Did America Need a Jerk Instead of Ben Bernanke?

Former Treasury Secretary and former National Economic Council director Lawrence Summers has always suffered in the eyes of many for being a bit of a jerk. But an amusing-yet-thorough paper by Lawrence Ball (PDF) indicates that this disposition might have made Summers an excellent choice for a job he coveted and didn’t get—chairman of the Federal Reserve Board. Ball takes as his task to explain the curious fact that the actions of Chairman Bernanke are so severely at odds with the previous policy recommendations of professor Bernanke, who favored a much more aggressive use of unconventional monetary tactics when interest rates hit zero. Ball manages to date the trend fairly precisely, and notes that Bernanke’s views seem to have shifted rapidly during his brief earlier stint as a member of the Fed’s Board of Governors, during which time he more-or-less completely remade his views on these manner in the mold of Vincent Reinhardt, who served at the time as the director of the Fed’s Division of Monetary Affairs.

You’d expect anyone to be influenced by the views of professional staff, of course, but as Ball notes there’s something a bit strange about this. Bernanke wasn’t a naïf or one of these people put on the board for non-monetary expertise. He’s a famous macroeconomist specifically known for his academic research into this subject. Ball posits, plausibly, that we should understand the turnabout as in part reflecting the tendency toward groupthink prevailing in the Greenspan-era Fed and also to elements of Bernanke’s personality. He notes that he’s typically described as “modest,” “unassuming,” and especially “shy,” attributes that correlate with a tendency to avoid challenging an internal consensus. For the purposes of counterfactual history, the most provocative point is that these considerations did not apply to Summers, the only person who seems to have been seriously contemplated as an alternative to Bernanke:

Adam Davidson of NPR compares Bernanke to Henry Paulson, the Treasury secretary during the financial crisis of 2008: “It’s easy to contrast the two men, Henry Paulson and Ben Bernanke, this kind of headstrong, tall, bold bulldog in Henry Paulson and the much softer, quieter, bookish Bernanke” (PBS, 2009). Another obvious comparison is Lawrence Summers, like Bernanke an academic star who has held top policy positions. Journalists describe Summers with words such as bold, outspoken, hard-charging, domineering, and arrogant—never shy or unassuming.

At the end of the day, I find this narrowly personality-based explanation a bit unsatisfying. A more economics-oriented explanation might appeal to incentives. Anything you try to do in an unfamiliar situation might fail. But the strategies emphasized by professor Bernanke are all premised by the idea that a central bank can on its own boost an economy even at the zero bound. A central banker who implements those ideas would run the risk of needing to take responsibility for failure in the event that something bad happens. Opting for the fudge that constituted conventional wisdom from the fall of 2008 through to the subsequent winter got Bernanke hailed as Person of the Year despite the economy collapsing all around him. All throughout the policy apparatus people have strong incentives to avoid saying that they have the power to fix problems and should be judged based on outcomes.