Bashing Ben Bernanke

Should Republicans criticize the Fed chairman?

In the Republican presidential campaign, candidates are sharply divided about Federal Reserve Board Chairman Ben Bernanke. Some want to heat up the tar. Some want to bring the feathers.

Hugo Chavez would get a warmer reception at a GOP event than Bernanke. In Tuesday's debate, former House Speaker Newt Gingrich pronounced him "disastrous." Former Massachusetts Gov. Mitt Romney charges that he has "over-inflated the amount of currency." Texas Gov. Rick Perry warned Bernanke against pursuing a monetary policy that would be "treasonous."

Bernanke's alleged sins are legion. He is blamed for bailing out Wall Street, destroying the value of the dollar, orchestrating events to re-elect Barack Obama, and sinking the Titanic.

His GOP detractors don't mention that he was appointed by George W. Bush, and that the Wall Street bailout bill passed in October 2008, before Obama arrived. They also forget that Bernanke's actions helped avert a complete financial collapse that could have caused a full-fledged depression.

It's easy to dismiss the Fed's critical role back then. But had Bernanke shrunk from the task, or botched it, he would qualify as the worst Fed chairman in history.

Many conservative economists give him high marks. "The Fed got the big things right," says John Cochrane of the University of Chicago Booth School of Business, who notes that it averted the mistakes that brought on the Great Depression. "We did not have deflation. That's enormous."

As he tries to combat the recession, Bernanke is accused of making monetary policy with a fire hose—spraying out new money that will inevitably bring back inflation. The complaint is at the heart of the Republican indictment. But it is largely a stranger to reality.

Under Bernanke, inflation has not flared out of control. Last year, the Consumer Price Index rose by just 1.6 percent. The year before, it actually fell. "The average annual inflation rate during Bernanke's term is lower than any Fed chair since 1970," notes Time magazine.

Lately, the CPI has been inching up. But that is largely a transient artifact of food and energy prices rather than a broad-based rise in prices. The core CPI, which excludes these commodities—not because they are unimportant but because they are notoriously volatile and often misleading—is up just 2 percent in the past year.

If investors were expecting runaway prices, they wouldn't be snatching up five-year Treasury bonds paying interest just above 1 percent per year. Rates on 30-year mortgages wouldn't be at record lows.

For that matter, consumers wouldn't be squeezing every nickel till Thomas Jefferson screams. If you expect prices to be higher tomorrow, the logical response is to buy today.

I asked John Makin, an economist at the conservative American Enterprise Institute in Washington, if he sees any danger of inflation. "I don't," he replied. Greg Mankiw, head of the Council of Economic Advisers under President George W. Bush, titled a recent blog post, "Why I am not very worried about inflation just now."

Herman Cain and others accuse Bernanke of undermining a strong dollar. But the dollar is actually up against the euro over the past six months, and it's about where it was four years ago, before the recession and the financial crisis. As Cochrane tells me, "People are still running to dollar securities, not from them."

Republicans have come to view Bernanke as a flunky for the incumbent president. Perry fears he is "allowing the Federal Reserve to be used for political purposes"—in other words, to improve Obama's re-election chances.

But the Federal Reserve, by law, has two responsibilities: to promote full employment as well as stable prices. Bernanke is clearly striving to foster economic growth, which may be good for Obama but is also good for the country.

It's hard to guess what he would do differently if the election were three years away instead of one. If Republicans think the Fed should adopt a policy of utter indifference to high unemployment, they should say so.

Bernanke, who has done at least a competent job with hellish challenges, may wonder how he got to be a cartoon villain. He might reflect on the wisdom of Mark Twain: "If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man."

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