Bernanke: The Accidental Fed Chairman


Washington Post columnist Neil Irwin stopped by to discuss his book, The Alchemists: Three Central Bankers and a World on Fire. It's a great read on the history of central banks, including how they responded to the financial crisis and the challenges they face in the future.

In this video segment, Neil describes the man who never intended to be chairman of the Fed, and how his past experiences came together to prepare him for the task he faced in 2008. A full transcript follows the video.

Morgan Housel: How was Bernanke different when he was a professor, 10 years ago, than he is now?

Neil Irwin: I didn't know him at the time, but from everyone I've talked to, very cerebral, very quiet. It's interesting. He was the Economics Department chair at Princeton, and he jokes -- it's kind of a joke -- he said, "My biggest responsibility was to decide whether to bring bagels or doughnuts to a faculty meeting."

Department chairs in a university, it's not a lot of pure power. It's more the power to influence and guide a department.

But I think there's something relevant there, which is his experience was in these settings where his job is not just to make unilateral decisions. His job is to persuade a group of people, to guide a group of people, toward an answer, toward a solution -- preferably his own preferred solution.

It's one where you can't just boss people around. You have to use force of intellect, force of persuasion. Just as at Princeton, deciding, "OK, we're going to do this with the curriculum," he had to persuade his fellow faculty members, "This is the direction we're going to go."

At the Federal Reserve, he can't make a ton of decisions unilaterally. He has to persuade the Federal [Open] Market Committee, this group of economists who get around the table eight times a year, that this is the course we're going to take, this is the best thing to do.

I think there are some real parallels in his previous life, and how he's behaved as Fed chair.

Housel: His academic background focused on the Great Depression. Then here we were in 2008, facing what might have been the next Great Depression, so in many ways Bernanke was the perfect Fed chairman, in terms of his academic background, right?

Irwin: Yeah. In a lot of ways, if you went back in time and told George W. Bush in 2005, "You know, as you're choosing a Fed chair, you ought to know there's going to be a big crisis, so you'd better think about that," I'm not sure if that would have led you to say, "Oh, well, I need Ben Bernanke," because he didn't have a financial markets background. He had never worked on Wall Street.

He was viewed as kind of this quiet, deliberative professor, who got along with everybody, was very thoughtful, seemed to exhibit a good, level head, some good leadership qualities, but was not a savvy Washington guy, not a savvy Wall Street markets guy.

But as it turned out, he was able to learn a lot of that stuff, and really learn on the job how to deal with the market aspects, and his academic training turned out to be a unique match for the moment.

My understanding is, when he was interviewing in the White House for the Fed chairmanship, his academic background on the Depression didn't come up at all, but it turned out to be shockingly relevant to his experience, and the same with his study of Japan.

It's not just the Great Depression. He also was one of these scholars criticizing Japan in the '90s and early 2000s.

I think if you look, not at the crisis response, not the initial bank bailouts and all that, but the different rounds of quantitative easing, QE1, 2, 3 ... that's been about the Fed trying to prevent us from becoming Japan, settling into deflation, so I think that experience has been relevant as well.

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