A few weeks ago, Ben Bernanke sat down with Stephen Dubner of Freakonomics radio to discuss his recent book, The Courage to Act. For those who lack the courage to actually slog through Bernanke's 624-page defense of his "bold" and "unprecedented" action as Fed chairman, the interview suffices as a good summary of his key message: "Don't blame me!"
The interview also includes a surprising twist. At the 14-minute mark, Bernanke makes a somewhat startling claim: "Ironically — and please take this the right way — the person who sort of most understood fiscal policy, in some sense, was Adolf Hitler." Because the rearming of Germany in the 1930s was "so big and so extensive," the "side effect" was that Germany came out of its depression "much quicker than other countries."
Bernanke concluded that the Third Reich's rapid recovery suggests that "more aggressive fiscal programs" would also have helped the United States out of its own depression. "What ultimately brought the United States out of the Great Depression," he argues, "was World War II which was, unintentionally, a huge fiscal program."
It is remarkable that Bernanke chose to steer dangerously close to the "well, Hitler did have some good ideas" trap — which even Donald Trump has managed to avoid — by (albeit reservedly) commending the Fuhrer's fiscal policy acumen, rather than leaving us with even the slightest impression that his Fed could've possibly acted differently. This reflects poorly on the man widely considered the leading expert on the Great Depression.
To be sure, Bernanke would agree there were less invasive ways that countries could've escaped the depression than by following the Hitler handbook. But it is important to realize that even his more standard Keynesian prescriptions for increased government spending wouldn't have gotten our economy out of the trenches.
What Bernanke conveniently omits here is that economists widely agree that it was poor Fed policy — not inadequate fiscal stimulus — that was primarily to blame for both the depth and duration of the Great Depression. Milton Friedman and Anna Schwartz convincingly laid out the case that the Fed's tight-money policies caused the Great Contraction. Had the Fed helped offset the crisis by expanding the money supply sooner, they argued, the "Great" part of the Great Depression could've been averted.
Of course, none of this should come as a surprise to Bernanke. At a conference honoring Milton Friedman's 90th birthday back in 2002, the then-Board of Governors member famously told Friedman: "Regarding the Great Depression. You're right. We did it. We're very sorry. But thanks to you, we won't do it again."
Turning to the most recent crisis, it might be true that Bernanke's unprecedented actions prevented the sort of drastic decline in the money supply that created the Great Depression. But as economist George Selgin pointed out, his Fed went about this in an unusual way, by first "sterilizing" its emergency lending to siphon money towards troubled banks back in 2008 and then later paying interest on reserves to induce banks not to lend out the newly created money. This exacerbated the liquidity crisis and set a dangerous precedent by blurring the line between monetary and fiscal policy.
Finally, Bernanke's comments belie the fact that most economists today recognize that World War II itself did not really end the depression in either Germany or the United States. One doesn't need a doctorate in economics to see why. Diverting most of the economy's production towards building tanks and explosives and moving its most productive workers out of the workforce and into the trenches might reduce unemployment, but it is hardly a formula for robust or sustainable long-term economic recovery
As Robert Higgs and others have pointed out, once the wartime GDP measures are adjusted for the effects of government rationing and price controls, the "wartime recovery" proves to be a figment of the data.
In 2009, economist Robert Lucas lamented of the profession: "I guess we're all Keynesians in the foxhole." Clearly Bernanke is no exception. With all the heat Bernanke has received for his actions as Fed chairman, it's no wonder he retreated to old Keynesian canards. But don't be fooled. Big government has never been the solution.
Scott Burns is a third-year Mercatus Center PhD Fellow at George Mason University. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.