Bernanke’s reappointment

by Russ Roberts on August 25, 2009

in Financial Markets, Frenetic Fiddling

My quick take.

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Anonymous August 25, 2009 at 6:11 pm

Very nice read – thanks Russ.

As for “went too far in the other direction”, what do you think of the analyses of Bernanke and Greenspan’s respective policies using the Taylor Rule that suggest that right now Bernanke is actually being less expansionary than Greenspan was, based on what targeting rules would have him do (obviously not less expansionary by choice)?

Anonymous August 25, 2009 at 6:18 pm

Very good question. If you’re an EconTalk listener, you’ll know I find it difficult to reconcile the Taylor Rule with the quantity theory of money. Taylor argues that because the money supply is hard to measure in modern times, the fed funds rate is a better measure of monetary policy. Milton disagreed. I think we’re going to find out in the next 6-12 months which one is right at least for these times.

Justin P August 25, 2009 at 6:58 pm

I think we are going to find out who is right on a lot of things particularly between the Austrian and Keynesian view as well.

Anonymous August 25, 2009 at 8:13 pm

Yes – in fact your interview with Taylor is one of my favorite EconTalk interviews.

Whether we’re looking at interest rates or money supply you get about the same thing – McCallum’s rule is pretty much a mirror image of Taylor’s. I’m not sure what M0 McCallum’s rule calls for right now, but since it’s inputs are pretty similar to Taylor’s inputs I’d be suprised if it were substantially different (btw -my understanding is Taylor rule calls for -5% or -6% fed funds rate right now).

But I’m not sure why this is hard to square with the quantity theory. PY is taking a nose dive, we assume V is more or less constant – so a policy seeking stability should call for an increase in M, right? Particularly if we’re talking in terms of the funds rate – we know that adjustments to that rate have less traction as it approaches zero. Plus I think it’s important to keep in mind that quantity theory is really more of an accounting identity than it is a theory of human behavior. In reality, Y is a function of P and P is a function of Y, even if in a snapshot their product equals MV.

6-12 months seems a little soon, doesn’t it? Well I guess it seems soon to me because of what I’m expecting. We shall see.

Anonymous August 26, 2009 at 7:53 am

They’re both wrong for thinking they can possibly know enough soon enough to do anything about it–even if there were something that they should do about it.

Or at least we’ll watch our economy bounce higher and higher until even ostensible control is no longer an option, and THEN we’ll know.

Greg_Ransom August 25, 2009 at 6:41 pm

No, the Great Depression was caused in the first instance by too MUCH liquidity in the late 1920s. The Great Depression was made much, much worse by many terrible policies, including not enough liquidity in early 1930s AFTER the onset of the Fed generated artificial boom and inevitable bust.

Among the things which caused the Great Depression to be much worse than it need to be was very bad economics — e.g. the underconsumption and high labor price theories of Foster & Catchings & Hoover, and their belief in massive government programs to “solve the problem”.

Russ writes:

“The Great Depression was caused, or at least greatly worsened, by too little liquidity.”

sandre August 25, 2009 at 6:48 pm

I agree. I don’t think this downturn is over. I am not talking about whether the GDP shows growth or not – for the average Joe out there, things are not going to look up any time soon. Of course, there is a stock market induced confidence now, which can turn on a dime. It took several trillion dollars of liquidity injections, bailouts, fiscal “stimulus”, to create this rally.

Justin P August 25, 2009 at 6:58 pm

W shaped recession?

E. Barandiaran August 25, 2009 at 8:11 pm

You say: Yes, we have avoided a depression.
You’re conceding too much. What depression? There has been too much talk of a depression but look at all the evidence of the past 12 months and you’re not going to find support for the idea that in the absence of government intervention there was going to be a depression. At most, you can claim that big recession was avoided (big in terms of the declines in output, income and consumption in post WWII recessions). Moreover, you should remember your country was in the middle of a close election (by 9/15/09, it was very close and one may argue that McCain lost it because of his terrible behavior in the second half of September). Before you start to assess government intervention, I suggest that you try to figure out what would have happened in the absence of any intervention. Then, you can discuss what the best intervention could have been and how far Bernanke diverged from it.

Anonymous August 25, 2009 at 8:18 pm

I think that’s implicitly what he and everybody else are doing when they praise Bernanke. Just because you don’t like the conclusion doesn’t mean the people you disagree with are ignoring the counterfactual. I bet this will be called a depression by historians. In the end, the accolade will be that Bernanke avoided a Great Depression, not that he avoided a depression. It already has all the qualitative hallmarks of a depression rather than a recession.

