Dear Chairman Bernanke,
Well, it’s almost time. On Jan. 31, your second term as Chairman of the Federal Reserve ends and you can finally head into retirement. Janet Yellen, currently your Vice-Chairman, was confirmed in the Senate as your successor on Jan. 6, becoming the first woman to ever hold the post. While a lot of people are focusing on that big story (and with good reason), I thought it was also a nice time to reflect on your tenure.
There really are few figures in American politics that have been the recipient of as much criticism and vitriol as you have. On the left, many criticize you for being “too friendly” with Wall Street, citing actions like your spearheading of the Trouble Asset Relief Program bailouts during the financial crisis in 2008. On the right, rhetoric has been far more extreme, with Texas Governor Rick Perry referring to some of your actions as “almost treasonous” back in 2011. Just last month, a poll from the Pew Research Center put your approval rating at just 38 percent, compared to an approval rating in the 60s for your predecessor, Alan Greenspan, when he left. But despite this, it’s hard for me to look at your record and think that you deserve such disapproval. Frankly, admiration seems more appropriate.
It seems right to start with the financial crisis. While it’s easy to look back and second-guess decisions people made, it’s important to remember how massive panic was at the time. Your decision-making might not have been perfect, but you used your expertise on the Great Depression to determine what was necessary to try and stem the panic. You declared your willingness to do “whatever it takes,” as David Wessel put it in “In Fed We Trust,” to guide the economy through the crisis. And, by and large, you succeeded: the United States avoided a massive depression. This is not to make light of the economic downturn we did have, but rather to say that it could have been much worse had the right actions not been taken by you.
But the defining element of your tenure is undoubtedly your attempt to foster economic growth during the recession. After the crisis, interest rates were already at zero, and many people, citing the problem of the zero lower bound on interest rates, thought the Fed could do no more. You, however, disagreed, turning to more unconventional methods of monetary policy to spur growth. You also implemented Quantitative Easing (QE), a program by which the Federal Reserve purchased billions of securities each month to further increase the monetary base and provide stimulus to the economy. Critics called this ‘printing money’ and predicted a Doomsday scenario with massive hyperinflation. Instead, according to the Bureau of Labor Statistics, $100 in 2008 is roughly equivalent to $108.25 today, which works out to an annual inflation rate of roughly 1.6 percent. This is hardly something to be concerned about, especially with unemployment persisting as strongly as it is.
To me, the best point of reference for your performance is to contrast it with that of your peers in Europe. While economic growth domestically has certainly been slow over the past few years, it’s still been vastly better than that of the Eurozone, which shrank by 0.2 percent last year. Similarly, the unemployment rate is stuck at 12 percent in the Eurozone while ours has fallen to under seven percent. This can be credited largely to your monetary policy. Both Europe and the United States have seen fairly large fiscal consolidation over the past few years, but your Federal Reserve has acted far more aggressively to offset these fiscal headwinds, adding more liquidity to markets, quickly lowering interest rates and continuing to implement monetary stimulus through QE’s large-scale asset purchases. Quite frankly, in my mind, the Federal Reserve and your policies are the single biggest reason our economic climate doesn’t look more like Europe’s.
This isn’t to say that you’ve been perfect, or that we’re out of the woods just yet. The unemployment rate is still too high, and both tapering out of QE and unwinding the Fed’s balance sheet are two big challenges for Yellen to tackle. Yet at a time when our economy has needed all the help it can get and our federal government has been such a drag on our economy (politicians now define success as merely not defaulting on our debts), the sort of competence, policy ingenuity and growth promotion we’ve seen from the Federal Reserve have been tremendous.
Over the past few years, you’ve done a remarkable job guiding our economy, and I am confident that history will look back on your tenure more warmly than we do today. You calmed markets in the crisis, prevented a depression, kept inflation low, offset the federal government’s economic drag and simply did things that those in other countries were unwilling or unable to do to foster growth in the American economy.
I guess all I’m really trying to say is this:
Thank you, Ben. You haven’t gotten to hear it enough, but you deserve it.
