Former Federal Reserve Chairman Ben Bernanke on Monday defended the central bank from the charge that the unprecedented easy-money policies it pursued in the wake of the recession increased inequality, arguing that the Fed provided “broad benefits to the economy” by trying to fight unemployment.
Bernanke’s defense came as the Brookings Institution, the Washington think tank at which he is now a scholar, also presented two new papers finding that the Fed’s unconventional easing policies did not boost inequality.
Some critics of the Bernanke Fed argued that its program of quantitative easing, or buying bonds by the trillions, created huge benefits for the wealthy by boosting the prices of stocks and other assets to which the poor do not have access.
Former Fed Governor Kevin Warsh called the Fed a “reverse Robin Hood.” Members of Congress have taken Bernanke and his successor, Janet Yellen, to task in congressional hearings for ramping up inequality.
In a post published by Brookings Monday, Bernanke pushed back against those claims.
By promoting job creation, he argued, the Fed forestalled job losses that would have hurt people lower on the income scale. It also limited housing losses, which hurt the middle class disproportionately. He noted also that the Fed’s actions were intended to stave off unanticipated deflation, a phenomenon that would hurt debtors, who tend not to be the wealthy.
“A weak economy hurts many people, in many ways. But, in the aggregate, these effects do not appear big enough to move the needle with respect to overall inequality,” Bernanke wrote.
While acknowledging that monetary policy is a “blunt tool,” he concluded that “whether the net effect is to increase or reduce inequality is not clear.”
But a paper written by Economic Policy Institute scholar Josh Bivens published Monday by Brookings concludes that the Fed’s efforts to loosen money likely reduced inequality relative to two other scenarios.
Bivens compared the effects of the Fed’s policies to two alternative scenarios: One in which the federal government stimulated the economy through spending or tax cuts, and one in which there was neither fiscal nor monetary stimulus. In the first scenario, middle-class homeowners would not have done as well, while in the second middle-class people would have seen more job losses and slower wage growth, Bivens found, using conventional estimates of the effects of Fed policies and government spending.
In a separate paper published by Brookings Monday, Stanford and Northwestern economists investigated the impact of the Fed’s quantitative easing programs based on the winners and losers created by changes in inflation and housing prices. They found that the policies engineered by Bernanke disproportionately benefited middle-class homeowners, while relatively hurting older wealthy savers who have money in bonds.
