Saturday, August 31, 2013

Axciom

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SPDR - Wikipedia, the free encyclopedia

SPDR - Wikipedia, the free encyclopedia:

"SPDR funds are a family of exchange-traded funds (ETFs) traded in the United States, Europe, and Asia-Pacific and managed by State Street Global Advisors (SSgA). Informally, they are also known as Spyders or Spiders. SPDR is a trademark of Standard and Poor's Financial Services LLC,[1] a subsidiary of McGraw-Hill Companies, Inc."

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Rupee Drops, and Outlook Grows Darker for India - NYTimes.com

Rupee Drops, and Outlook Grows Darker for India - NYTimes.com:

"MUMBAI, India — The statistical evidence is piling up that India’s economy may be in even worse shape than had been thought."

Hints that the Federal Reserve in the United States may soon shift to a tighter monetary policy have prompted global investors to shift billions of dollars out of financial markets from São Paulo to Jakarta to Mumbai, eroding the value of local currencies in developing economies. But the Indian rupee has fallen the fastest of any emerging market currency in the last month, down 8.1 percent. Broader investor disenchantment with emerging markets has been compounded here by worries about India’s economy, the third-largest in Asia after China’s and Japan’s.

The data was released after stock market and currency trading had ended for the day, despite government promises to stay with the regular Friday morning release. After a week of considerable volatility, the rupee and the Mumbai stock market both had showed modest gains earlier Friday.

“The bulk of it would be hedged,” he said.
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Tuesday, August 27, 2013

How Dr. King Shaped My Work in Economics

I had the good fortune to be in the crowd in Washington the day the Rev. Dr. Martin Luther King Jr. gave his thrilling “I Have a Dream” speech on Aug. 28, 1963. I was 20 years old, and had just finished college. It was just a couple of weeks before I began my graduate studies in economics at the Massachusetts Institute of Technology.
The night before the March on Washington for Jobs and Freedom, I had stayed at the home of a college classmate whose father, Arthur J. Goldberg, was an associate justice of the Supreme Court and was committed to bringing about economic justice. Who would have imagined, 50 years later, that this very body, which had once seemed determined to usher in a more fair and inclusive America, would become the instrument for preserving inequalities: allowing nearly unlimited corporate spending to influence political campaigns, pretending that the legacy of voting discrimination no longer exists, and restricting the rights of workers and other plaintiffs to sue employers and companies for misconduct?
Listening to Dr. King speak evoked many emotions for me. Young and sheltered though I was, I was part of a generation that saw the inequities that had been inherited from the past, and was committed to correcting these wrongs. Born during World War II, I came of age as quiet but unmistakable changes were washing over American society.

