WASHINGTON — Federal Reserve Board Chairman Ben Bernanke went on the defensive this week, responding to recent criticisms that he's softened his views on monetary policy since his days as a Princeton University economics professor.
Paul Krugman, a Nobel Prize winner in economics, took the U.S. central banker to task in an article in the New York Times Sunday Magazine suggesting that the chairman was no longer applying the same forcefulness he argued for as an academic in calling on the Bank of Japan to take further action to hasten its own economic recovery.
In facing a similar situation in the U.S. with a rampant unemployment rate and sluggish recovery, Bernanke has done less than expected, Krugman said.
Krugman coined it the "Bernanke Conundrum — the divergence between what Professor Bernanke advocated and what Chairman Bernanke has actually done" suggesting that perhaps the one-time academic had been "assimilated by the Fed Borg into a conventional central banker."
(For those who don't know, the Borg are a villainous race of cyborgs on the TV show Star Trek: The Next Generation. Their defining characteristic is that they forcibly absorb people into their collective consciousness, suppressing any dissent or individual thought.)
At a press conference on Wednesday, however, Bernanke expressed a much different view on the arguments he made in his 2000 paper on the Bank of Japan and the comparison to today's economic situation — flatly disputing Krugman's thesis though never mentioning him by name.
"There's this view circulating that the views I expressed about 15 years ago on the Bank of Japan are somehow inconsistent with our current policies. That is absolutely incorrect," said Bernanke at a news conference following a two-day Federal Open Market Committee meeting, which sets monetary policy.
Bernanke said the argument he made then was that a central bank, like the Bank of Japan, should do more to eliminate deflation and secondly, that when short-term interest rates hit zero, much like they are today, tools of the central bank are not exhausted.
That view has not changed, Bernanke charged.
"My views and our policies today are completely consistent with the views that I held at that time," he said.
The U.S. is not facing the same pressures like Japan to warrant an equal comparison among policy actions by the central bank, the central banker said.
"The very critical difference between the Japanese situation 15 years ago and the U.S. situation today is that Japan was in deflation," said Bernanke. "And, clearly when you're in deflation, and in recession, then both sides of your mandate, so to speak are demanding additional accommodation."
"In this case, we are not in deflation. We have an inflation rate that's close to our objective," said Bernanke.
He also challenged criticisms that have been logged by those who argue the Fed hasn't done enough by saying, "We are doing a great deal. The policy is extraordinarily accommodative."
It would be "very reckless" to actively seek a higher inflation rate in order to gain a slightly increased pace of reduction in the unemployment rate, he said.
"We, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation," said Bernanke. "To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be, I think, an unwise thing to do."
His defense failed to persuade Krugman, who responded with a brief blog post that said the comments only confirmed Bernanke's assimilation (and included a photo of Locutus, the former Capt. Jean-Luc Picard assimilated into the Borg). Krugman called the Bernanke defense "disappointing stuff."