke let dollar interest rates shoot through the roof after Lehman, it was Trichet who put a ceiling on them with his full allotment dollar auctions.

  17. Gravatar of Ray Lopez Ray Lopez
    9. November 2015 at 16:10

    This place is obnoxious, with all the ‘nice guys’ saying “amen” to everybody else’s groupthink. Disgusting. Bring back Greg Ransom.

    Sumner: “I have a hard time believing that Bernanke is not aware of this paper…” says the man who refuses to read Ben S. Bernanke’s 2003 FAVAR paper that discusses why the Fed is not all powerful, finding a mere (sorry MF) 3.2% to 13.2% affect of Fed policy shocks for the period 1959 to 2001 on a wide range of parameters, including GDP to 95% confidence. Sumner claims he does not trust such papers to be reproducible, though it deals with historical data, so barring a Rogoff-type math error it should be reproducible.

    Larger issue; why do I even post here? None of you are worthy of my presence.

  18. Gravatar of Scott Sumner Scott Sumner
    9. November 2015 at 20:28

    Marcus, But now she’s a hawk!

    Ben, Bernanke certainly liked there to be a consensus.

    Kevin, Good analogy.

    Ironman, That was also my perception at the time. The Chinese recovery was the first “Green shoot” of 2009. I think it reflected both monetary and fiscal stimulus in China. But QE1 also helped.

    Bonnie, Page 280.

    Danny, I agree that it would have been better if Bernanke had a strong personality. But I would not argue the opposite, that a strong personality is a desirable feature of the job, as it would mean that mistakes by the Chair could have a catastrophic effect. Greenspan would have been a complete disaster in 2008. I agree with you only because in this particular case the Chair was smarter than the committee.

    He worked hard persuading committee members and often succeeded.

    jknarr, I don’t see a shred of evidence for your theory, which verges on “grassy knoll” territory. I encourage you to read the book, and stop dreaming up silly theories.

    Steve, I’d rather have Bernanke or Yellen, than take my chances with Summers. We could have done better, but we also could have done far, far worse.

    E. Harding and Vaidas, No, I consider defenses of Trichet to be absurd. His policies in 2011 caused a double dip recession, and largely explain why the eurozone is falling short of its inflation target. If he was so stupid that he thought the inflation of 2010-11 was going to persist, then he never should have been in a position of power. Headline inflation numbers are meaningless.

    E. Harding, You said:

    “Why did NGDP start falling below trend right when Bernanke came into office?”

    Because it was too high under Greenspan, and Bernanke is a more talented central banker than Greenspan.

    Ray, You said:

    “why do I even post here?”

    To provide comic relief?

  19. Gravatar of E. Harding E. Harding
    9. November 2015 at 21:52

    “Because it was too high under Greenspan, and Bernanke is a more talented central banker than Greenspan.”

    -Eh? It was at trend in early 2006, not above it. And it was remarkably consistent under Greenspan. I consider Bernanke to just be effectively a tightwad, perhaps due to his decision to “try to share power”. In what quarter of Bernanke’s Chairmanship was NGDP at an appropriate level?

    “No, I consider defenses of Trichet to be absurd. His policies in 2011 caused a double dip recession, and largely explain why the eurozone is falling short of its inflation target.”

    -Mm, mm. Riiiight. Back to “long and variable lags”, which we have already rejected, are we now? Come on, just look at inflation under Trichet. Then under Draghi. Trichet. Draghi. Trichet. Draghi. Who’s the tightwad here? It’s Draghi. He took the EZ from over 3% inflation to deflation. I thought we’ve already rejected looking excessively (or exclusively) at concrete steppes?

    The inflation of 2010-11 may have persisted had monetary policy in the EZ (and the U.S.) not tightened in late 2011-early 2012 by the inflation metric (which is used by both the EZ and U.S. since January 2012, around the time when monetary policy tightened).

    If headline inflation targets are meaningless, again, blame the target, not the guy responsible for carrying it out. By any reasonable standard, Trichet was too loose, not too tight, in light of his inflation target. And, besides, the inflation of 2010 did persist, and even intensified -under Trichet.

  20. Gravatar of Vaidas Urba Vaidas Urba
    10. November 2015 at 02:48


    I certainly don’t defend Trichet’s actions in 2011, my comment was about 2008 only.

    As regards 2011, Trichet acted according to what Taylor Rule was telling him – this is not an excuse, just an explanation.