As president of the student council at Amherst College, I had led a group of classmates down South to help push for racial integration. We couldn’t understand the violence of those who wanted to preserve the old system of segregation. When we visited an all-black college, we felt intensely the disparity in educational opportunities that had been given to the students there, especially when compared with those that we had received in our privileged, cloistered college. It was an unlevel playing field, and it was fundamentally unfair. It was a travesty of the idea of the American dream that we had grown up with and believed in.
It was because I hoped that something could be done about these and the other problems I had seen so vividly growing up in Gary, Ind. — poverty, episodic and persistent unemployment, unending discrimination against African-Americans — that I decided to become an economist, veering away from my earlier intention to go into theoretical physics. I soon discovered I had joined a strange tribe. While there were a few scholars (including several of my teachers) who cared deeply about the issues that had led me to the field, most were unconcerned about inequality; the dominant school worshiped at the feet of (a misunderstood) Adam Smith, at the miracle of the efficiency of the market economy. I thought that if this was the best of all possible worlds, I wanted to construct and live in another world.
In that odd world of economics, unemployment (if it existed) was the fault of workers. One Chicago School economist, the Nobel Prize winner Robert E. Lucas Jr., would later write: “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution.” Another Nobel laureate of the Chicago School, Gary S. Becker, would attempt to show how in truly competitive labor markets discrimination couldn’t exist. While I and others wrote multiple papers explaining the sophistry in the argument, his was an argument that fell on receptive ears.
Like so many looking back over the past 50 years, I cannot but be struck by the gap between our aspirations then and what we have accomplished.
True, one “glass ceiling” has been shattered: we have an African-American president.
But Dr. King realized that the struggle for social justice had to be conceived broadly: it was a battle not just against racial segregation and discrimination, but for greater economic equality and justice for all Americans. It was not for nothing that the march’s organizers, Bayard Rustin and A. Philip Randolph, had called it the March on Washington for Jobs and Freedom.
In so many respects, progress in race relations has been eroded, and even reversed, by the growing economic divides afflicting the entire country.
The battle against outright discrimination is, regrettably far from over: 50 years after the march, and 45 years after the passage of the Fair Housing Act, major United States banks, like Wells Fargo, still discriminate on the basis of race, targeting the most vulnerable of our citizens for their predatory lending activities. Discrimination in the job market is pervasive and deep. Research suggests that applicants with African-American sounding names get fewer calls for interviews. Discrimination takes new forms; racial profiling remains rampant in many American cities, including through the stop-and-frisk policies that became standard practice in New York. Our incarceration rate is the world’s highest, although there are signs, finally, that fiscally strapped states are starting to see the folly, if not the inhumanity, of wasting so much human capital through mass incarceration. Almost 40 percent of prisoners are black. This tragedy has been documented powerfully by Michelle Alexander and other legal scholars.
The raw numbers tell much of the story: There has been no significant closing of the gap between the income of African-Americans (or Hispanics) and white Americans the last 30 years. In 2011, the median income of black families was $40,495, just 58 percent of the median income of white families.
Turning from income to wealth, we see gaping inequality, too. By 2009, the median wealth of whites was 20 times that of blacks. The Great Recession of 2007-9 was particularly hard on African-Americans (as it typically is on those at the bottom of the socioeconomic spectrum). They saw their median wealth fall by 53 percent between 2005 and 2009, more than three times that of whites: a record gap. But the so-called recovery has been little more than a chimera — with more than 100 percent of the gains going to the top 1 percent — a group where, needless to say, African-Americans cannot be found in large numbers.
Who knows how Dr. King’s life would have unfolded had it not been cut short by an assassin’s bullet? Just 39 when he was killed, he would be 84 today. While he would have likely embraced President Obama’s efforts to reform our health care system and to defend the social safety net for the elderly, the poor and the disabled, it is difficult to imagine that someone of such acute moral acumen would look at the America of today with anything short of despair.
Despite rhetoric about the land of opportunity, a young American’s life prospects are more dependent on the income and education of his parents than in almost any other advanced country. And thus, the legacy of discrimination and lack of educational and job opportunity is perpetuated, from one generation to the next.
Given this lack of mobility, the fact that even today, 65 percent of African-American children live in low-income families does not bode well for their future, or the nation’s.
Men with just a high school education have seen enormous drops in their real incomes over the past two decades, a decline that has disproportionately affected African-Americans.
While outright race-based segregation in schools was banned, in reality, education segregation has worsened in recent decades, as Gary Orfield and other scholars have documented.
Part of the reason is that the country has become more economically segregated. Poor black children are more likely to live in communities with concentrated poverty — some 45 percent do so, as opposed to 12 percent for poor white children, as the Economic Policy Institute has pointed out.
I turned 70 earlier this year. Much of my scholarship and public service in recent decades — including my service at the Council of Economic Advisers during the Clinton administration, and then at the World Bank — has been devoted to the reduction of poverty and inequality. I hope I’ve lived up to the call Dr. King issued a half-century ago.
He was right to recognize that these persistent divides are a cancer in our society, undermining our democracy and weakening our economy. His message was that the injustices of the past were not inevitable. But he knew, too, that dreaming was not enough.

Monday, August 26, 2013

Unified Engines

"Mr. O’Brien said “Direct Edge and BATS were both founded on a commitment to create an optimal trading experience for a diverse member base, from retail investors to broker-dealers to institutions. Together,
the best of both organizations will work to further improve how the world trades, consumes market data,
and accesses capital markets.” "

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In a terse document, The company founded by Mr. David Cummings, BATS Global Markets, announced today the merger with Direct Edge.

NYT 

This is an indication of  a new stage in finances, and technology. The birth of the Electronic Trade Engine. This was invented by Joshua Levine, as you can read in Wall Street Journal (WSJ) Scott Patterson's book "Dark Pools".  if a single person can pull through this, you do not need a big organization to trade electronically.

Mr. Cummings is described in Patterson's book, and was interviewed by the WSJ. He is still kicking, and I am voting for him to play a bigger role in this new stage of humanity.

A Unified Engine, takes fuel and information, and produces wealth. These could be called robots, and are producing the highest concentration of wealth that the world has ever seen!


