Ben Bernanke

Economist, Former Chairman of the Federal Reserve

• Born: December 13, 1953
• Place of Birth: Augusta, Georgia

Bernanke, the fourteenth chairman of the US Federal Reserve, oversaw economic recovery efforts during periods of extreme financial instability. Nominated to successive terms by presidents George W. Bush and Barack Obama, Bernanke was previously an economist at Princeton and chairman of the White House Council of Economic Advisors. In 2022, Bernanke was a corecipient of the Nobel Memorial Prize in Economic Sciences.

Early Life

Ben Bernanke was born in Augusta, Georgia, and grew up in the small community of Dillon, South Carolina. His paternal grandfather, Jonas, immigrated to the United States from Austria-Hungary in the early 1920s. An Army officer during World War I, Jonas worked in the drugstore business in New York until the stock market crash of 1929 forced him to relocate to the South. In Dillon, Bernanke’s grandfather founded Jay Bee Drug Company in 1941 and ran it along with his two sons, Philip and Mort. In the absence of many regular doctors in the community, the brothers were known to give advice to customers on aspects of healthy living as they filled their prescriptions. Philip’s wife Edna had been an elementary school teacher until Bernanke was born in 1953.

The eldest of three, Bernanke was a precocious child who displayed an early knack for words and numbers. He could add and subtract at age three and learned chess at age six. He skipped first grade and eventually won the state spelling bee at age eleven, finishing twenty-sixth in the national competition only after failing to spell the word “edelweiss.”

Known as one of the most intelligent students in Dillon by the time he was in high school, Bernanke wrote poetry and even penned a novel based on the school’s football team and the community’s experience with integration. His friendship with Kenneth Manning, a Black student and fellow intellectual who would go on to teach at the Massachusetts Institute of Technology (MIT) after Bernanke joined him at Harvard, caused him to be the target of some discrimination in the still-volatile South in the wake of desegregation. Additionally, the Bernankes were one of the only Jewish families in the community, and his parents feared that at Harvard he would lose touch with his religious heritage.

However, Bernanke was eager to leave Dillon, not only because of the racially charged climate but also because there were few outlets for his intelligence. As a senior in high school, Ben had taught himself calculus (the school did not offer any calculus courses), became a speed-reader, and scored a 1,590 out of 1,600 on his Scholastic Aptitude Test (SAT). He played the alto saxophone in the school’s marching band before graduating at the top of his class in 1971.

At Harvard, Bernanke studied economics after considering both English and mathematics as potential majors, eventually graduating summa cum laude in 1975 before attending MIT. There, he studied under Bank of Israel governor Stanley Fischer and met his future wife Anna, who was attending Wellesley College at the time. Bernanke received his PhD in 1979, and he married Anna the day after her graduation.

Life’s Work

Bernanke served as a professor at Stanford University’s graduate business school between 1979 and 1985. Afterward, he had stints as a visiting and tenured professor at New York University and Princeton University, respectively, becoming chair of Princeton’s Economics Department by 1996. Throughout his academic career, Bernanke studied Great Depression–era economics, in particular, the role played by the US Federal Reserve in causing the meltdown of the financial system. Influenced by economist Milton Friedman and critiques involving interest rates and money supply, Bernanke demonstrated in his research that the Great Depression was also exacerbated by the actions of banks and private financial institutions, which decreased loans and restricted spending on pursuits they deemed too risky when faced with relatively small downturns in the economy. According to Bernanke, the financial shocks in the early 1930s reduced both credit availability and demand, creating an economic snowball effect he referred to as the “financial accelerator.”

Though he was seen by many colleagues as having few overtly political inclinations, Bernanke served in a public capacity as a school board member in Montgomery Township, New Jersey, between 1994 and 2000. He also served as editor of the American Economic Review before taking leave from Princeton in 2002 to become a member of the board of governors of the Federal Reserve System. Just three years later, he was appointed chairman of the White House Council of Economic Advisors, and on February 1, 2006, he was nominated chairman of the US Federal Reserve by President George W. Bush, succeeding Alan Greenspan.

Although Greenspan said he and Bernanke rarely differed on economic beliefs, Bernanke did make a few changes when he took over as chairman, some of which included subprime-lending reforms and a plan to promote transparency and accountability at the Federal Reserve. However, neither Greenspan nor Bernanke anticipated the economic downturn and eventual recession that began in December of 2007, which was spurred by several factors, including risky mortgages and years of imprudent lending practices by multiple banks. Bernanke and the Federal Reserve were criticized for not ramping up oversight efforts and bailing out lenders such as American International Group (AIG) and Bear Stearns, which had dispensed large bonuses to top executives even as they were preparing to file for bankruptcy.

