So it’s a puzzle: Ben Bernanke as an academic recommended policies that, in the opinion of market monetarists, would actually have required a smaller expansion of the Fed’s balance sheet in the wake of the 2008 financial crisis.
Yet inexplicably, once Bernanke assumed a position of immense power, all of a sudden those beliefs went out the window. Now, Bernanke did all sorts of nonsensical things, like paying interest on reserves–a very contractionary policy that made absolutely no sense, given that the ostensible purpose of the Fed’s overall strategy was to boost lending and spending.
Hmm, how can we explain this? An academic abandons his views the moment he assumes power, and begins funneling billions of dollars annually to the shareholders of the company of which he’s the CEO. He also buys trillions of dollars worth of bad assets that his new rich buddies invested in during the housing bubble years, even though such asset accumulation is totally unnecessary, as his own academic work explained.
Well, I’ve got my theory. Scott Sumner’s theory is that Bernanke is just a really nice guy.
These Chicago School economists always assume the best of people. It’s touching, really.