Bernanke's Ultimate Legacy

The former Fed chairman's decisions in 2008 were an act of courage that averted an economic collapse far worse than we experienced.

(Image credit: 2013 Getty Images)

Ben Bernanke was the Federal Reserve’s most controversial chairman. He is revered by some, who claim that he saved the world from financial collapse, and despised by others, who criticize his Wall Street bailouts and his policy of keeping short-term interest rates near 0% for years. He saved investment bank Bear Stearns, yet six months later he let Lehman Brothers fail—only to flip-flop less than 48 hours after that and bail out insurance giant American International Group. So it’s not surprising that both the investment and academic communities eagerly awaited Bernanke’s recently published memoir, The Courage to Act, to explain what motivated his actions.

Bernanke’s ideas about monetary policy, along with those of many other economists, were heavily influenced by Milton Friedman’s highly regarded A Monetary History of the United States. Friedman concluded that the Fed’s failure to prevent the collapse of the banking system, and the subsequent contraction of the money supply and credit, was the most important cause of the Great Depression. Invited to speak at Friedman’s 90th birthday celebration in 2002, Bernanke, then a member of the Fed but not yet chairman, heartily praised the impact of A Monetary History. At the end of his introduction, he turned to Friedman and declared, “Regarding the Great Depression, you’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”

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Jeremy J. Siegel
Contributing Columnist, Kiplinger's Personal Finance
Siegel is a professor at the University of Pennsylvania's Wharton School and the author of "Stocks For The Long Run" and "The Future For Investors."