Bernanke Spurns Greenspan Quick Fix, Seeking Data, Deliberation

Bernanke Spurns Greenspan Quick Fix, Seeking Data, Deliberation
Sept. 13 (Bloomberg) -- Alan Greenspan trusted his instincts. Ben Bernanke trusts the MAQS.

For the past several days, the MAQS -- a group of analysts in the Federal Reserve's Macroeconomic and Quantitative Studies unit -- have run a series of what-if scenarios on the U.S. economy that will play a critical role in next week's interest- rate decision.

``Greenspan emphasized that, in response to a low- probability but high-cost outcome, the Fed should move aggressively,'' said Mickey Levy, chief economist at Bank of America Corp. in New York. ``This Fed under Bernanke is more disciplined.''

I do not believe Bernanke is a dove nor do I think he's a hawk. I think he is an academic. He's going to weigh the risks and the rewards as he sees it and will attempt to act appropriately. I believe he sees the economy as a controlled laboratory experiment. There's a certain danger in that. It isn't controlled. It is not possible to know everything. Further, he's really put himself in a box by giving that "helicopter" speech at a time when deflation started to appear. People, myself included, won't let him live it down.

I was a research assistant in the physics laboratory in college. My professor was studying short-range gravitation. You probably have no idea how much time and effort went into attempting to figure out all the possible things that hadn't been thought of. It never ends. One night, while recording data, the strip chart went absolutely nuts. It was as if an earthquake was happening but I couldn't feel a thing. The next day the professor made a few calls. It was an earthquake and it was centered on the other side of the planet. The waves came in at just the right angle and the right frequency to jiggle the tiny metal ball into pure chaos.

Heaven help Bernanke if a butterfly flaps its wings wrong in his models. This world we live in is far more leveraged and far more complicated than the experiment I was involved in. Something is likely to break. Unlike me, he won't have the luxury of simply turning off the strip chart recorder and calling it a night. Would I want his job? No way!

A link to this article was first seen on the Calculated Risk website (posted by REBear) and was the inspiration for these comments.