TIME's Person of the Year - In Fed We Trust

Time magazine has picked its person of the year, beginning their description of him thus:

A bald man with a gray beard and tired eyes is sitting in his oversize Washington office, talking about the economy.

Hooked yet? Try this:

He's shy ... he prefers to eat at home with his wife, who still makes him do the dishes and take out the trash. Then they do crosswords or read. Because Ben Bernanke is a nerd.

Ben Bernanke was eerily suited to be the Fed Chief during a time of crisis. His life before public service was that of a scholar, and his scholarship was in the Great Depression. That serendipity might just be what has saved us—if indeed we are saved—from another full-blown depression. Bernanke has caught a lot of political flack for his decisions—from both sides of the aisle. It wasn't a particularly populist move to pump hundreds of billions of dollars into a financial system that had just failed the country on so many levels. However, as Time's Managing Editor Rick Stengel stated last night on Charlie Rose, "The financial system and the economy are two different things, but if the financial system goes down, it takes the economy with it." Being a scholar of the Great Depression, Bernanke knew this and did what he thought necessary to prop up the financial system to stave off the worst-case scenario for the entirety of the American (and therefor world) economy. There seems to be a growing number of folks distrustful of government intervention in the markets, in any scenario, that are worried about Bernanke's moves. Ron Paul's call to literally End the Fed is a bestseller, for example. But even Milton Friedman, the "OG" of distrust in government intervention, thought it necessary for the state to pump money into the economy in times of crisis. As David Wessel asserts in his great book In Fed We Trust: Ben Bernanke's War on the Great Panic, published by Crown Business in August:

"Today, the notion that the government should or would stand by as the stock market crashed, credit markets stalled, and the economy tumbled over the abyss seems implausibly bizarre. The public, politicians, professors, and the press have been shaped by searing memories or photographs from the Great Depression, the years in which the unemployment rate rose to 25 percent and the county's output of goods and services declined by 29 percent over four years. The lasting lesson—taught by economists with views as different as John Maynard Keynes and Milton Friedman, the leading economic minds of the twentieth century—is embraced almost universally by politicians and economic policy makers: government can and should act to prevent such a dangerous downward financial and economic spiral" (page 46).

Bernanke went so far as to use Friedman's ideas to rationalize his intervention:

"The government might, he suggested, cut taxes, increase the federal deficit, and issue bonds that the Fed would buy by printing money. This, he said, was 'essentially equivalent to Milton Friedman's famous "helicopter drop" of money.' (Friedman used the line in 1969 to argue that depression and deflation were avoidable. If nothing else worked, the Fed could send a helicopter to drop dollar bills to get people spending.)" (In Fed We Trust page 78).

This sounds like it could have come straight out of the Keynesian playbook, but Bernanke is no reincarnation of the great John Maynard Keynes,* who, in the words of author Robert Skidelsky, "gave governments two tasks: to pump up the economy with air when it starts to deflate, and to minimize the chances of serious shocks happening in the first place." (Keynes page xiv). Rather, Bernanke has acted an apolitical steward that has worked for two separate, almost ideologically opposite presidents, that has managed to avert an almost certain disaster. I think he's a fine choice for person of the year, and as Michael Grunwald wrote for TIME:

"He's earned the benefit of the doubt. It's now up to our dysfunctional political system to let him do his job—and to fix the financial system so that he never has to save the world again."

*There were a number of great books published on Keynes and his economic philosophy this year, including:

• Keynes: The Return of the Master
• Keynes: The Rise, Fall, and Return of the 20th Century's Most Influential Economist
• Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts
• The Keynes Solution: The Path to Global Economic Prosperity