RSS
Paul Krugman vs. Ben Bernanke: Is there a dangerous 'hive-mind' at the Fed?
The Nobel laureate accuses the Fed chairman of blindly following the rest of the Federal Reserve, and not being aggressive enough in fighting unemployment
 
Paul Krugman and Ben Bernanke, two of the nation's leading economists, may have to agree to disagree over how to use the Fed to create jobs.
Paul Krugman and Ben Bernanke, two of the nation's leading economists, may have to agree to disagree over how to use the Fed to create jobs.
Imaginechina/Corbis, Zhang Jun/Xinhua Press/Corbis

The economy-focused corner of the web was enthralled this week by the "Battle of the Beards": Paul Krugman vs. Ben Bernanke, says Paul La Monica at CNNMoney. The first salvo came Sunday, when Nobel-winning economist Krugman took Federal Reserve chairman Bernanke to task in The New York Times Magazine for being more timid in juicing the economy as Fed chief than he'd advised as an academic, leading to unnecessarily high unemployment. Krugman then "geeked out," hypothesizing that his former Princeton colleague had been "assimilated by the Fed Borg, like Capt. Jean-Luc Picard in a famous Star Trek episode, converted into a half-robot servant of a hive-mind." In an unexpected rebuttal, Bernanke told reporters Wednesday that Krugman's advice, to temporarily increase inflation to try to lower unemployment, is "very reckless" and "unwise." Krugman shot back that the chairman's response proves his point about Bernanke and the Fed Borg. Who's right?

The Borg has changed Bernanke: I had chalked up the striking difference between Professor Bernanke's bold solutions and Chairman Bernanke's costly inaction to political pressures, says Noah Kristula-Green at The Daily Beast. But Krugman persuaded me that Bernanke started shifting toward the Fed's more hands-off approach soon after joining in 2002. And that "raises a frightening question: If this is what happens to someone who used to espouse aggressive monetary policy, what will happen to someone more timid?"
"What if Bernanke was always less aggressive than we thought?" 

Bernanke hasn't been assimilated: "Bernanke vs. Krugman is fun to watch, but it's a false dichotomy," says Greg Ip at The Economist. Bernanke may have sounded like a tight-money, low-inflation hawk when he swatted away Krugman's analysis, but the rest of his comments and the economic projections he released suggest otherwise. Judging from those projections, it seems that 13 of the 17 members of the Federal Reserve's Open Market Committee want to tighten sooner than Bernanke does, which would imply that Bernanke's "still a dove," and "increasingly an isolated dove" on the Fed. His views will prevail while he's chairman, until 2014, but then Krugman and others pushing for an aggressive Fed will lose "the best ally they've got."
"Lonesome dove"

The Fed isn't a one-man committee: "I don't think we really know what the Fed chief is saying," says Ezra Klein at The Washington Post. Bernanke agrees with Krugman that the Fed has tools it isn't using, but the two economists disagree over whether using them is worth the risks for the number of jobs created. What Bernanke thinks only partly matters, though: He's outgunned by the hawks, thanks to open Federal Reserve Board seats President Obama can't fill. Not doing so "when he had 60 votes in the Senate is likely to go down as one of Obama's costlier mistakes."
"Ben Bernanke vs. Paul Krugman"

 

THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER

Subscribe to the Week