Ben Bernanke hasn’t been in the news much lately—and that’s just how the former Fed chairman wants it. After eight years as the world’s most powerful central banker—a tumultuous tenure that included, um, guiding the global economy through the worst recession since the Great Depression—Bernanke returned to civilian life in February, assuming a distinguished fellowship at the Brookings Institution.
Hearing a (palpably relieved) Bernanke tell it, the respite comes none too soon. Quantitative easing may be many things, but one thing it isn’t is easy. The biggest perk? Not having to call security to go to the grocery store. He’s also regained control of his wardrobe, and may actually be able to watch his beloved Washington Nationals for a full nine innings—without having to dash to a bathroom phone call to broker a plan to save the Eurozone from collapse.
Bernanke’s departure from public service also means it’s time for memoirs. In the months and years ahead, we’ll get a chance to understand Bernanke’s chairmanship from the inside out. What was he thinking letting Lehman Brothers fail? What’s it like pushing TARP through Congress? Is forward guidance all smoke and mirrors? Just as Bernanke himself was guided by the lessons of the Great Depression, his unique insights will help shape future generations of economic policymaking.
That process has already begun. Perhaps it was fitting that one of his first public appearances since leaving the Fed came at Princeton, the school where he taught until entering government service in 2002. Bernanke was there to receive the 2014 James Madison Award for Distinguished Public Service from the Whig-Cliosophic Society, adding his name to a distinguished list that includes Bill Clinton and Antonin Scalia.
Afterward, he had an hour-long conversation with Professor Alan Blinder (himself a Fed alum), speaking candidly (and frequently humorously) about his experiences. Freedom of speech expands considerably when the market doesn’t turn on your every adjective. I had the opportunity to attend the event, and I believe Bernanke’s comments offer three lessons of immediate relevance for policymakers.
For much of its history, the Fed was about as opaque as institutions come. Central bankers are a secretive bunch, preferring to be seen as Delphic priests passing infallible decrees from on high. The thinking was the less the public knew about how the sausage was made, the more confident they would be in their health.
Bernanke flipped the script. The Fed now issues detailed releases after every FOMC (Federal Open Market Committee, the Fed’s monetary policymaking entity) meeting. Equally dramatic, it makes its forecasts known and lays its future plans out in the open. Part of it is that Bernanke believed such “forward guidance” would help lead markets in desired directions, even with interest rates at their zero lower bound. But it was also about plain, old democratic accountability. The FOMC, which is unelected, arguably has more power to shape the economy than does the President or Congress. Allowing the public to have a window into its thinking is a moral duty. Conducted effectively, it can also help disarm critics and create better policy.
Traditionally, the FOMC was dominated by the Chair. Though technically decisions were put to a vote, in practice the committee would mostly do whatever the Chair dictated. Bernanke saw this approach as fundamentally flawed, for much the same reason he took issue with secrecy: it’s not democratic. In addition, there is strong academic research (some by Prof. Blinder) that groups make better decisions than individuals. Human failings being what they are, diversity of informed opinion is a good thing—especially in the face of persistent uncertainty. At the same time, listening to subordinates (or even rivals) builds goodwill—what Bernanke calls “human capital”—which can be a valuable resource if hasty, unilateral decisions later have to be made (say, during a financial crisis). Never underestimate the power of mutual respect.
Think Outside the Box
Bernanke’s policymaking legacy will be one of creativity. With the Fed in a “liquidity trap”—once nominal interest rates near zero, they can’t go much lower—Bernanke had to repeatedly resort to unconventional monetary policy. Chief among these was the aforementioned forward guidance, which was supplemented by several rounds of quantitative easing (QE), in which the Fed bought mortgage-backed securities and long-term treasuries in order to give the economy an extra boost. Negotiating Congressional politics to get TARP passed was no short order. While this program still provokes public ire as “the bank bailout,” the reality is that the loans it made literally saved the system from collapse; better yet, as the loans have been repaid, it has been a profit center for the government, raising revenues rather than (as many still believe) diminishing them. Boldness may not always be popular, but innovation takes mettle.
There we have it. Three lessons all policymakers should take to heart. What is Bernanke’s advice for those who would follow in his footsteps? What was his grand career plan for rising to the top of the economic world?
As Bernanke tells it, it was all quite simple. “It was an accident,” he says. Bernanke intended to be a career academic. He changed paths only when George W. Bush asked him to serve and Bernanke realized he had something to contribute.
So there’s another lesson. Always give back. And always be aware that sometimes the most important things happen when you aren’t paying attention.