Bernanke Agonistes

President Obama pulled out all of the stops to clinch Senate approval of his nomination of Ben S. Bernanke to a second four-year time period as chairman of the Federal Reserve. Now that the president appears to have sufficient votes for his nominee in hand, information of yet one more “Louisiana Buy” could also be grabbing headlines quickly.

Mr. Bernanke has change into one thing of a lightning rod for critics on the left, who assume his response to the monetary disaster that triggered the recession has been too timid, and for these on the proper, who cost that the Fed has been overly aggressive and shall be unable to unwind its easy-money coverage and unprecedented interventions into monetary markets with out dire financial penalties.

If nothing else, Mr. Bernanke has proved to be a consummate bureaucrat, spending most of his time in current months lobbying for main expansions within the Fed’s regulatory powers, which, if granted, would take it far past the needs for which it was created in 1913.

As a former Princeton College professor who established his tutorial popularity by publishing professionally revered papers on the causes of the Nice Despair, Mr. Bernanke might have been a greater steward of financial coverage. His analysis enhances Milton Friedman and Anna J. Schwartz’s monumental “Financial Historical past of the USA” in displaying that the widespread financial institution failures that adopted the Fed’s “Nice Contraction” of the cash provide in 1928 brought on credit score markets to break down as the shoppers of failed banks discovered it almost inconceivable to borrow from surviving establishments that understandably had been reluctant to lend to folks they didn’t know.

The Fed’s easy-money coverage of the mid-Nineteen Twenties fueled rampant actual property and stock-market hypothesis—and its later reversal in fact brought on the economic system to contract sharply, serving to to set off the Nice Despair.

Sound acquainted?

But Mr. Bernanke denies that financial coverage had something to do with inflating the current actual property bubble or that his predecessor’s coverage of curbing “irrational exuberance” by elevating rates of interest ultimately popped it. He as an alternative blames irresponsible bankers and lax banking rules. He desires to rework the Fed right into a form of superregulator with duty for ferreting out sources of systemic threat that threaten the soundness of the monetary system, wherever it might rear its head, whether or not from business banks, mortgage lenders, hedge funds, insurance coverage firms or inventory brokerages.

In two useful books revealed earlier this decade, “Reflections on the Nice Despair” and “The Economics of the Nice Despair,” Randall E. Parker of East Carolina College assembles the transcripts of interviews he carried out with dozens of economists from whom he sought skilled opinions on the origins of the Nice Despair and the teachings one ought to be taught from it. Whereas one may assume the interviews produced twice as many opinions because the variety of economists with whom Mr. Parker talked—and sharp variations definitely had been revealed—there was unanimous settlement on one level: The Fed shouldn’t be an arbiter of inventory costs or actual property values.

The Fed is meant to have one and just one aim—to take care of a sound forex. It misplaced its path early on, as its ineptness in responding to the occasions of 1929 by way of 1933 amply demonstrates.

Financial coverage could also be enigmatic to most Individuals, together with policymakers. However it will not be far off the mark to interpret the Fed’s actions on Mr. Bernanke’s watch as being designed to counterpoint Wall Road, together with the cradle of treasury secretaries, Goldman Sachs.

America wants a Fed chairman who will finish its destabilizing affect in mismanaging the nation’s cash and thereby avert cycles of growth and bust. Mr. Bernanke has demonstrated his incapability to do this job.