This week, Federal Reserve chairman Ben Bernanke goes home.
Not to Dillon, South Carolina, the place of his birth. Rather, the classroom, the place where the former Princeton University professor is in his element.
On Tuesday, Mr. Bernanke will deliver the first of four scheduled lectures to undergraduates enrolled in a George Washington University course called “The Federal Reserve and Its Role in Today’s Economy.” The title of Mr. Bernanke’s initial talk is “Origins and Mission of the Federal Reserve.” (The subsequent three lectures are scheduled for March 22, 27 and 29. All four can be watched here. Each presentation is scheduled to begin at 12.45 p.m. Washington time.)
No doubt, the students will feel like the fortunate ones. No sitting Fed chairman has before conducted a lecture series at George Washington.
But this also is a significant event in the life of Mr. Bernanke. He will be seeking to reach an audience for bigger than the one that will be assembled before him on the George Washington campus.
Perhaps the least appreciated aspect of central banking is the need to maintain the public’s confidence. And on that score, Mr. Bernanke is struggling. His image has taken a beating campaign for the Republican presidential nomination, where each candidate has taken a turn bashing the Fed and its leader. (A pledge to fire Mr. Bernanke appears to be requirement to secure the nomination.) A poll published by Bloomberg News last week showed that only 27 per cent of Americans held a favourable view of Mr. Bernanke, compared with 31 per cent who had a negative one. That’s the lowest level of public support since Bloomberg started measuring Mr. Bernanke’s approval rating in September 2009.
If Mr. Bernanke is going to turn those numbers around, there is no better place for him to do it than at the front of a classroom. By all accounts, Mr. Bernanke rarely seeks to impose his will; his voice can waiver when lawmakers attempt to draw him into a confrontation. But when given the opportunity to teach, few are better at explaining the technical aspects of monetary policy. “He reasons. He doesn’t thunder,” Roger Lowenstein says in his cover story on Mr. Bernanke in the April edition of the Atlantic magazine.
Mr. Lowenstein’s story is worth a read if only because he was granted a couple of rare interviews with Mr. Bernanke. Those sessions yielded a taste of what to expect Tuesday when the Fed chief discusses the origins of the U.S. central bank. Mr. Bernanke recommended that Mr. Lowenstein read Walter Bagehot’s “ Lombard Street: A Description of the Money Market,” the 1873 classic that laid out the tenants of a central bank as lender of last resort.
“Some people don’t understand – fulfilling the responsibility as lender of last resort is what the Fed was created to do,” Mr. Bernanke told Mr. Lowenstein. “This is what central banks have been doing for 300 years.”
However, central banks went a long time without having to bail out private lenders. That made the Wall Street rescues during the financial crisis look like ad hoc policy making designed to put bankers ahead of the unemployed. The massive money-creation schemes that followed were similarly rooted in theory but long out of practice. It all took a toll on a public that was used to watching the central bank do little more than raise and lower interest rates.
The Fed must accept some of the blame for its weak standing with the public. It was slow to make the case for its aggressive use of policy, allowing ideologues to fill the vacuum. For too long, the public heard only from pundits who thought the Fed was doing too little and from those who thought the Fed was doing too much.
Mr. Bernanke is finally fighting back, although in his own way. Last year, he became the first Fed chairman to conduct a press conference, and he continues to hold one about once a quarter. The George Washington lectures expand on that strategy, which is rooted in Mr. Bernanke’s scholarly belief that rational argument will trump ideology.
The oddest thing about watching the Republican candidates attack Mr. Bernanke so viciously is that he is one of them – installed by George W. Bush and reappointed by President Barack Obama. His sin appears to be his willingness to part from what he has called an “Old Testament” understanding of the business cycle. The loudest critics of the Fed believe a blood letting is the only way to cure what’s wrong with the U.S. economy. Mr. Bernanke apparently doesn’t have it in him to strand millions of unemployed workers without first trying all he can to stoke more economic growth.
“There is a thesis that the only way to restore the economy is by a necessary purging of previous excesses,” Mr. Bernanke told Mr. Lowenstein. “In disagreeing, I am not saying there are not imbalances that need to be fixed. That said there is still scope for policy to ameliorate the effects of necessary rebalancing on the public, to help shorten the recession.”
That won’t satisfy Mr. Bernanke’s more ideological critics. But those people are lost to him anyway. Professor Bernanke is stepping up to the lectern to win the minds of those who have yet to form an opinion of him. According to the Bloomberg poll, that remains a remarkably large number: 42 per cent.