Bernanke at the brink -- a lousy time to have an academic

Bernanke has it in his hands to control the spiraling credit crunch by lowering rates (or even indicating that he is seriously thinking of doing so) or to keep credit relatively tight and push the market and the economy into a real danger zone. Greenspan, in the past, made a habit of getting in front of potential shocks to the economy by acting to forestall them. But, Unlike Greenspan, Bernanke -- coming out of the academy and distant from the real world -- is willing to let the market play out on its own. It is a hell of a time to have an academic in this post.

Bernanke has it in his hands to control the spiraling credit crunch by lowering rates (or even indicating that he is seriously thinking of doing so) or to keep credit relatively tight and push the market and the economy into a real danger zone.  Greenspan, in the past, made a habit of getting in front of potential shocks to the economy by acting to forestall them.  But, Unlike Greenspan, Bernanke -- coming out of the academy and distant from the real world -- is willing to let the market play out on its own.  It is a hell of a time to have an academic in this post.

Their is a real difference between those in the university and those not.  And, the difference is experience -- real experience -- and a predisposition to "studying" things and "letting things take their course."  Greenspan was great, in the main, because he could see things coming and would take action.  His successor seems far more inclined to just let things happen, preferring to worry little about the short term in favor of staying true to his focus on inflation.  Perhaps, it would be less troublesome if inflation were really in check for the moment as Bernanke believes.  But anyone buying goods and services -- and gas at the pump -- knows it is not as convenient indicators suggest.

We are in serious times, and they are about to get worse.  The Fed has room to lower rates, and that is the obvious and necessary step to take.  Nonetheless, the consensus is that Bernanke will neither do this on Tuesday nor even suggest that he might a little bit out.  If he acts as planned, we will see a real economic slowdown, one that will hurt a very large number of middle-income Americans.

If I had one suggestion for Bernanke at this key moment in his tenure it would be to forget all he learned in the academy and talk to some advisors with real world experience.  But most academics think they know it all, and he probably does too. 

 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • GSchles

    August 06, 2007

    I agree that Bernanke's background in academia is more likely a hinderance than a benefit. However, I think that he should be raising rates to fight inflation and not responding to credit risk.

  • MBANewlyMinted

    August 06, 2007

    I actually don't think the economy is that bad. Inflation if anything looks likely to accelerate. Why would he want to raise rates just bail out a few hedge funds?

  • Dave Lloyd

    August 07, 2007

    Whatever the guy does, people are going to criticize him. The comparison with Greenspan is unfair, and his academic background is irrelevant.

  • VictorWu

    August 09, 2007

    He certainly has screwed up by not lowering rates when needed.

  • Richard Mac

    August 14, 2007

    Bernanke is doing an outstanding job. It is absolutely a position for someone who understands history and has studied prior moves and their history. Bernanke is not rash - he is thinking things out and contemplating moves. This should give great comfort to the markets.

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