bad ben


The visceral criticism of Bernanke is hard to fathom, but it is in part the flip side of the enormous trust that we are asked to place in the modern Federal Reserve. At least in the time of Nicholas Biddle, and even during the formative years of the Fed, banknotes, being liabilities, could be redeemed for something of value, usually gold. Now our dollars are exchangeable only for more dollars. This is what alarms the originalists. As the publisher, Bernanke critic, and gold bug par excellence James Grant eloquently put it, “We have exchanged the gold standard for the Ph.D. standard, for soft central planning.” Originalists who are unhappy with quantitative easing are unhappy with elastic currency and with fiat money itself; nothing but gold will do. This has been true, of course, for 40 years—since the U.S. went off the gold standard—but only Bernanke has had to implement with such vigor the Fed’s original missions of “lender of last resort” and “coiner of an elastic currency.” And he is up there now, in the helicopter, showering us with money, as the Fed didn’t do but should have done in 1933. Yet even as this comforts, it elicits in most of us a spasm of wonder, or anxiety, that a single Ph.D. or a building full of them could calibrate such a mystery as the proper quantity of money, particularly in an economy as dynamic as ours is today. Bernanke does not use gold as a measuring stick; he does not count the money in circulation as a basis for determining interest rates, as Volcker did, or tried to do. His mentor, Milton Friedman, thought the business of adjusting interest rates was so tricky, it would be better to yield the job to a computer. But Bernanke thinks a human can do it. He sticks to his notion of what inflation should be, and his prediction of where it is headed, trusting that his judgment will tell him when to add more liquidity, when to subtract. And, to a greater extent than he is credited with now, history may marvel that Bernanke has been a success.

more from Roger Lowenstein at The Atlantic here.