Why did Ben Bernanke change his views?
Ben Bernanke was a monetary dove. He had studied monetary economics for decades. He had argued repeatedly for extraordinary measures if an economy was facing deflation. By all rights he should have been a force for easy money at the Fed. Indeed, in his early days he was labeled “Helicopter Ben,” in reference to a speech he once gave about shoveling money into the economy from a helicopter. But as Fed Chair he has been cautious, perhaps even a bit restrictive. Why?
One possibility is group-think. Group-think happens when a cohesive group view dominates the views of any one individual. People with nonconformist opinions self-censor because they may value group harmony and may want to avoid isolating themselves. It has been linked to unfortunate political and economic decisions, like the Watergate coverup or the introduction of the Edsel.
Under Alan Greenspan the Fed was dominated by the Chairman and his views. He had spent a lifetime mastering the micro-economic minutia of monetary policy, and he could be intimidating. Alan Blinder, who served on the Board of Governors from 1994 to 1996 commented how the governors were frequently offered a highly limited menu of policy options: the staff recommendation only.
Under such conditions it would be the rare individual who went against the group’s consensus. Indeed, Greenspan’s Fed rarely saw dissenting votes, and never more than two. It’s common, at times like these, for members to stay quiet when they doubted the majority view. Disagreement would threaten the group’s amiability—and people like to like the people they work with.
But the Fed isn’t a social club; it’s a critical institution responsible for U.S. monetary policy. Going along with the crowd may be acceptable or even admirable when relationships are at state. But national policy deserves a prominent, public debate. Anything less could be disastrous.