In the continuation of our bizarro world, Ben Bernanke has been awarded a Nobel Prize in economics.  He is actually sharing it with two other people for their work on bailing out financial institutions and covering up economic problems with more money printing.

Ok, so it isn’t exactly framed that way from the academy that awards the prize.  But that is really the heart of it.

This is on par with Barack Obama winning a Nobel Peace Prize, but at least in that case Obama hadn’t yet done anything.  He proceeded to make war in Libya, Syria, and Yemen.  He helped foment a coup in Ukraine and continue other wars.  But hey, you can’t make peace without breaking a few hundred thousand eggs.

Bernanke is winning this prize with it being well-known what he has already done.  He presided over the financial crisis of 2008, and he brought the most unprecedented monetary inflation in modern U.S. history.

Some people will criticize this award going to Bernanke and pointing out that he was responsible for the 2008 financial crisis.  This isn’t really correct, at least in his role as chairman.  Bernanke, as Fed chair, did start to tighten monetary policy, which then gave us the financial crisis and major recession.  But this was baked into the cake.  It was already set up under the Greenspan Fed.

So it wasn’t really Bernanke as Fed chair that was responsible for the initial problems in 2008 and 2009.  The main problem with Bernanke was the Fed’s response under his “leadership”.

When the financial crisis hit in September 2008, the Fed’s balance sheet was around 900 billion dollars.  It exploded to over $4 trillion by 2014.

Bernanke’s inflation bailed out banks and other financial institutions.  This, after all, is the Fed’s main purpose.  It also enabled the first trillion-dollar annual deficits coming out of Washington DC.  If Congress didn’t have a central bank backing them up, their spending would be far more limited.

Bernanke really set the stage for where we are today with massive bubbles and malinvestment.  This was exaggerated more in 2020 and 2021 with the response to COVID.

Bernanke is part of the problem.  He is certainly not solely responsible for where we are today, but he was a big part of the system that gave us our present situation.

Helicopter Ben

Some may have forgotten – or never knew – that Bernanke was known as Helicopter Ben back in the day, even before becoming Fed chair.  He somewhat famously spoke in 2002 to Milton Friedman on his birthday and apologized on behalf of the Fed for not printing enough money during the Great Depression.  He assured everyone that the Fed would never let that happen again.  He wasn’t lying.

Bernanke spoke again in 2002 on the subject of deflation.

Bernanke correctly observed that the Fed has a digital printing press and that it can create positive inflation at any time by credibly threatening to use it.  Jerome Powell has carried on that legacy and has certainly managed to create price inflation above the Fed’s 2 percent target.

Bernanke talked about a helicopter drop of money, so as to quickly inject money into the system.  It is basically what we saw in 2020 when the government started mailing checks to nearly everyone.

I’m not sure if Bernanke ever told us what to do if we hit high price inflation while the economy is headed into recession and business defaults linger.  Should the Fed focus on fighting inflation (that it created), or should it intervene to prevent bubbles from popping and financial institutions from getting into more trouble?

The Bank of England recently told us which way it will go.  It has already returned to bond buying, as the central bankers tell us that they have to support the pension fund obligations.

The Fed has not reversed course yet, but it also hasn’t been tested yet.  For now, we have tight money.  Interest rates are going up, and the balance sheet is very slowly going down.  But it could change very quickly if there is trouble with major banks or with the bond market.  I don’t think another 20% drop in the stock market is going to change anything for now.

Is it an Honor?

With Bernanke winning the Nobel Prize, I’m not sure if this cheapens it for F.A. Hayek fans.  But the prize was cheapened a long time ago.  You almost have to be a Keynesian nowadays in order to win the prize.

This is why supporters of Ludwig von Mises should never fret over him not winning the Nobel Prize or really getting any major acknowledgements from the powers-that-be.

Mises wasn’t just a great economist in spite of not winning the Nobel Prize.  He didn’t win the Nobel Prize precisely because he was so radically correct in his economic thought.  Hayek was the compromise person.  Hayek was also an exception to the rule, and that happened a long time ago (1974).

Mises was perhaps the greatest economist ever, although there were better writers for the layperson than Mises.  The people awarding these prizes today have probably never read Mises, and they probably wouldn’t understand him.  They only understand state solutions when it comes to economics, which is why Helicopter Ben was one of the chosen ones.