The Key Points From Ben Bernanke’s Jackson Hole Speech

A large share of the big names in monetary policy is gathered this weekend in Jackson Hole, Wyo., to vacation and talk shop. Ben Bernanke’s keynote address was just released. Here’s what you need to know:

— The basic point of the speech was to defend past acts of quantitative easing.

— A secondary theme is to create some rationale for future acts of QE.

— But Bernanke continues to insist that there are hard-to-quantify and not-well-explained downside risks to QE, which mean that at the zero bound we need to tolerate larger output gaps than we would otherwise tolerate.

— The logical implication, which Bernanke does not draw, is that a 4 percent long-term inflation target would lead to fewer and shorter recessions and more real output over the long term.

— In general, Bernanke simply refuses to acknowledge the existence of the NGDP targeting line of criticism even though it’s been embraced by a growing chorus of voices that includes the president of the Chicago Fed, former CEA Chair Christina Romer, and many voices in the press.

— Bernanke says fiscal austerity is currently a drag on the economy and will be an increasing drag going forward and claims that he “cannot neutralize the fiscal and financial risks that the country faces.”

— A related point is that he simply fails to acknowledge that the country’s primary macroeconomic stabilization institution might bear some responsibility for the biggest failure of macroeconomic stabilization in 70 years.

In summary, there’s evidence here that we might get some further easing. But I think we’re also seeing the high and ongoing cost to Barack Obama’s decision to re-appoint Bernanke early in his administration. And the problem isn’t so much with Bernanke as with the concept of re-appointment. For the Federal Reserve to alter its intellectual approach at this point would amount to admitting that the Fed is in part at fault for our current predicament. As an institution, it is naturally reluctant to do this. Even under new leadership, the institutional and reputational pressures pushing for timidity and stasis would be powerful. But with the same leadership in place, it’s simply impossible to get a different result. If Bernanke were to adopt an NGDP view now, it would have to abandon the myth that it pursued a loose money policy in 2008 and 2009.

But here’s the punchline. Ben Bernanke in 2003:

Ultimately, it appears, one can check to see if an economy has a stable monetary background only by looking at macroeconomic indicators such as nominal GDP growth and inflation. On this criterion it appears that modern central bankers have taken Milton Friedman’s advice to heart.

And yet here we are.