  21. Gravatar of Dan W. Dan W.
    10. November 2015 at 05:49


    The wall street story is the stock market decline reversed when the proposal to change mark-to-market accounting rules gained committee approval. Until this happened there was real fear among investors that the Obama administration could have nationalized the banks as they were insolvent – by definition of the existing mark-to-market statute. The removal of the mark-to-market requirement greatly reduced investor risk.

  22. Gravatar of Ben Ben
    10. November 2015 at 05:55

    absolutely agree

  23. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    10. November 2015 at 06:53

    ‘Greenspan would have been a complete disaster in 2008.’

    I don’t know how you can say that, as Greenspan was NOT a disaster in 1987. As for Bernanke being a more talented central banker than Greenspan…he was a more talented academic, but the proof the pudding….

    There were far more talented QBs than Bart Starr back in that day, but he has the championship rings.

  24. Gravatar of chris mahoney chris mahoney
    10. November 2015 at 11:34

    Fed chair has 2 options to make things happen: (1) intimidate the other committee members, as Greenspan did; or (2) be prepared to win without a consensus, as John Roberts does. Bernanke doesn’t do intimidation, and he wasn’t going to anything radical without something close to consensus. He could accept one dissent, but not five. Especially true because of the Austrian lunatics in the GOP who hate the Fed anyway.

  25. Gravatar of TravisV TravisV
    10. November 2015 at 14:52

    Does anyone have a theory for why 5-year and 10-year inflation breakevens have shrugged off the negative Fed news and moved higher?

    Hello? Anyone?


  26. Gravatar of msgkings msgkings
    10. November 2015 at 14:54

    You haven’t mentioned probably the #1 reason the stock market bottomed in March 2009: when Barney Frank leaned on FASB to correct their stupid change in mark-to-market rules (in 2006) that had been in place for almost 70 years.

    The vicious cycle of bank capital melting down ended immediately.

    See Brian Wesbury’s writings on this.

  27. Gravatar of msgkings msgkings
    10. November 2015 at 15:02

    I now see Dan W. did mention this….well said.

  28. Gravatar of Michael Byrnes Michael Byrnes
    10. November 2015 at 16:00

    Well, this looks interesting (especially panel 2):


    Moderator: Jeffrey A. Miron
    Senior Lecturer, Harvard University, and Senior Fellow, Cato Institute

    Charles I. Plosser
    Former President and CEO, Federal Reserve Bank of Philadelphia

    John B. Taylor
    Mary and Robert Raymond Professor of Economics, Stanford University

    George A. Selgin
    Director, Cato Center for Monetary and Financial Alternatives

    Scott B. Sumner
    Director, Program on Monetary Policy, Mercatus Center, George Mason University


    Can’t wait to hear what those four have to say on this topic. (Cato usually puts these on line at some point)

  29. Gravatar of Scott Sumner Scott Sumner
    10. November 2015 at 16:41

    E. Harding, The inflation numbers are meaningless, as they were distorted by VAT increases and oil prices. Trichet should have known that. His job is to set a policy that will produce on target inflation going forward, not backwards.

    Trichet drove the car at 100mph to the edge of the cliff, handed the wheel to Draghi, jumped out, and then later complained about Draghi’s driving being unstable.

    And Greenspan was not targeting NGDP, if he was then he certainly would not have argued that monetary policy was too expansionary under Bernanke. He was targeting inflation.

    Vaidas, Maybe absurd is too strong, but nothing anyone has suggested leads me to re-evaluate my view of Trichet. I don’t think the Taylor rule is a good rule, nor do I believe the ECB follows the Taylor rule. So I don’t consider it a defense.

    Patrick, You said:

    “There were far more talented QBs than Bart Starr back in that day, but he has the championship rings.”

    I don’t agree about Starr, but let’s say you are right—that proves my point. It’s partly being in the right place at the right time. Did all the world’s central bankers (except Australia) suddenly and simultaneously become incompetent?

    Travis, I have a theory–the wage report last Friday.

    Michael, Which one does not belong?

  30. Gravatar of E. Harding E. Harding
    10. November 2015 at 18:51

    “Trichet drove the car at 100mph to the edge of the cliff, handed the wheel to Draghi, jumped out, and then later complained about Draghi’s driving being unstable.”