BATS and Direct Edge to Merge, Taking On Older Rivals - NYTimes.com

BATS and Direct Edge to Merge, Taking On Older Rivals - NYTimes.com:

"Several weeks ago, William O’Brien, the chief executive of the trading platform Direct Edge, and several of his senior managers flew discreetly to Kansas City, Mo. Waiting for them at the Charles B. Wheeler Downtown Airport there were Joe Ratterman, head of the rival BATS Global Markets, and his team."

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Sunday, August 25, 2013

The Decline of E-Empires

Steve Ballmer’s surprise announcement that he will be resigning as Microsoft’s C.E.O. has set off a huge flood of commentary. Being neither a tech geek nor a management guru, I can’t add much on those fronts. I do, however, think I know a bit about economics, and I also read a lot of history. So the Ballmer announcement has me thinking about network externalities and Ibn Khaldun. And thinking about these things, I’d argue, can help ensure that we draw the right lessons from this particular corporate upheaval.
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Paul Krugman
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First, about network externalities: Consider the state of the computer industry circa 2000, when Microsoft’s share price hit its peak and the company seemed utterly dominant. Remember the T-shirts depicting Bill Gates as a Borg (part of the hive mind from “Star Trek”), with the legend, “Resistance is futile. Prepare to be assimilated”? Remember when Microsoft was at the center of concerns about antitrust enforcement?
The odd thing was that nobody seemed to like Microsoft’s products. By all accounts, Apple computers were better than PCs using Windows as their operating system. Yet the vast majority of desktop and laptop computers ran Windows. Why?
The answer, basically, is that everyone used Windows because everyone used Windows. If you had a Windows PC and wanted help, you could ask the guy in the next cubicle, or the tech people downstairs, and have a very good chance of getting the answer you needed. Software was designed to run on PCs; peripheral devices were designed to work with PCs.
That’s network externalities in action, and it made Microsoft a monopolist.
The story of how that state of affairs arose is tangled, but I don’t think it’s too unfair to say that Apple mistakenly believed that ordinary buyers would value its superior quality as much as its own people did. So it charged premium prices, and by the time it realized how many people were choosing cheaper machines that weren’t insanely great but did the job, Microsoft’s dominance was locked in.
Now, any such discussion brings out the Apple faithful, who insist that anything Windows can do Apple can do better and that only idiots buy PCs. They may be right. But it doesn’t matter, because there are many such idiots, myself included. And Windows still dominates the personal computer market.
The trouble for Microsoft came with the rise of new devices whose importance it famously failed to grasp. “There’s no chance,” declared Mr. Ballmer in 2007, “that the iPhone is going to get any significant market share.”
How could Microsoft have been so blind? Here’s where Ibn Khaldun comes in. He was a 14th-century Islamic philosopher who basically invented what we would now call the social sciences. And one insight he had, based on the history of his native North Africa, was that there was a rhythm to the rise and fall of dynasties.
Desert tribesmen, he argued, always have more courage and social cohesion than settled, civilized folk, so every once in a while they will sweep in and conquer lands whose rulers have become corrupt and complacent. They create a new dynasty — and, over time, become corrupt and complacent themselves, ready to be overrun by a new set of barbarians.
I don’t think it’s much of a stretch to apply this story to Microsoft, a company that did so well with its operating-system monopoly that it lost focus, while Apple — still wandering in the wilderness after all those years — was alert to new opportunities. And so the barbarians swept in from the desert.
Sometimes, by the way, barbarians are invited in by a domestic faction seeking a shake-up. This may be what’s happening at Yahoo: Marissa Mayer doesn’t look much like a fierce Bedouin chieftain, but she’s arguably filling the same functional role.
Anyway, the funny thing is that Apple’s position in mobile devices now bears a strong resemblance to Microsoft’s former position in operating systems. True, Apple produces high-quality products. But they are, by most accounts, little if any better than those of rivals, while selling at premium prices.
So why do people buy them? Network externalities: lots of other people use iWhatevers, there are more apps for iOS than for other systems, so Apple becomes the safe and easy choice. Meet the new boss, same as the old boss.
Is there a policy moral here? Let me make at least a negative case: Even though Microsoft did not, in fact, end up taking over the world, those antitrust concerns weren’t misplaced. Microsoft was a monopolist, it did extract a lot of monopoly rents, and it did inhibit innovation. Creative destruction means that monopolies aren’t forever, but it doesn’t mean that they’re harmless while they last. This was true for Microsoft yesterday; it may be true for Apple, or Google, or someone not yet on our radar, tomorrow.

