After the 2008 crash, Americans took a number of different approaches to maintaining their sadly diluted portfolios. Some decided to sell everything at the worst possible moment, some did nothing out of fright, and others simply chose to ignore their investments and their statements for a couple of years. But one American who took definitive action was Federal Reserve Chairman Ben Bernanke.
This week, the IGM Forum experts were asked whether they think Bernanke's chairmanship will be judged favorably in the future for its creative and aggressive policy initiatives from autumn 2008 through early 2009. Eighty percent of the panel plainly believes the judgment will be favorable.
“Strong action as a lender of last resort was essential,” noted Stanford University’s Darrell Duffie. “This is what central banks do. In this instance, innovation by the Fed was crucial.” Fellow Californian Barry Eichengreen of Berkeley agreed wholeheartedly. “The Fed could have been even more aggressive. They could have recognized problems in the shadow banking system earlier. But hindsight is 20/20.”
Although the majority of the economists expressed support for the Fed’s policies, several expressed concerns about how those policies will be wrapped up. Princeton’s Markus Brunnermeier explained, “the ultimate judgment will depend on the exit strategy and how easily the Fed will return to a more rule-based policy.”
Unsurprisingly, several of the economists took issue with being tasked to read the future. Berkeley’s Hilary Hoynes said, “it is difficult to predict how history will play out: this is not just ‘economic’ predictions.” Her colleague, Aaron Edlin, expressed an analogous opinion: “Future views of the past are hard to predict with precision. That said, things would probably have been much worse without actions.”
Still, not everyone agreed. Ten percent of the forum claimed uncertainty about Bernanke’s legacy, including Oliver Hart of Harvard. “A policy where the Fed let financial institutions go bankrupt or helped home-owners directly might have been better, but we will never know,” he said. Ray Fair of Yale also took issue with the Fed’s actions. “Some of the policies had bad income distribution consequence and some were fiscal policies,” he said.
Now that most Americans are back to actively managing their portfolios, how they look at Bernanke’s legacy may be changing. But the economists of the IGM forum clearly believe that Bernanke and the Fed made the right choices. As Nancy Stokey of the University Chicago put it, “Bernanke understood very well the policy errors of the Fed during the Great Depression and had the courage to avoid repeating them.”