Paul Krugman: That 70s show
Not long ago it seemed as if everyone watching the carnage in financial markets was drawing scary parallels with the 1930s.
This time, however, Ben Bernanke and his colleagues at the Federal Reserve did what their predecessors failed to do during the banking crisis of 1930-31: they acted forcefully to avert a collapse of the financial system. And their efforts seem, provisionally, to have worked. While things are far from normal in the financial markets, over the last few months the sense of panic has been gradually subsiding.
You might think, then, that everyone would be congratulating Mr. Bernanke and company for their good work. But at an economic conference I recently attended, many of the participants — including people with a lot of influence in the policy world — seemed to be bashing the Bernanke Fed.
You see, fears of a 1930s-style financial meltdown are apparently out; fears of 1970s-style stagflation are in. And the Fed stands accused of being soft on inflation.
The emerging conventional wisdom, if what I heard is any indication, is that Mr. Bernanke has been fighting the wrong enemy all along: inflation, not financial collapse, is the real threat. And to head off that threat, the critics say, the Fed has to reverse course and raise interest rates — never mind the risks of recession.
So this seems like a good time to declare that the new conventional wisdom is all wrong. We’re not watching a rerun of that ’70s show — and the misguided belief that we are could do a lot of harm....
Read entire article at NYT
This time, however, Ben Bernanke and his colleagues at the Federal Reserve did what their predecessors failed to do during the banking crisis of 1930-31: they acted forcefully to avert a collapse of the financial system. And their efforts seem, provisionally, to have worked. While things are far from normal in the financial markets, over the last few months the sense of panic has been gradually subsiding.
You might think, then, that everyone would be congratulating Mr. Bernanke and company for their good work. But at an economic conference I recently attended, many of the participants — including people with a lot of influence in the policy world — seemed to be bashing the Bernanke Fed.
You see, fears of a 1930s-style financial meltdown are apparently out; fears of 1970s-style stagflation are in. And the Fed stands accused of being soft on inflation.
The emerging conventional wisdom, if what I heard is any indication, is that Mr. Bernanke has been fighting the wrong enemy all along: inflation, not financial collapse, is the real threat. And to head off that threat, the critics say, the Fed has to reverse course and raise interest rates — never mind the risks of recession.
So this seems like a good time to declare that the new conventional wisdom is all wrong. We’re not watching a rerun of that ’70s show — and the misguided belief that we are could do a lot of harm....