Paulo Coelho - Wikipedia, the free encyclopedia

Paulo Coelho - Wikipedia, the free encyclopedia:

"Paulo Coelho (Portuguese: [ˈpawlu kuˈeʎu]; born August 24, 1947) is a Brazilian lyricist and novelist. He has become one of the most widely read authors in the world today. He is the recipient of numerous international awards, amongst them the Crystal Award by the World Economic Forum and France's Légion d'honneur."

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Saturday, August 24, 2013

I Have a Dream

Questions for Microsoft as It Nears a Crossroad

Justin Lane/European Pressphoto Agency
Steven A. Ballmer, chief of Microsoft and a friend of the company’s chairman, Bill Gates, said he would retire in the next year.
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Microsoft’s plan, announced Friday, to replace Steven A. Ballmer as its chief executive does not exactly follow — at least to people outside the company — the way they draft these things in business school.
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Damian Dovarganes/Associated Press
Steven Sinofsky
Left Microsoft last year amid friction and is seen as unlikely to return.
Altaf Qadri/Associated Press
Stephen Elop Used to be an executive at Microsoft and is now chief of Nokia.
Kevork Djansezian/Getty Images
Sheryl Sandberg Has been the subject of speculation and is chief operating officer of Facebook.
Richard Brian/Reuters
Reed Hastings Was a director at Microsoft and is chief executive of Netflix.
But Mr. Ballmer and Microsoft’s board have been considering the possibility of his retirement for some time. Still, because of Mr. Ballmer’s larger-than-life personality, the board’s reluctance to push back and the company’s recent product and financial problems, finding a new chief executive for Microsoft was never going to resemble a cut-and-dry, business-school case study, according to people with knowledge of the company.
“No one is an obvious candidate,” said Michael A. Cusumano, a professor of business and engineering at the Massachusetts Institute of Technology who studies strategy in the computer software industry. “All the really interesting people who were in the company over the last dozen years who might have been have left. I also find it hard to imagine they could bring an outsider in. Microsoft is known for having quite a lot of powerful groups within the company and they make life very difficult for anyone who tries to oversee them.”
Succession planning is a delicate issue for many companies, particularly one like Microsoft, where Mr. Ballmer has been a senior employee since 1980 and chief executive since 2000, and his longtime friend, Bill Gates, Microsoft’s co-founder, remains chairman.
“Particularly for a person like Ballmer, who really is one of the founders, leaving is almost like death, so it’s extremely difficult to have an orderly process,” said Joseph L. Bower, a professor at the Harvard Business School. “It requires a very grown-up relationship between the chief executive and his board.”
Industry insiders almost immediately began to place bets on which executives inside and outside Microsoft — and even outside the technology industry — could be tapped. The decision will go a long way to determining whether Microsoft will successfully transition to tech’s future of mobile computing and computing in a virtual cloud of data-storage devices.
But at the moment, at least, the betting cards are virtually empty.
Even though Mr. Ballmer had indicated he was going to retire when the youngest of his children went to college, which was in about two more years, “I think people thought Ballmer would maybe die with his boots on in that role,” Mr. Cusumano added.
Developing a succession plan is one of a board’s chief responsibilities, but only half of companies actively groom executives, according to a 2010 study by Stanford University’s Rock Center for Corporate Governance and Heidrick & Struggles, the executive search firm that is leading Microsoft’s search. Boards spend only an average two hours a year on succession planning, the study found.
“When you have such strong personalities as Gates and Ballmer, is the board really proactive with them, or is it more of a caretaker board?” said David Larcker, director of corporate governance research at Stanford University’s business school, who worked on the study.
Though it might not be obvious outside the boardroom, Microsoft’s directors have been planning the transition, according to a person briefed on the board’s meetings who was not authorized to speak about them publicly.
Discussions have been happening for a decade, the person said, and intensified in 2010. Several months ago, Mr. Ballmer suggested to the board that it was time to begin a formal succession process, the person said, and told directors on Wednesday that he would announce his retirement.
Mr. Ballmer and the board have discussed the attributes they want in the next chief executive and have been appraising internal and external executives who might be candidates. Over the last 18 to 24 months, Mr. Ballmer has personally met with several outside executives, including people outside the tech industry with experience transforming very large companies, according to the person knowledgeable about the board’s work.
“This is not a company which is in a panic because there’s not a succession plan, looking for a Lou Gerstner type to come parachuting in when I.B.M. was at death’s door,” said Jeffery Sonnenfeld, president of the Chief Executive Leadership Institute at the Yale School of Management. “He’s had a great tour of duty and financial performance.”
Even so, Microsoft analysts said one weakness of Mr. Ballmer’s hard-charging personality and leadership style had been to drive away deputies who might one day succeed him.
“Ballmer is larger than life, and I think it’s been difficult for other people to really rise up and have a noticeable public role,” Mr. Cusumano said.
For instance, Steven Sinofsky, who ran the Windows division, left last year after growing friction with Mr. Ballmer and others, and this week announced that he had joined the venture capital firm Andreessen Horowitz. People who know him said his contentious departure from Microsoft made it very unlikely he would return.
Other former Microsoft executives could return, analysts said, including Paul Maritz, chief executive of VMware until last year; Stephen Elop, chief of Nokia; Kevin Johnson, chief of Juniper Networks, who has announced plans to step down; Jeff Raikes, chief executive of the Gates Foundation; and Chris Liddell, former chief financial officer of Microsoft and G.M.
Current Microsoft executives who could be contenders include Tony Bates, former director of Skype and now executive vice president of business development and strategy, and Satya Nadella, executive vice president of cloud and enterprise.
Speculation by analysts and executives about external candidates included Sheryl Sandberg, chief operating officer of Facebook; Reed Hastings, chief executive of Netflix and a former director at Microsoft; Scott Forstall, who ran iOS at Apple until last year and John Legere, chief executive of T-Mobile.
The new chief executive, analysts said, must be someone who lives and breathes new consumer technologies like mobile, can speak technical language to Microsoft’s engineers and has a track record transforming a large company.
“Steve likely recognizes it’s really time to bring someone in whose heart and soul is really devoted to the different world we have around us, not the world of PCs and laptops, which is Microsoft’s world,” Mr. Cusumano said.
Nick Wingfield contributed reporting.

