The Washington Post Profiles Ben Bernanke
A thoughtful piece in the Washington Post on Ben Bernanke is extremely
laudatory about his new approach at the Fed.
I still worry that in the end that the government will have spent trillions too much to fight a recession and that economic growth will suffer for decades. There is a real principal-agent problem at work here. If the government does nothing and we have a huge depression, Bernanke and Obama get blamed. If the government does nothing and we don’t have a depression, they don’t get much credit.
If the government spends trillions and we still have a huge depression, people will say, “Think how bad things would have been if they hadn’t spent those trillions.” If they spend trillions and we don’t have a depression, people give them credit for averting the depression.
So even if the trillions do nothing, the government still has a strong incentive to appear to be doing something, even if the cost is high. And we will probably never learn whether the trillions were well spent, so we won’t know any better the next time around.