Wednesday, December 09, 2009
Dean Baker writes in the Huffington Post that the current Fed chairman is no better than the last Fed chairman when it comes to spotting asset bubbles and, for that reason, maybe doesn't deserve to be reappointed.
As the Senate debates Federal Reserve Board Chairman Ben Bernanke's reappointment, it is striking how the media view blaming Mr. Bernanke for the Great Recession as being out of bounds. Of course Bernanke bears much of the blame for this economic collapse.Yes, Baker is one of the astronomically small percentage of economists who have some sort of an odd physiological makeup - perhaps a misplaced gene somewhere - that allows them to actually see asset bubbles in real time. When you think about it, it's kind of unfair for him to be criticizing other dismal scientists who are not so blessed.
He was either in, or next to, the driver's seat for the last seven years. Bernanke was a member of the Board of Governors of the Federal Reserve Board since the summer of 2002. He served a six-month stint as head of President Bush's Council of Economic Advisors beginning in the summer of 2005 and then went back to chair the Fed in January of 2006.
This crisis is not a weather disaster like Hurricane Katrina; it is a manmade disaster that was brought about by seriously misguided economic policy. And, after Alan Greenspan, Bernanke was better positioned than any other person in the country to prevent this disaster.
The basic argument is very simple. The country had an enormous housing bubble. This bubble drove the economy ever since the last recession in 2001. It propelled the economy directly through a building boom that sent housing construction to record levels. Indirectly, it led to a consumption boom as people spent money based on the $8 trillion in housing equity that was temporarily created by the bubble.
When the bubble collapsed it was inevitable that it would lead to the sort of disaster that we are now seeing.