Bryan Kaplan asks an important questionabout Ben Bernanke's policy choices:
As Sumner keeps telling us, all of Bernanke's research prescribed a simple solution: Maintain nominal GDP, and let the other chips fall where they may. This might have meant quantitative easing instead of targeting short-term interest rates, but that's it. Instead Bernanke became a key accomplice for the disgraceful series of bailouts, fiscal stimulus, and obfuscation about the zero nominal bound. The latest round of quantitative easing makes Bernanke's doublethink plain; if he thinks it's going to work in 2010, why wouldn't it have worked in 2008? And if it would have worked in 2008, why did he join Paulson and Bush's stampede?
In the end, Bernanke's behavior baffles me. He abandoned his own intellectual positions without explanation, humiliated himself, sparked a terrible recession, set a long list of dangerous precedents, and pushed the U.S. and the world down the road to serfdom. My best guess is that he simply didn't have the backbone to tell people like Paulson and Bush that they didn't know what they were talking about. Whatever the reason, though, the crisis forced me to rethink my optimism about the Fed. Bernanke and company ignored their own research, got predictably bad results, and pleaded impotence. Instead of playing the voice of reason, they acted like they'd believed in bailouts and fiscal stimulus all along. I expected better. I was wrong.