Bernanke Legacy: Arsonist Fireman or Savior?

This week, the Federal Reserve concludes its last policy meeting of the Ben Bernanke era. (Janet Yellen will succeed Bernanke as leader of the central bank on February 1.) That means it’s time to consider Ben Bernanke’s legacy during his seven years as Chairman of the Federal Reserve.

Bernanke presided over one of the most turbulent periods in U.S. economic history and reviews of his performance have varied. Critics note that Bernanke is like an arsonist fireman, who starts a fire and then is congratulated when he puts it out. They say policies that Bernanke advanced in the early 2000's helped foster conditions that allowed a housing bubble to form, and that he has been a modern-day money printer, who missed the implication and severity of the subprime crisis in 2007. Who can forget his May 2007 comment, “We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.” Woops!

But Bernanke fans see him as the savior of the financial system. After recognizing the magnitude of the crisis, he rose to the occasion, according to Martin Wolf of the Financial Times. “Bernanke acted decisively and effectively, slashing interest rates and sustaining credit.” Once the worst of the crisis passed, Bernanke realized that political fighting in DC had made the Federal Reserve the economy’s best hope for a sustained recovery. He resorted to extreme measures to prod growth: maintaining short term interest rates at zero and purchasing bonds for the Federal Reserve’s portfolio.

The naysayers contend that although Bernanke’s extraordinary monetary actions have not yet created inflation, they will down the road. They also say that unwinding these policies under Janet Yellen will lead to destabilizing events across the globe--just take a look at the emerging markets in the last week alone!

How history judges Bernanke will depend in large part on what happens in the next group of years. As the legacy of the Bernanke era develops, there is no doubt that the man will be seen as one of the most important Fed Chairmen in the 100-year history of the central bank. Feel free to cast your vote in the comments section below!

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