What Bernanke Needed
Former Treasury Secretary and former National Economic Council director
Lawrence Summers has always suffered in the eyes of many for being a bit
of a jerk. But an amusing-yet-thorough paper by Lawrence Ball
indicates that this disposition might have made Summers an excellent
choice for a job he coveted and didn’t get–chairman of the Federal
Ball is admittedly coy in the paper; he focuses on Bernanke’s change of mind rather than whether Bernanke was right to change his mind. Still, if you read between the lines, it’s pretty clear that Ball is strongly criticizing Bernanke.
That said, I don’t think Matt correctly interprets Ball’s underlying criticism. Ball’s not saying that Bernanke should have been a jerk. He’s saying that Bernanke knew the truth but lacked the courage of his convictions. There’s no reason Bernanke couldn’t have politely but firmly stood his intellectual ground.
Yglesias also argues that Ball underestimates the political pressure on Bernanke:
I find this narrowly personality-based explanation a bit unsatisfying. A
more economics-oriented explanation might appeal to incentives.
Anything you try to do in an unfamiliar situation might fail. But the
strategies emphasized by professor Bernanke are all premised by the idea
that a central bank can on its own boost an economy even at the zero
bound. A central banker who implements those ideas would run the risk of
needing to take responsibility for failure in the event that something bad happens.
But why then did Bernanke change his mind way back in 2003, when Bernanke wasn’t in charge and the zero bound was a remote risk? Matt’s story is a useful supplement to Ball’s; I’ve told the same story myself. But the hard fact is that Bernanke caved in to flimsy arguments long before push came to shove.