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The Seduction Of Ben Bernanke

FDR was elected to correct Hoover’s budget deficits. Kennedy was elected to close a missile gap. Nixon was elected to end the Vietnam war. Obama was elected to restore civil liberties. Ben Bernanke ran for Fed Chairman on a platform of price-level targeting. In DC, you never get what you voted for.

Bernanke ran for office as a radical, but has run the Fed like a Fairfield County Republican. As Krugman, Romer, Ball and others have observed, Chairman Bernanke acts like he never met Prof. Bernanke, that crazy “helicopter” guy at Princeton.

In his wilderness years in academia, Prof. Bernanke demanded that central banks think outside the box to prevent deflation and stagnation when conventional policies fail. However, when Bernanke took office as Chairman in 2006, nominal growth, inflation and inflation expectations were substantially higher than they are now, as he leaves office. The US economy is once again balanced on the cliff of deflation. The economist with the Christmas list of outside-the-box policies has implemented only two of them and not very successfully. Prof. Bernanke would give Chairman Bernanke a C+.

Bernanke has gone from being the Prophet of Doom in 2002 to being the Bartender of Doom in 2013. He changed his monetary philosophy, or failed to persuade the FOMC, or perhaps was “captured” by the Fed’s policy staff, as Laurence Ball has argued. They serve a strange kind of Kool-Aid at the Eccles Building; one sip and wild-eyed radicals become “responsible” and a guardians of “institutional credibility”.