There’s a great piece in the spring issue of The Independent Review on Federal Reserve Chairman Ben Bernanke by San Jose State Professor Jeffrey Rogers Hummel. Although a bit long, its well worth the read for anyone wanting to understand both Bernanke’s thinking and his actions during and since the financial crisis.
First, Prof. Hummel discusses the differences between Bernanke’s and Milton Friedman’s explanations for the Great Depression. Those that debate whether Bernanke’s actions, especially the quantitative easings, would be approved of by Friedman will get a lot out of this discussion. From this comparison, you get the point that Friedman was concerned about overall credit conditions and liquidity, whereas Bernanke is less focused on the monetary factors than on the impairment of credit intermediation, which explains his support of selective bailouts.
Hummel’s comparison of Greenspan and Bernanke is also insightful, particularly since many (myself included) often lump the two’s policies together. From the analysis, it is clear that Greenspan falls into the Friedman camp, his “rescues” were of the financial system in general, and not of specific firms.
One might say a bailout is a bailout, so what’s the difference between rescuing the system and rescuing individual firms within the system? Certainly that’s a view I have some sympathy for. The “Greenspan put” was as much a contributor to reckless risk-taking as anything else. Hummel, however, discuses why this difference ultimately matters, and why it shows Bernanke to fit the role of economic central planner. In short, the facts are presented that during the financial crisis, Bernanke did not actually increase overall liquidity by much, he re-directed it to those firms he deemed most important. This process of reducing liquidity to some sectors while re-directing it to others, arguably less efficient sectors, goes a considerable distance in explaining some of the decline in both aggregate demand and consumption in 2008.
Again, the piece is one of the more accessible and insightful I’ve read on Bernanke in quite a while.