Jeffrey Hummel three years ago wrote “Bernanke versus Friedman – The Federal Reserve´s Emergence as The US Economy´s Central Planner”:
Both Ben S. Bernanke and Milton Friedman are economists who studied the Great Depression closely. Indeed, Bernanke admits that his intense interest in that event was inspired by reading Milton Friedman and Anna Jacobson Schwartz’s Monetary History of the United States, 1867–1960 (1963). Bernanke agrees with Friedman that what made the Great Depression truly great rather than just a garden-variety depression was the series of banking panics that began nearly a year after the stock-market crash of October 1929. And both agree that the Federal Reserve (the Fed) was the primary culprit by failing to offset, if not by initiating, that economic cataclysm within the United States. As Bernanke, while still only a member of the Fed’s board of governors, said in an address at a ninetieth-birthday celebration for Friedman: “I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again” (2002b).
This seeming similarity, however, disguises significant differences in Friedman’s and Bernanke’s approaches to financial crises, differences that have played an enormous yet rarely noticed role in the recent financial crisis. Not only have those differences resulted in another Fed failure—not quite as serious as the one during the Great Depression, to be sure, yet serious enough—but they have also resulted in a dramatic transformation of the Fed’s role in the economy. Bernanke has so expanded the Fed’s discretionary actions beyond merely controlling the money stock that it has become a gigantic, financial central planner. In short, despite Bernanke’s promise, the Fed did do it again.
Bernanke is undoubtedly honest and dedicated as well as very smart; favoritism and pull probably had little or no effect on who received the vast amounts the Fed dispensed during the crisis…
…But can we depend in the future on always having someone of impeccable integrity at the Fed´s helm, someone who will steadfastly insulate this enhanced intimacy with the US economy from politics and corruption?
The last two paragraphs reminded me of something Bernanke wrote in January 2000: “What happens when Greenspan is gone?”
U .S. monetary policy has been remarkably successful during Alan Greenspan’s 121/2 years as Federal Reserve chairman. But although President Clinton yesterday reappointed the 73-year-old Mr. Greenspan to a new term ending in 2004, the chairman will not be around forever. To ensure that monetary policy stays on track after Mr. Greenspan, the Fed should be thinking through its approach to monetary policy now. The Fed needs an approach that consolidates the gains of the Greenspan years and ensures that those successful policies will continue even if future Fed chairmen are less skillful or less committed to price stability than Mr. Greenspan has been.
What will Yellen be “committed” to?