Bernanke, Time, Senate Banking Committee by Dollars and Sense
I asked Jerry Friedman, who wrote Bernanke’s Bad Teachers for our July/August issue, to give us his reaction to Time’s announcement. Here’s what he had to say:
In picking Ben Bernanke as Person of the Year, Time Magazine recognizes the man responsible for the little good and much bad that has characterized policy the worst economic crisis since the 1930s. When President George W. Bush appointed him to succeed Alan Greenspan as head the Federal Reserve, Bernanke was Chair of the President’s Council of Economic Advisors and an acknowledged acolyte of Milton Friedman. Like Friedman and Greenspan, Bernanke believes in “Say’s Law” or the principle that individual action through markets will eliminate unemployment. To Bernanke, the current crisis was caused by government mistakes, particularly the misalignment of currencies and the subsequent Chinese savings glut which, when it flowed into the United States housing market, led to an unsustainable real-estate boom. To address the subsequent financial crisis, Bernanke has been willing to move very aggressively but his actions have stopped with the Wall Street bailout because he sees no broader ramifications of the crisis. Confident in free-market capitalism, there is, for Ben Bernanke, no problem with free capital markets, no concern that growing income inequality or changing industrial policy may be undermining effective demand, and no reason, therefore, to revisit the conservative and pro-business policy decisions made during the neo-liberal era that began in the 1970s.
… without serious action, a sharp drop in government employment, with a loss of a million jobs or more, is what we can expect over the next year. This has implications for the economy as a whole and also for the well-being of large parts of the American public who depend on state and local government services. Two intrinsic features of the American system of government come together to threaten a social disaster: the limited capacity of state and local governments to spend beyond their immediate revenues even in the harshest economic crises, and our peculiar federal system in which education and social services are largely funded by local and state authorities rather than by the federal government, with its deep pockets and ability to spend beyond its revenues as needed to maintain existing services….