What is the Federal Reserve’s Role in the Economy? Bernanke knows.


The only area where the book could benefit from further introspection is economic inequality, which Bernanke largely dismisses as being beyond the Fed’s jurisdiction. Although the central bank is right that it cannot solve the problem, it has the relevant tools, such as financial markets, bank regulations and its impact on the housing sector. Instead, the Fed took stagnant working-class living standards as a side show, contributing to the rise of populist anger that Bernanke lamented.

Despite these warnings, “21. Century Monetary Policy” tells a success story and deserves it. Bernanke’s Fed has far outperformed the institution during previous economic crises such as the Great Depression and the oil shocks of the 1970s. He did this because Bernanke and his colleagues learned from the mistakes of their predecessors and were willing to overcome the lethargy that could affect large bureaucracies. They asked and did what they could reasonably do to help, such as buying mortgage-backed securities to stop a financial panic. The 2015 memoir was appropriately titled: “Courage to Take Action.”

Bernanke did not always find this approach comfortable. “As head of Princeton’s economics division, I had led the way with a negotiating, consensus-building style and tried to bring that approach to the Fed,” he writes. However, with the markets in turmoil and every economic indicator pointing downward, this approach has been shelved, at least for a while.” Bernanke understood that deliberate vigilance during a crisis could lead to more human suffering.

In a more permanent change and a break with Greenspan’s Fed, Bernanke forced the Fed to explain its actions more publicly. It began holding regular press conferences and released more information about the Fed talks. He tried to explain the decisions in plainer English.

Anyone who reads his book today during the Covid-19 pandemic may realize that his message applies to more than monetary policy. The Centers for Disease Control, the Food and Drug Administration, and other agencies have generally failed to act decisively or speak clearly in the past two and a half years. Their advice—masking, quarantines, booster shots, home tests, and more—may be impossible for ordinary people to understand. And at crucial moments, federal agencies followed bureaucratic traditions that were inappropriate for the crisis. The Bernanke Fed’s most overt opposition is probably that the FDA has cut back on a version of the long, pre-pandemic process for vaccine review that, despite their refusal to officially issue vaccines, government officials created the jarring opposition to urging Americans to get vaccinated. confirmation. They obviously didn’t have the courage to take action.

When explaining the Fed’s failures during the Great Depression, Bernanke speaks of its “decentralized structure and lack of effective leadership.” These failures led to the 1935 federal law that created a clearer structure for the Fed, which helped Bernanke act boldly and creatively. His book is aimed at and likely will help future generations of economic policymakers. But they’re not the only ones who will benefit from thinking about his lessons.



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