In (limited) defense of the Bernank
Progressive social media is echoing with the theme that everything would be well with the American economy were it not for the willful obstructionism of Ben Bernanke.
Here is a tweet from Matt Y:
"the gaps get smaller with every month Bernanke lets our human and physical capital stock decay -- that's the problem!"
"I'm not sure I understand why it's my job to "understand" the man presiding over a total disaster."
And here's the usually excellent Interfluidity telling us that our current economic woes are a deliberate choice made by our policymakers:
"We are in a depression, but not because we don’t know how to remedy the problem. We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives."
First of all, we are not in a depression. Nor is the economy a "total disaster". We are in a disappointingly slow and painful recovery from a very deep recession.
Second, the Bernank actually helped to save our asses back in the darkest days of financial panic.
Third, these are the same folks who generally believe that wages are too low and workers don't earn enough compared to capital. Yet their solution to the low growth / high unemployment problem is for the Fed to lower wages?
Fourth, the Fed cannot automatically control the real interest rate. Do you think the Fed could set inflation or inflation expectations at 10% and simultaneously hold nominal rates at zero?
Fifth, NGDP targeting is not some magic bullet that would solve our current problems. It relies crucially on a particular path for expectations. If you think it's easy for an actor who can't easily make credible commitments to control expectations, you should read Svensson's work and ask yourself how likely it is that the Fed could ever follow Svensson's foolproof path.
I personally support having the Fed try some additional unorthodox policies in the short run. Even if there's only a .25 chance they significantly affect employment and growth, why not try? But I do not think the Fed is sitting on policies that will definitely cure our economic ills. The Fed is not close to omnipotent.