Sewell's Chan's appreciation of Ben Bernanke is both my favorite and the most frustrating mainstream media depiction I've read so far. It's my favorite because it gets at the total paralysis of our economic policy-makers, and it's frustrating because I think it downplays Bernanke's own confidence that the Fed can take steps to increase aggregate demand.
Bernanke needs to make up his mind. If he thinks the Fed can't do anything about the current crisis, as Chan's interpretation posits, then he needs to quite forcefully tell Congress to take more fiscal action rather than just hinting that maybe that's a good idea but he would never want to tell Congress what it ought to do. On the other hand, if he thinks that the Fed can take action to end its failure to achieve either of its two institutional goals -- maintaining price stability and maximum employment -- then he should do those things. If he's going to just meander around the options and wait for further economic deterioration, he should have the integrity to resign and let someone who is willing to take a crack at the problem from some angle step in.
More broadly, we really need to update our ideas about Fed independence to encourage central-bank officials to talk in English. I understand that there's a long tradition of deterring financial speculation and building credibility by surprising the markets with policy shifts, but it's very strange that intelligent people can all read the same speech and come up with takeaways that range from 'the central bank can do nothing' to "Fed Stands By To Boost Growth." It doesn't make for a very useful debate.
-- Tim Fernholz
