Ben Bernanke's choices

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THE COURAGE TO ACT
A Memoir of a Crisis and its Aftermath
Ben S Bernanke
WW Norton & Company
610 pages; $35

The memoirs of Ben S Bernanke, who succeeded Alan Greenspan as chairman of the Federal Reserve, are essential reading for anyone who wants to know exactly what happened at the Federal Open Market Committee meeting of August 5, 2008. Or at each of the many other Federal Open Market Committee meetings from 2006 to 2014, Mr Bernanke's years as chairman.

Yes, the book is a bit of a slog, but it is undoubtedly the best account we will ever have of how government and financial institutions dealt with what has come to be known as the Great Recession. It's an odd term, isn't it? It invokes comparisons to the Great Depression and simultaneously suggests that: "Shucks, it wasn't all that great. Wasn't a depression or anything." But Mr Bernanke is persuasive in arguing that (a) it was pretty damned great (i.e. terrible) and (b) he and his colleagues at the Fed deserve credit for the fact that it wasn't a heck of a lot greater.

Mr Bernanke, formerly a Princeton economics professor, also asks for and deserves credit for his pet cause of more openness - or, as we say now, "transparency" - at the notoriously secretive Federal Reserve. Alan Greenspan liked to cultivate an air of mystery. By the time Mr Bernanke stepped down, the Fed chairman was holding four news conferences a year.

As Mr Bernanke himself tells the tale, he perhaps came to enjoy wearing the crown overmuch. There are a few too many sentences like, "Afterward, my security team and I dropped Larry Summers off at his hotel." At the same time, there are far too few sentences containing the words "Larry Summers," which are generally a guarantee of interesting controversy.

Now that he has a memoir to peddle, Mr Bernanke may regret his apparent - and apparently sincere - policy of having a nice word for everybody. For example, he has belatedly changed his mind about whether misbehaving bankers should have gone to jail; in recent interviews he's said he's for it, though there's not much evidence of that in the book. And when Mr Bernanke decided to resign ("More than a decade in the Washington pressure cooker was enough"), President Obama asked his advice on a replacement. Mr Bernanke writes: "I didn't want to influence his choice too much, since my support for any one candidate could easily be misrepresented as opposition to another." Mr Bernanke never does tip his hand about who he thought should succeed him, but you get the feeling his candidate was not Mr Summers.

The time and energy Fed policy makers spend worrying about the board's image and attempting to affect how its actions are interpreted does at first seem excessive compared with, for example, that of the Supreme Court. But the Supreme Court's work product is legal opinions, which are supposed to be tightly reasoned and to speak for themselves. Fed pronouncements, by contrast, are purposely - and to some extent necessarily - ambiguous. If the financial markets knew in advance precisely what the Fed intended to do (drive interest rates up, but not so far that you drive the economy back into recession; lower interest rates but not enough to spark inflation; etc.), doing it would be harder. Even a transparency enthusiast like Mr Bernanke did not want to spill all the beans.

By law, as Mr Bernanke explains repeatedly (with a slightly exasperated tone), the Fed has what's called a "dual mandate": to protect jobs and also to protect the stability of the currency. Or, in other words, to maximise employment and minimise inflation. These goals are inherently contradictory, and the Fed has only a limited number of dials it can fiddle with to achieve the best possible combined result. The heart of "The Courage to Act" is a detailed but very lucid step-by-step explanation of each crisis Mr Bernanke and the Fed faced during his tenure, from the collapse of Bear Stearns in 2008 to the continuing trauma over Greece and the euro that is still going on. In each case Mr Bernanke lays out the problem and how it came about, discusses the pros and cons of various solutions, then tells us how it all was resolved - generally with a compromise, which Mr Bernanke supports because he understands and appreciates the concerns of both sides. This is an excellent approach for a Fed chairman, but somewhat less desirable in a memoirist.

Mr Bernanke makes a compelling case that in 2007 and 2008, the world economy came very close to collapse, and only novel efforts by the Fed (cooperating with other United States and foreign government agencies) saved us from an economic catastrophe greater than the Great Depression. Although he agreed with concerns about moral hazard, he concluded that in this particular case, too much was at stake to worry about it. He never really offers a theory or guidepost for deciding when traditional concerns like moral hazard should be put aside.

The Federal Reserve system is hard to justify in democratic terms. Except for a few cranks and obsessives, almost nobody can even explain how it works, let alone develop an informed opinion about the policies that emerge from it. Ben Bernanke fought for more openness at the Fed. It was a worthy fight and he won. But what good is transparency if almost everybody is looking the other way?

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