Methinks August 25, 2009 at 11:03 pm

Until the Great Depression, recessions were called “depressions”. The two words are synonymous and there’s no clear definition in economics of “recession” vs. “depression”.

Government has created enough zombie companies and uncertainty for the remaining profitable companies to effectively paralyze all activity outside of tax avoidance and rent seeking. We may well look a lot more like Japan for decades to come

I don’t think a lot of people will perceive a prolonged recession as a better alternative than a much shorter and deeper recession/depression. If that’s what we get I don’t think accolades are what will be heaped on Bernanke

Gil August 26, 2009 at 1:41 am

You say that as though it were a total loss. I’ll take Japan standard oof living over Somalia’s.

Methinks August 26, 2009 at 12:18 pm

Yes, Gil, because that’s the choice here….Somalia or Japan.

Anonymous August 26, 2009 at 2:55 am

Maybe most people won’t heap accolades on him, but I think economists still will.

Yes, once again Methinks harps on word choice. Before the GD depression was used interchangably. Since the GD nobody has wanted to call anything a depression – especially no normal business cycles – because of the impact of the GD. The meaning of the word fundamentally changed from pre-GD. And I think people generally think about “depressions” as being prolonged recessions that are exascerbated by deflation (and by that definition, most recessions pre-GD were depressions anyway).

It’s only been in the modern era that we’ve had normal cyclical non-deflationary recessions.

Anonymous August 26, 2009 at 3:13 am


I’d personally feel better about Bernanke if I knew he had ended the “Private depression creating monoploy”.

My God, son, don’t you understand that the capitalistic monopolies that are all around you are the real problem facing America? Forget depressions, and focus on those “Private healthcare monoplies”, “Private Chocolate candy monopolies”, “Private Baby Diaper Monopolies”, “Private Electric Shaver Monopolies”, et. al.; if we could just get government into business as a competitor to all those private businesses we could, and should have long ago, permanently cure all of America’s ills.

Depressions and recessions would become history if we just got government into business with a wise man like Bernanke to run the dollar generating plant.

Aii yi yi, I think I’ll go sleep on it.

Methinks August 26, 2009 at 12:17 pm

Actually, I was just pointing out a small factoid, not criticizing your word choice. But, of course, you never miss an opportunity to feel victimized, Danny.

Maybe most people won’t heap accolades on him, but I think economists still will.

Well, really, that’s all that matters.

KevinL August 25, 2009 at 9:41 pm

Why not also give him credit for avoiding a Greater-than-Great Depression and so on to include all the other bad things that happened to not happen that he can take credit for after the fact despite the horrible things he “presided” over. The real proof of a level of incompetence that is actually worse than the expected level ofHayekian ignorance is that he had no idea what was going on at the same time that plenty of other people did…

“Bernanke: Why are we still listening to this guy?”:

Anonymous August 26, 2009 at 12:53 am

The talking point put out by someone on my hallway today, who worked many years a the St. Louis Fed, was “Well at least it was Bernanke rather than Krugman or some union hack like the guy presiding over the NY Fed.”

The other point someone else raise was that its just too bad that Benanke hadn’t been on the Titanic, because he would have saved it for SURE. And we can all rest easy tonight because with Bernanke around the Sun won’t go super nova; after all Bernanke has saved us from another Great Depression!


Anonymous August 26, 2009 at 1:27 am

If he gets all the taxpayers money back, I will say he is a genius. If not, he’s a buffoon.

I read that Hoover put a 2 cents per check tax on checks written by consumers. This caused people to pull money out of banks to avoid the tax. Banks were afraid to make loans because they were afraid of not enough liquidity to meet withdrawals. What do you think?

Anonymous August 26, 2009 at 6:09 am

The discussion re. semantics of what is a depression or a recession is totally ridiculous.
As Rothbard pointed out ,we live in a world of euphemisms.All recessions are now called depressions. All sweepers are now called houskeeping executives.Not to mention the egress-igress engineer serving the front door at the exclusive hotel.
In the name of political correctness,the past has been demonized.Our ancestors apparently overcome by animal spirits went into bouts of ‘panics’ and ‘depressions’. Only after the great Fed came to our rescue have we managed to escape only with one ‘depression’.

