Op-Ed

Grading Chairman Bernanke

Douglas J. Elliott

Editor’s note: PBS NewsHour asked Douglas Elliott to grade Chairman Bernanke’s first term, and to offer advice for his likely second.

Bernanke gets a B+ for his first term. It would be impossible to give the central banker of the world’s largest economy any higher grade given that he was in charge for a significant portion of the bubble period that led to the worst recession since the Great Depression. However, one really needs to give him two grades, a rather low one for the bubble period and an “A” since about September of last year.

Although the Fed has made mistakes since September 2008, the response has been appropriately vigorous, imaginative, and generally well-executed. We are indeed fortunate to have had a Fed Chairman in the crisis who was brilliant, resolute, and a deep student of the Great Depression. My B+ is as high as it is because many Fed Chairmen would have made the mistakes that Bernanke did during the bubble. Very few chairmen could have performed as well in responding to the full-blown crisis.

My main advice for the future is to “stick to your guns.” I believe Bernanke has an appropriately balanced view of how to wind down the crisis responses without triggering either too much inflation or the opposite danger of deflation and a second recession. Unfortunately, doing this right will be very difficult. It will be even tougher if he responds too much to the immense political pressures that will be exerted on the Fed. I’d also request that he, and the other banking regulators, step back from their turf wars over banking supervision and work more closely together to find the best answers for America. The Fed is no guiltier than the other supervisors, but it has been dismaying to see all of them scrapping over the question of who gets to regulate which parts of the financial system going forward. Too many of the arguments seem more self-serving than wise.