    -[Sigh.] It’s not “unstable”. It’s deflationary. 3% inflation at the beginning of Draghi’s presidency to deflation today. Four years later. What is so incomprehensible about this? That’s not anything like what the ECB inflation target recommends. How much time does it take for you to recognize that Draghi’s ECB inflation policy is a remarkably tight one? It should have taken a year to correct Trichet’s supposed mistakes. Maybe less. It’s been four whole years now. Again, how much time is enough?

    And this totally contradicts everything you’ve ever said on long and variable [lags/leads]. Admit it Scott: Trichet did a good job as ECB President; better than Bernanke. By the standards of the ECB inflation target, his monetary policy was too loose, both throughout and at the end of his presidency, not too tight. If there’s one powerful man in Europe who cannot be blamed for the Eurozone double-dip, it’s Trichet.

    Also, my most important question in my above response was

    “In what quarter of Bernanke’s Chairmanship was NGDP at an appropriate level?”

    I’m really disappointed that you haven’t answered it. It’s a really interesting one.

    BTW, if Greenspan wasn’t targeting an NGDP level, he surely did a surprisingly good job of pretending to:

  31. Gravatar of Cameron Cameron
    10. November 2015 at 20:10

    I believe I just heard Ted Cruz say tight money tanked asset prices and the economy in late 2008 in the Republican debate. He went on to endorse a gold standard… still, interesting.

  32. Gravatar of Benjamin Cole Benjamin Cole
    10. November 2015 at 22:58

    From Newsweek

    “At Tuesday’s Fox Business Network undercard debate, the candidates painted a dour picture of Barack Obama’s economic policies, repeatedly accusing the Federal Reserve of being in league with “the establishment” and suggesting some unorthodox ways to make the agency less political.

    New Jersey Governor Chris Christie was perhaps the most vocal, arguing that the Fed has deliberately manipulated interest rates in order to keep the cost of borrowing down and make the economy look better than it is. Before the debate, Christie said that the Bureau of Labor Statistics had “cooked up” federal unemployment numbers in order to paint a favorable picture of Obama’s performance.

    Some Republicans have suggested giving Congress oversight over the Fed, which has historically been an independent institution. The debate moderators suggested that this might make the national bank political, but former Arkansas Governor Mike Huckabee echoed Christie in saying that the Fed is already as political as it can possibly be.

    “The Fed has manipulated the dollar so that it doesn’t have a standard,” Huckabee said. His fix for the bank would be to “tie the monetary standard to something that makes sense.” In 2012, candidate Ron Paul received significant attention for suggesting that the dollar be tied to a gold standard.”


    Egads. They think the Fed is goosing the economy and that the BLS lies about the unemployment rate, and that there is an “establishment” behind these nefarious, cunning misdeeds.

    You know, I attended Berkeley in the 1970s. As left-wing college kids, we toyed with conspiracy theories. Of course, sometimes we were right; the U.S. government had consistently lied about Vietnam.

    But now we have people in the GOP—not just in the GOP, but in the debates—that make my college days look tame.

  33. Gravatar of Vaidas Urba Vaidas Urba
    11. November 2015 at 01:28


    I am defending 2008 Trichet, not 2011 Trichet.
    Neither I am defending Taylor Rule here, my just wanted to point out that one source of 2011 mistake was reliance on Taylor Rule type reasoning.

  34. Gravatar of Benjamin Cole Benjamin Cole
    11. November 2015 at 02:12

    OT but China:

    “China’s industrial output rose 5.6% in October from a year earlier, slowing from a 5.7% increase in September, government data showed Wednesday.

    September’s rise undershot a median 5.8% gain forecast by 11 economists in a survey by The Wall Street Journal. The worse-than-expected figure indicates a further weakening in factory activity, suggesting the worst may not be over as China’s economy decelerates.

    The data from the National Bureau of Statistics also showed that industrial production–which measures an economy’s manufacturing, mining, utilities and other output–increased 0.46% in October from September. In September, it rose 0.38% from the preceding month.

    Fixed-asset investment in non-rural China rose 10.2% from the previous year in the January-October period, compared with a 10.3% increase in the January-September period. The data exceeded economists’ median forecast for a 10.1% gain.

    Retail sales in China rose 11% in October from a year earlier, accelerating from a 10.9% year-over-year increase in September.”

    Retail sales up 11% ? Is this what a collapse looks like? I wish for a collapse in the U.S.