We need to get real.If job losses were measured today as they did in 1930s, the employment scenario is as bad .

Anonymous August 26, 2009 at 9:41 am

Really? It seems to me that actually no recessions have been called a depression since the Great Depression.

Which one has exactly?

Anonymous August 26, 2009 at 6:11 am

all depressions are now called recessions -correction^^

sandre August 26, 2009 at 5:25 pm

Daniel is obsessing with the most trivial mistake in your post. Anyways, In Orwells’ language, it will be called newspeak.

Anonymous August 26, 2009 at 11:26 am

Obama’s accolades for Bernanke sounded eerily like “Mission Accomplished”.

Methinks August 26, 2009 at 12:20 pm


Anonymous August 26, 2009 at 12:49 pm

Yes… especially his statement that “we are a long way away from completely healthy financial systems and a full economic recovery” is positively gushing :)

Anonymous August 26, 2009 at 1:15 pm

“We have difficult work to do in Iraq. We are bringing order to parts of that country that remain dangerous.”

From the Mission Accomplished speech, 2003

sandre August 26, 2009 at 5:27 pm

At least on occassion, the better choice to make is to keep quiet even when your instinct tells you otherwise. You are a smart guy, and you don’t have to try this hard to respond to every post. Get this, as smart as you are, you don’t know everything.

Anonymous August 26, 2009 at 5:35 pm

I’m not sure you quite realize how condescending that is. As for “I don’t know everything” – one thing I know quite well is that I don’t know everything – so you shouldn’t feel obligated to lecture other people like that.

It was a light retort. It’s not that big a deal. And as martinbrock’s quick response to me demonstrates, it wasn’t a well honed debating point, nor was it intended to be. Don’t worry yourself over it.

sandre August 26, 2009 at 5:42 pm

It was a light retort. It’s not that big a deal.

In hindsight, that the best you can say about your comment.

Don’t worry yourself over it.

Not at all. Don’t get unlcer worrying as to whether I’m worrying over it.

Anonymous August 26, 2009 at 5:41 pm

Note the smiley face :)

sandre August 26, 2009 at 5:43 pm

You thought you got him. Didn’t you?

KO's Peace for NWO. August 28, 2009 at 1:15 am


Tel Aviv, Friday, 28th August 2009.

The Puzzle of The Crash and The Sacrifice of Gilaad Shalit.

In this article I tell that The Crash will take place on Friday, 18nth September 2009 at 4:11 PM EST.

The reading of that article is of the uttermost importance for everyone.

It is even more important to the Islamic and Jewish people, the sons of Abraham.

It presents the causes and consequences of The Crash.

It proves that Ben ‘Systemic Risk’ Bernanke engineered deliberately the Great Recession and The Crash

For Eid ul-Fitr the Hamas will sacrifice Gilaad Shalit.

Tell the new to the world and free Gilad Shalit on 4th September 2009 at 5:58 Jerusalem Time and everything will be fine for example.

Some of you may be shocked by the videos and their wordings. Please don’t watch them.

The Puzzle of The Crash and The Sacrifice of Gilaad Shalit.


Anonymous August 31, 2009 at 1:10 am

Bernanke is a good choice to lead the Fed. He’s bright, too— He scored 1590 out of 1600 (or was it 1490 out of 1500?). He’s an expert in his field of macroeconomics. He’ll have to make some hard decisions in his tenure.

Anonymous August 26, 2009 at 12:47 pm

“Well, really, that’s all that matters.”

hmmmm… if you say so

Anonymous August 26, 2009 at 5:45 pm

“In hindsight, that the best you can say about your comment.”

Ummm… ya. If I can even justify that. It didn’t take long listening through it to find a “we’re still screwed” moment. It’s a non-issue sandre.

Anonymous August 26, 2009 at 5:46 pm

Haha! “Got him”? Got him how? Those accusations against Bush are overblown too. I was thinking as I was writing that that there’s gotta be a qualification in Bush’s speech too.

No, sorry. Not everything on here is that high-stakes.

Anonymous August 26, 2009 at 5:47 pm

But I have proved your point about responding to everything – you can thank me for that. I resisted your Orwell comment above, though :)

(ps – that smiley face really was a laughing, light, smiley face)

sandre August 26, 2009 at 6:39 pm

I’m sure, it must have really taken a lot out of you in resisting that temptation.

Anonymous August 26, 2009 at 6:43 pm


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