Inside the Mind of Ben Bernanke

Ben Bernanke, the chairman of the U.S. Federal Reserve, is a man of few words. Even in crowds full of people, he is often seen to be lounging quietly or sitting alone. No superfluous words are issued in conversation. The sentences he utters are composed so tersely as to verge on coldness.

Bernanke has not changed much since this reporter saw him speak at a 1997 press conference of the then-chairman of the Fed. His voice and tone stayed consistently strong as he read his statement and answered questions. He did not smile once during the hour. It was enough to make him appear as if devoid of emotion when he walked away at the end of the conference.

Bernanke was also a professor of economics at Princeton University. As a leading Keynesian alongside seven-year Princeton colleague Paul Krugman, Bernanke did not budge on his stance as errors issued from the Keynesian approach became targets of much criticism. His strong character was particularly noted in his censure of the Japanese economy during the ‘90s. When the Japanese economy was deaf to prescriptions and headed toward a 10-year descent, Bernanke suggested the extreme measure of “helicopter-dropping” money on the country.

Bernanke also accommodated Paul Krugman’s suggestion to raise inflation targets so markets could be assured of the Central Bank’s determination to implement pump-priming policies. This prescription was based on the belief that markets could be immune to easing and that a stronger injection would be necessary. The suggestion was strongly distasteful to the Bank of Japan, which at the time was implementing its own powerful strains of expansionary policy. This is part of the reason why Bernanke, who had studied the Great Depression and financial policy, had come to be classified as an extreme Keynesian.

Bernanke, however, is now being reproached by Keynesians, with Paul Krugman at the lead. When the end of QE2 was declared in June, Krugman rebuked what he believed to be a premature conclusion to the economic stimulus. There was a disappointed reaction immediately after the Federal Open Market Committee meeting in August that announced the Fed’s plans to maintain zero interest rates until 2013, as well as accusations that Bernanke seemingly did not care whether the U.S. economy was on the path to long-term growth. It was even said that the headstrong Princeton professor, who had once scolded the Japanese government on its economic policy, had all but disappeared.

Three members of the FOMC opposed the policy declaration emerging from the meeting in August. Including this meeting, there have been 26 instances of dissent within the FOMC since Bernanke took office in 2005. Christina Romer, the chair of the Obama administration’s first Council of Economic Advisers, has offered her sympathy for Bernanke’s plight of being surrounded by so many anti-Keynesians.

Even a slight understanding of Chairman Bernanke’s character offers insight into the inner workings of his mind. More difficult to do is anticipating what he’ll present as his excuse.