  35. Gravatar of John Thacker John Thacker
    11. November 2015 at 04:23

    Interestingly, Ted Cruz in the debate actually blamed the Fed for much of the 2008 recession for tightening. Then he followed it up by claiming that there was no cycle of booms and busts on the gold standard, but the first part was interesting and a rare comment by a politician.

  36. Gravatar of Ironman Ironman
    11. November 2015 at 07:11

    Dan W. I don’t think the “Wall Street story” is right, because the change to the fair value “mark to market” rules weren’t even proposed until 16 March 2009:

    and weren’t approved until 2 April 2009, which is when they would have had a larger impact on the stock prices of U.S. banks. If we use BAC (Bank of America) as a proxy, given that it would have been a large beneficiary of the rule change, its stock price bottomed on 6 March 2009, and rallied up from there, with the trading around 16 March and 2 April not having any notable positive reaction as you might expect.

    Ditto for relatively healthier banks (JPM, WFC). It’s not until 9 April 2009 that any see a significant upward spike for U.S. bank stock prices related to actual news specifically affecting the U.S. banking sector, when Wells Fargo announced stellar 2009-Q1 earnings:

    During March 2009, it would appear that bank stock prices were simply along for the ride with the rest of the U.S. stock market as it responded to China’s stimulus plans, with the primary beneficiaries being construction and mining-related stocks.

  37. Gravatar of Wednesday assorted links Wednesday assorted links
    11. November 2015 at 08:59

    […] Sumner on Bernanke, more here.  And it is scary that Bernanke feels the need to write a blog post opposing the notion that […]

  38. Gravatar of Cameron Cameron
    11. November 2015 at 09:03

    This is the text of Cruz last night:


    “Yes. Now, let’s be clear, there is a role for the Federal Reserve — what the Fed is doing now is it is a series of philosopher- kings trying to guess what’s happening with the economy. You look at the Fed, one of the reasons we had the financial crash is throughout the 2000s, we had loose money, we had an asset bubble, it drove up the price of real estate, drove up the price of commodities, and then in the third quarter of 2008, the Fed tightened the money and crashed those asset prices, which caused a cascading collapse. That’s why I am supporting getting back to rules-based monetary system not with a bunch of philosopher-kings deciding, but tied…”


    “Sir, I understand that. I just want to be clear, if you don’t mind, that millions of depositors would be on the line with that decision. And I just want to be clear. If it were to happen again, for whatever the reason, you would let it go, you would let a Bank of America go?”


    “So let me be clear. I would not bail them out, but instead of adjusting monetary policy according to whims and getting it wrong over and over again and causing booms and busts, what the Fed should be doing is, number one, keeping our money tied to a stable level of gold, and, number two, serving as a lender of last resort.”

    I actually thought he was going to say NGDP futures or something to that effect. At least someone has finally brought up tight money as causing the 2008 crisis, even if he sounds kind of “Austrian” on the rest.

  39. Gravatar of An Interesting Hypothesis An Interesting Hypothesis
    11. November 2015 at 22:02

    […] Well, I’ve got my theory. Scott Sumner’s theory is that Bernanke is just a really nice guy. […]

  40. Gravatar of collin collin
    14. November 2015 at 10:15

    Economics aside, I vote Jimmy Carter the powerful ‘Nice Guy’ in our lifetimes.

  41. Gravatar of ssumner ssumner
    14. November 2015 at 16:59

    E. Harding, You said:

    “What is so incomprehensible about this?”

    Maybe the fact that it’s wrong. The eurozone begin plunging into recession in mid-2011 (and also note that the NGDP growth rate plunged, so it was monetary), well before Draghi took over. Inflation can be a lagging indicator, especially when there are oil price shocks and VAT shocks.

    You said:

    “Admit it Scott: Trichet did a good job as ECB President; better than Bernanke.”

    If you think creating two recessions and the mother of all sovereign debt crises is a good job, then I can’t argue with you.

    Regarding Bernanke, I think NGDP was roughly appropriate in 2007

    Vaidas, I think Trichet blew it in both 2008 and 2011.

    Thanks Cameron, I may do a post.

  42. Gravatar of Vaidas Urba Vaidas Urba
    15. November 2015 at 11:17


    according to inflation breakevens and foreign exchange rates, Bernanke was even worse than Trichet in 2008.

  43. Gravatar of ssumner ssumner
    16. November 2015 at 07:13

    Vaidas, What about something that matters, like NGDP?

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