In praise of Bernanke (“A portrait of the chairman as a hero”)

This is Ryan Avent today at the Economist Free Exchange blog:

ONE truth that emerges clearly from the recent history of Federal Reserve monetary-policy action is that changing central bank policy goals is like steering the Titanic. You can see where the ship ought to go, and the captain himself might do his best to pilot it there, but the nature of the beast is that it simply won’t turn on a dime. There are too many extremely cautious people influencing policy decisions and too much political and market scrutiny for that.

All the same, the ship has turned and is likely to continue altering its heading…

And concludes:

The pace at which all of these moves have come together has been excrutiatingly slow at times. The American economy has faced month after month of elevated unemployment and the risk of a double-dip recession, all alongside historically low inflation. The case for more Fed action has been strong for quite some time. As frustrating as the delay has been, it is now plain that the Fed is working its way toward a monetary policy that is more intellectually coherent and effective at the zero lower bound than was previously the case. But for this long march, the American economy would be in far worse shape. And if this evolution continues, Mr Bernanke may well be judged to have accomplished something truly remarkable and praiseworthy, all within a very difficult economic and political environment.

I really felt like crying.

A few months ago Ryan Avent wrote:

TO FOLLOW-UP on the previous post, let me address the mystery of just why growth through America’s recovery has been so slow. The argument that seems to be winning the day this week is that deleveraging to blame. Before the recession, the argument goes, firms and households accumulated unsustainably large mountains of debt. In the wake of the recession, households are struggling to rebuild their balance sheets. Because they are labouring to pay down debts, consumption is and will remain depressed, and that must inevitably constrain growth.

But his view then was:

The government’s ability to affect real growth is constrained, but real growth is highly correlated with nominal growth, and the government’s ability to influence nominal growth is absolute. The Federal Reserve could commit to faster nominal GDP growth and begin using the tools available to get there. Some portion of the growth in nominal GDP (and I’m willing to bet the lion’s share) would represent a real increase in output. The outlook for investment would look better, employment conditions—and expected incomes—would improve, asset values would rise, and deleveraging would quickly (almost as if by magic) seem like less of a problem.

That´s one of the biggest “about face” I´ve seen. From “as if by magic” to “won´t turn on a dime”!

And remember that Volcker also faced a “difficult political and economic environment” – and the economy quickly turned with inflation “shooting down”. And what to say about the “magic” produced by FDR in March 1933 setting a price level target and delinking from gold to back it up?

Here Bernanke is portrayed as “victim”, but one that´s “fighting back” against terrible foes. But the reality is very different. Bernanke is directly responsible for helping shove the economy over the edge and acting ineffectively to help push it back up!