Nevertheless, Bernanke was praised for many of his actions. To counter the effects of the recession, he dramatically lowered interest rates, pumped cash into the economy, and implemented temporary emergency finance programs to keep open multiple credit channels. He also backed a $787 billion federal economic stimulus plan and had the Federal Reserve purchase billions in mortgage bonds to revive the housing market. While many of the long-term effects of Bernanke’s actions as chairman were initially doubted, he was later widely credited with helping to allay the worst effects of the recession.

Bernanke was nominated for a second term in the chairmanship on August 25, 2009, by President Barack Obama, who cited Bernanke’s decisiveness and imagination in confronting the recession as reasons for his renomination. Members of the US Senate approved Bernanke on January 28, 2010, by a vote of 70–30, the lowest margin for a chairman in history. Bernanke stepped down as Federal Reserve chair on January 31, 2014, having served his second term. He was succeeded by Janet Yellen, who was nominated by President Obama in 2013 and confirmed by the Senate in 2014.

In February 2014 the Brookings Institution announced that Bernanke was joining its economic studies program as a distinguished fellow in residence. Bernanke also started making appearances as a speaker. In October 2014, Bernanke was speaking at a conference of the National Investment Center for Seniors House and Care in Chicago when he told the audience that he had recently had trouble refinancing his mortgage, and that lenders “may have gone a little bit too far on mortgage credit conditions” in the wake of their risky lending practices in the 2000s.

While still serving full time at the Brookings Institution, Bernanke became a senior adviser to Citadel, a hedge fund started by Kenneth C. Griffin, in the spring of 2015. In late 2015 Bernanke published The Courage to Act: A Memoir of a Crisis and Its Aftermath, his account of his time as chairman of the Federal Reserve. That same year Bernanke joined the investment management firm PIMCO, also as a senior adviser. Then, in 2022, Bernanke published 21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19, in which he analyzes the history of the Federal Reserve in terms of both its successes and failures from its inception to the global COVID-19 pandemic.

In 2022 Bernanke was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, a Nobel Prize, for his research into better understanding financial crises, particularly in regard to the importance of the regulation of banks and financial institutions when attempting to prevent an economic emergency. Bernanke was a corecipient of the prize along with fellow economists Douglas Diamond and Philip Dybvig, who both conducted similar research to Bernanke's. In 2024, Bernanke participated in an economic review of the Bank of England. This critical review found significant shortcomings in the institution's financial management.

Significance

When confronted with one of the most pressing economic challenges since the Great Depression, Bernanke was widely lauded for his actions as chairman of the US Federal Reserve. In the process of slowing the recession, he worked closely with Treasury secretaries Henry Paulson and Timothy Geithner and set the course for expanded government action during the financial crisis.

At the same time, he has been criticized for allying himself with Wall Street banks and ignoring worries about inflation and unemployment. His expansion of the Federal Reserve’s authority resulted in calls from Congress and elsewhere to strip Bernanke and the institution of some of its powers. Although the longterm effects of some of his actions remained unclear, Bernanke brought more visibility to Federal Reserve, where he functioned as a driving force behind recovery efforts from the late 2000s recession in the United States and much of the world.

Bibliography

Bernanke, Ben. Essays on the Great Depression. Princeton, N.J.: P_rinceton University Press, 2000.

Bloomberg. “You Know It’s a Tough Market When Bernanke Can’t Refinance.” Bloomberg Business. Bloomberg, 3 Oct. 2014. Web. 22 Sept. 2015.

Elliot, Larry. "Do Better: Bernanke Gets Strict With Bank of England Over Handling of Inflation Crisis." The Guardian, 12 Apr. 2024, www.theguardian.com/business/2024/apr/12/do-better-bernanke-gets-strict-with-bank-of-england-over-handling-of-inflation-crisis. Accessed 3 Sept. 2024.

Grunwald, Michael. “Person of the Year 2009: Ben Bernanke.” Time (December, 2009).

Harris, Ethan S. Ben Bernanke’s Fed: The Federal Reserve After Greenspan. Boston: Harvard Business Press, 2008.

Partington, Richard. “Former Fed Chair Ben Bernanke Wins Nobel Economics Prize 2022.” The Guardian, 10 Oct. 2022, www.theguardian.com/world/2022/oct/10/former-fed-chair-ben-bernanke-wins-nobel-economics-prize-2022. Accessed 3 Sept. 2024.

Wessel, David. In Fed We Trust. New York: Crown, 2009.

Sorkin, Andrew Ross, and Alexandra Stevenson. “Ben Bernanke Will Work with Citadel, a Hedge Fund, as an Adviser.” New York Times. New York Times, 16 Apr. 2015. Web. 22 Sept. 2015.