Ethan Harris has provided a very well written, very readable monograph on Ben Bernanke and the Federal Reserve Bank. He does a wonderful job of explaining broad macroeconomic theories in an understandable prose that anyone can grasp.
This book goes into some detail on the how the Federal Reserve system works and how the central bank’s policies impact the economy. The main theme of the book, however, is how Ben Bernanke’s chairmanship is likely to differ from, and possibly be an improvement over, the tenure of Alan Greenspan. It offers some hope that Bernanke is cut out for his important role in tough economic times, despite some critics of early in his tenure.
Bernanke comes from an academic background, and while that sounds like a positive, his lack of experience in the fast moving world of business and economic forecasting could initially have put him at a disadvantage. But his digging into this new role as a longtime member of the Federal Open Market Committee (FOMC), with the more tempered approach of an academic, offers a different style than Greenspan.
Beyond describing how the Federal Reserve system works, which makes the book worth reading in and of itself, there are several themes about how the Fed will be different under Bernanke.
First, Greenspan was a “rock star” or “celebrity” economist with a very high public profile. Bernanke is quite different, with a lower profile and will likely be more tempered in his dealings with the press and public.
Second, the decision making process of the Federal Reserve is more transparent and open, instead of secretive and opaque. This should lead to the financial services industry having a better understanding of why the Fed makes the decisions it does and where it’s likely to go next.
Third, the decision-making process is more consensual than autocratic. Greenspan dominated FOMC and could often use intimidation and his stature publically to get his way. While the more collegial process may sometimes highlight disagreements, the approach is also more democratic and transparent.
Fourth, related to transparency, is that Bernanke’s Fed is much clearer about what their policies are likely to be in the future and why, unlike Greenspan who talked and communicated in such arcane language that firms actually hired consultants simply to puzzle out what Greenspan meant and what the Fed was likely to do. While this candor and transparency may open up the Fed to more criticism, it’s a more forthright and reasonable approach than secrecy.
Finally, Bernanke is not likely to overstep his bounds and consult on broader economic issues outside the Fed’s purview. Greenspan’s inserting himself into economic policies either by speaking to the press, or as an advisor to politicians, was seen by some as possibly threatening the independence of the Fed from politicians.
There is much more in the book, including specifics on different policy approaches and styles. This is a book well worth reading to get a better understanding of how the economy works and the Federal Reserve Bank’s role in it.