BERNANKE’S TEST

Should we feel better that the chairman of the Federal Reserve is an authority on the Great Depression?

Perhaps so, suggests Belgium-based economist Van Overtveldt (The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business, 2007)—if only because Ben Bernanke is more sensitive to market movements and trends and more forthright in his assessments of them than his predecessor, Alan Greenspan, whose gnomic public utterances were “usually vague and restrained.” The central bank that both headed is, at least as ideally conceived, responsible for helping maintain the overall health of financial conditions that drive the economy. Yet the power of the Fed has grown, perhaps unintentionally, and it has become less accountable, more secretive and obscure, and perhaps less effective. Van Overtveldt examines this evolution in light of the current financial crisis, noting provocatively that whereas Greenspan was once viewed as something of an economic magician and an exemplary manager of money, “recently…there has been a considerable re-evaluation of some of his decisions.” As a regulator, the author writes, Greenspan was mediocre. But previous efforts to regulate diligently, guided by Keynesian views that neglected the supply side, were none too successful either, impeded by the politics of self-interest and greed. Van Overtveldt’s enumeration of the succession of crises that Greenspan oversaw will make the reader wonder why anyone ever held him in esteem; this account also does much to explain the actions that Bernanke has been taking of late. The author’s analysis of savings rates, deficits, monetary contraction and other matters, backed by ample graphs and plenty of hard data, is not for the numerically faint of heart, but it is accessible. Van Overtveldt is particularly clear when he examines pronouncements on the part of both Bernanke and Greenspan that he considers “spectacularly wrong.”

A timely study that will help readers interpret the headlines, though it offers little comfort to those hoping for a quick solution to the present mess.