A recent Atlantic piece on Bernanke made waves. In “The Villain” Roger Lowenstein has the caption:

The left hates him. The right hates him even more. But Ben Bernanke saved the economy—and has navigated masterfully through the most trying of times.

So he´s “hated” left and right because he´s doing a masterful job? I find that hard to believe. My view is that Bernanke is “his own worst enemy”, and that´s what brings out all the “hate”.

Bernanke has a “two views” personality:

The “credit view” Bernanke and the “monetary view” Bernanke.

The “credit view” Bernanke is well described in his famous “Nonmonetary Effects of the Financial Crisis on the Propagation of the Great Depression” published in 1983. A readable primer was written for the Philadelphia Fed Review in 1988.

His “monetary view” is well described in several non-technical pieces. I choose two quotes to show the contrast. The first is from his now famous Japanese Monetary Policy – A case of self-induced paralysis?

I do not deny that important structural problems, in the financial system and elsewhere, are helping to constrain Japanese growth. But I also believe that there is compelling evidence that the Japanese economy is also suffering today from an aggregate demand deficiency. If monetary policy could deliver increased nominal spending, some of the difficult structural problems that Japan faces would no longer seem so difficult. Alternative indicators of the growth of nominal aggregate demand are given by the growth rates of nominal GDP (Table 1, column 4) and of nominal monthly earnings (Table 1, column 5). Again the picture is consistent with an economy in which nominal aggregate demand is growing too slowly for the patient’s health. It is remarkable, for example, that nominal GDP grew by less than 1% per annum in 1993, 1994, and 1995, and actually declined by more than two percentage points in 1998.

The second from a 2003 piece in honor of Milton Friedman:

Ultimately, it appears, one can check to see if an economy has a stable monetary background only by looking at macroeconomic indicators such as nominal GDP growth and inflation. On this criterion it appears that modern central bankers have taken Milton Friedman’s advice to heart.

But have they?

In the case of Japan Bernanke wore his “monetary view hat” while regarding the US Bernanke put on his “credit view hat”. With that the Fed effectively refuses to undertake policy actions in the US that 11 years ago Bernanke pressed upon the Japanese in a similar situation.

The qualitatively comparable charts for Japan and the US are given below:

To be honest, Bernanke vaguely remembered his recommendations for Japan. He undertook “QE´s”. Only they were just palliative actions to forestall “deflation”.

It´s a pity Bernanke chose the wrong hat to wear in 2008. If only he had remembered that the last bout of bank panic in the spring of 1933 had no effect on the economy because it coincided with FDR´s expansionary monetary policy – delinking from gold and stating a target for the price level – he would have conclude that the “monetary view” trumps the “credit view” so that the economy would by now be “galloping” at much greater speed!