Roger Lowenstein’s profile of Fed Chairman Ben Bernanke is absolutely worth reading. Like his book When Genius Failed, which is still among the best short studies of this world of stochastic engineering, here in The Atlantic he does an excellent job converting the intricacies of monetary policy into a comprehensible vernacular.
Lowenstein is certainly not always right on every particular (associating Bernanke with both Friedman and Roosevelt, while provocative and a bit bracing, sort of resolves into penumbral confusion), but his wider narrative is sound. Moreover, he is admirably fair to all sides (which contributes to some elisions). He even quotes a respected goldbug at the very end.
He is emphatic about the distinction between monetary policy (Friedman did indeed conclude that over-tight money prolonged the Great Depression) and fiscal policy. Now and then you’ll get the rhetorical knives flashing against the absurdity of Helicopter Ben and his dollars from the sky; as a fact the imagery should be Helicopter Milt. But someone vituperating against Milton Friedman would seem decisively out of place at a Tea Party rally.
All of which gets back to my suspicion that it is in the interest of almost every nefarious actor, from agitator and demagogue to financier and politician, so to blur and obscure the fiscal and monetary distinction, as to insure for himself a more facile rhetorical position. He can avoid the hard decisions of fiscal retrenchment by pretending its Bernanke’s fault. He can obscure the difference between tight money and fiscal austerity, merging them into one indistinguishable muddle, and thus conceal the possibility of an intelligent observer who favors looser money and more austere government budgets, a la Cameron’s government in the UK. These devices are tiresome but effective. The subtleties of this business are formidable. But if we to permit the idea that money supply and the welfare state are the same vexation, we might as well say that loose screws and loose women are the same problem.
So on the whole I take it as a strong note of integrity when an interpreter like Lowenstein insists on this conceptual rectitude.
Now that we have a Federal Reserve is a fact. That statutes of some antiquity — themselves formed in imitation of older American statutes — supply the structure of this central bank, distinguishing it for some similar institutions elsewhere, is another noteworthy fact. That we ought to have fiat currency is a more contested conjecture, but that we have one is not. Another contested fact is whether we have (or at least recently had) a wild-west regulatory environment, which in function gave shadow banks an opportunity to write paper promissory like an appendage of the sovereign. AIG printed a hell of a lot of American money with its default-swap trade; it operated like a lawless state-chartered bank in the days after Jackson, free to issue scrip to whatever sucker was willing to buy. A lot of this money was backing the US housing market.
Long-Term Capital Management was in the same game, up until its demise some twelve years ago. It helped the Italians work their bond markets into shape for the euro entry. It arbitraged the Treasury market. It absorbed risk in great quantities from various actors, performing a service they desired, collecting big fees, freeing more and more “product” to enter capital markets, smoothing over fixed-income oddities, and generally accelerating the circulation of capital by prodigious amounts. It used important connections and dazzling wizardry to mesmerize clients. It was the most prestigious enterprise in a pretty much free market.
This plutocratic unity of state and financier bulks big in the story of free enterprise’s subjection to supererogatory finance abstraction. The Federal Reserve is unquestionably bound up in its machinations. It’s possible that leaving the gold standard in the 70s was a huge mistake. It’s possible that deposit insurance is unwise. It’s highly probable (in my judgment) that broker-dealers should have never sold public shares but stayed private partnerships. But it’s highly improbable that a ritualized dismantling of the Fed, perhaps including an attack on the lender-of-last-resort function, will do any good. The expedient demonization of Ben Bernanke should stop. He’s had some meaningful successes achieved in the heat of crisis for which Americans ought to be thankful, given the alternatives; his subsequent ameliorative policies are more problematic, but only time will tell.
In my estimation, however, the real and lasting damage to our economy has come from other quarters than the central bank.