03/28/2008 02:45 am ET | Updated May 25, 2011

Is Bernanke Behind The Curve?

Ben Bernanke's first exposure to monetary policy was reading the works of Milton Friedman, the Nobel laureate. That was 30 years ago, when Bernanke was a graduate student at M.I.T., and he has been studying central banking ever since. By the time President Bush nominated him to run the Federal Reserve, at the end of 2005, Bernanke knew more about central banking than any economist alive. On virtually every topic of significance -- how to prevent deflationary panics, for instance, or to gauge the effect of Fed moves on stock-market prices -- Bernanke wrote one of the seminal papers. He championed ideas for improving communications between the Fed -- whose previous chairman, Alan Greenspan, spoke in riddles -- and the public, believing that clearer guidance about the Fed's aims would help the economy run more smoothly. And having devoted much of his career to studying the causes of the Great Depression, Bernanke was the academic expert on how to prevent financial crises from spinning out of control and threatening the general economy. One line from his "Essays on the Great Depression" sounds especially prescient today: "To the extent that bank panics interfere with normal flows of credit, they may affect the performance of the real economy."

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