Collective Conscious

Yes­ter­day I argued that Ben Bernanke deserved to keep his job because he had com­pe­tently man­aged it dur­ing a mas­sive cri­sis. Looks like I’m hang­ing out in the sec­ond camp described by this Ezra Klein reader:

Fort Worth, Tex.: Fed ques­tion: what do you hope hap­pens in today’s Sen­ate hear­ing with Bernanke? Most peo­ple seem pretty split into either think­ing he’s gone out of his way to make sure Wall Street is happy or that he single-​​handedly avoided WWIII (or some­thing equally cat­a­strophic). Thoughts?

Ezra Klein: It’s hard. I think he did an excel­lent job in the days after the cri­sis. Not per­fect, but then, his infor­ma­tion wasn’t per­fect. The Fed­eral Reserve, how­ever, was far more impor­tant than the Con­gress in avert­ing col­lapse and sus­tain­ing demand. It was a com­mand per­for­mance, dri­ven in large part because Bernanke is haunted by the Great Depression.

That said, you hire a fire­fighter to put out fires, not to rebuild your house.

Thing is, Bernanke was not sup­posed to be a fire­fighter. The econ­omy was boom­ing when he was hired (check out the fol­low­ing chart) and he was cho­sen to extend Greenspan’s vis­i­bly suc­cess­ful policies. To high­light the extent to which he was a nat­ural suc­ces­sor to Greenspan, here’s a 2006 Bloomberg hook:

Fed­eral Reserve Chair­man Ben S. Bernanke, like his pre­de­ces­sor Alan Greenspan, doesn’t plan to get in the way of surg­ing home or stock prices.

And he didn’t:

Dow Jones Indus­trial Aver­age, 2005–2010

But after man­ag­ing these last two har­row­ing years, I think Bernanke is exactly the guy we want to lead U.S. mon­e­tary pol­icy going for­ward. From Greenspan’s legacy (and his own), he ought to know how to avoid mak­ing another bub­ble, and from his ser­vice dur­ing the Great Reces­sion he should know how to man­age a double-​​dip reces­sion if one does sneak up on us.