Bernanke at Princeton

In March of 2006, shortly after he was appointed Chair of the Fed, Ben Bernanke returned to his recently jolted employer in Princeton to deliver his first public address in his new role. Somehow I got a ticket, which pissed off certain of my colleagues to no end. Bernanke spoke at length about price stability and how that had evolved into the key goal of the Fed. Specifically, he described how a view held in the early sixties that high inflation and low unemployment were fellow travellers got skewered, thanks to Uncle Milty Friedman in theory and finally Paul Volcker in practice, who demonstrated that low inflation and low unemployment went together even better. And then he fairly gushed about Greenspan (as, admittedly, we all did back in the day):

Most striking, Greenspan's tenure aligns closely with the Great Moderation, the reduction in economic volatility I mentioned earlier, as well as with a strong revival in U.S. productivity growth--developments that had many sources, no doubt, but that were supported, in my view, by monetary stability.

Whoops! I would guess that Ben would like to take that one back. In the end, Bernanke praises the consensus that has been achieved, and notes that "we will continue to learn about the economy and economic policy," but the overriding sense was that the Great Moderation and the consensus that had built it meant that he could run on autopilot, an impression furthered by having a railroad executive (John Snow) at the helm of Treasury.

After the talk, questions were limited to Princeton undergrads and there were only two, softballs about the Fed's role in managing asset prices and what the heck was up with China.

I so terribly wanted to ask him why he felt sure that the consensus was robust and what sort of skeptical skunkworks they had going on within the Fed trying to imagine what could go wrong.

And we got the answer to that in due course. Not much.

That said, I'm not down on Bernanke now. The guy has danced with the devil as well as anyone could have expected, expanding the Fed's repertoire of steps as needed. Yes, he's stomped on a toe or two here or there, but he's nimble nonetheless. Ron Paul and his obstructionist cronies should stop posturing, back off and let him move forward to confirmation hearings.