Robert Samuelson Dumps On Bernanake

Well, this title is a bit strong.  Robert J. Samuelson in a column yesterday in the Washington Post, "Why Bernanke fell short," does say many nice things about Fed Chair Ben Bernanke on the eve of his retirement.  He "helped quell an intensifying financial panic and, arguably, averted a second Great Depression." RJS also reasonably credits him with "competence, candor, decency, and dignity" during difficult times.  He is even kind enough to avoid mentioning what many other observers have faulted Bernanke with: failing to foresee what was coming prior to the crash and doing much to prevent it, or even to deal with the housing bubble as it peaked and went downhill, although most of its rise happened prior to his becoming Chairman.  For Dean Baker, this latter lacuna simply reflects RJS's ongoing failure to recognize that there was a housing bubble.  (Sorry, does not look like this link is going all the way through to Dean's post yesterday, just to cepr, phooey.)

Nevertheless, Samuelson proclaims that "Bernanke's ambition transcended calamity prevention. He sought to kickstart the economy by keeping interest rates low..."  On this he is declared a failure, only getting GDP to grow "an anemic annual rate of 2.4 percent. Payrolls are still below their 2007 peak..." and so on.  "Bernanke's weapons were less powerful than assumed or hoped."  His "massive exertions to improve the recovery have so far yielded paltry returns."  While the stock market "recovered," this failed to lead to real investment growth as "Some chief financial officers said they financed investment from internal funds, not borrowing; others said investment was tied more to demand than to interest rates," although both of these claims have been standard stuff for years long before the recent period.  Bernanke's "ultimate reputation" remains up in the air, and "He was hindered by the high expectations of set in the Greenspan years."

All right, so much of this must be granted, although noting that in 2007 "half of Americans expressed confidence in the Fed; by 2012, only 39 percent did," does not seem all that bad given how badly the economy has performed since 2007 relative to before it.  In any case, it seems to both Dean Baker and me that RJS overdoes all this, including putting too much blame on Bernanke for the failure to get the economy going more as all had hoped and ignoring various other headwinds operating to make it difficult to do so, many of them not under the control of the Fed, with some of them even noted by Bernanke himself at points in time.

What has Dean Baker most annoyed is Samuelson's ignoring of the role of the trade deficit.  The economy would have done better if that had been smaller.  However, I think  Dean misses the point a bit on this.  In fact one outcome of the quantitative easing (QE) policies was that the dollar depreciated somewhat against some currencies of major US trading partners, notably the Chinese yuan/rmb and the euro.  Indeed, when the second round of QE was announced, leading officials in both China and Germany complained loudly on this very point, arguing that the US led by the Fed was trying to engage in classic "beggar thy neighbor" policies through depreciation.

As it was, Samuelson (and Dean) completely ignore, that compared to Europe, the US economy has performed quite well.  That 2.4% growth rate may well be "anemic" by historic US standards, but it is much better than what has happened in both the Eurozone and the UK, where double dip recession has been widespread, if now ending in most parts.  The US has managed to avoid this, even as the previously expanding BRICS economies are decelerating, in some cases falling into recession or near to it recently.  There is no question that employment growth in the US has been anemic, but it looks a lot better than in many other nations around the world, with more than one observer assigning a revived global leading role to the US economy under the circumstances.  In the face of all this, Bernanke's performance does not look quite so bad, even if the US public is disappointed.

Finally, there is the matter of fiscal policy.  While that of the US has not been as austerely contractionary as what has gone down in most of Europe, it has not been all that expansionary since the initial stimulus in 2009, with the deficit falling sharply since then, even as most of the public remains unaware of this simple fact, along with the sharp declines in employment that emanated from the state and local sectors until last year.  Needless to say, this is a matter over which Bernanke had no control, although he occasionally did point out the need for more fiscal stimulus.  On this point, neither Samuelson nor Baker give him any credit nor mentioned its role in the proceedings.

So, I grant that Robert Samuelson says appropriately kind words and recognizes Bernanke's role during the worst of the crash.  I also note that he ignores Bernanke's failures prior to the crash.  But RJS is too stingy with credit in the aftermath, failing to note things he did that were stimulative and how the performance in the US looks better than in most other countries, not to mention his ignoring the role of failed fiscal policy both here and abroad.  More credit is due than has been granted.

Barkley Rosser