Friday, August 23, 2013

The Audacious Pragmatist

Minh Uong/The New York Times
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SHORTLY before Ben S. Bernanke was nominated as chairman of the Federal Reserve in 2005, he paid a return visit to Stanford, where he started his academic career in 1979. In a speech, he recalled that he and his wife, Anna, had rented a house with friends because he was certain that local real estate prices would fall. Instead, prices in the Bay Area doubled, then doubled again.
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Ben S. Bernanke, the Fed chairman, will be remembered for helping to arrest the collapse of the financial system. But what he did after the crisis may prove to have more enduring influence.

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“Since then,” Mr. Bernanke told his audience, “I’ve developed a view that central bankers should not try to determine fundamental values of assets.”
Indeed, Mr. Bernanke’s academic work, largely at Princeton, helped shape the conventional wisdom that central banks couldn’t spot asset bubbles and shouldn’t try to pop things that looked like bubbles. In his first speech as a Fed governor in 2002, he reiterated that trying to judge the sustainability of rapid increases in housing or stock prices was “neither desirable nor feasible.”
Over the next several years, he said repeatedly that he saw no clear evidence of a housing bubble. And in 2004, the Bernankes paid a hefty $839,000 for a town house on Capitol Hill in Washington.
It took a great recession to change his mind. The recession, prompted by the collapse of the housing bubble that Mr. Bernanke — and most other experts — failed to see coming, ended an era of minimalism in central banking. And there is no better marker than the views of Mr. Bernanke, the world’s most influential central banker, who now argues that the Fed needs to consider a range of previously unthinkable actions, including trying to pop bubbles when necessary, because sometimes the cost of doing nothing is worse.
Mr. Bernanke, who plans to step down in January after eight years as Fed chairman, will be remembered for helping to arrest the collapse of the financial system in 2008. This shy, methodical economist who had been expected to serve as the keeper of Alan Greenspan’s flame — to preserve the Fed’s hard-won success in moderating inflation — emerged under pressure as perhaps the most innovative and daring leader in the Fed’s history.
But what Mr. Bernanke did after the crisis may prove to have even more enduring influence. For almost three decades, the Fed focused on moderating inflation in the belief that this was the best and only way to help the economy. In the wake of the crisis, Mr. Bernanke forged a broader vision of the Fed’s responsibilities, starting experimental, incomplete campaigns to reduce unemployment and to prevent future crises.
The Bernanke Fed has failed to fully achieve its goals. Growth is still tepid, unemployment still too high, inflation still too low. Some critics continue to warn — so far, incorrectly — that its efforts will unleash inflation or destabilize financial markets.
Yet many of the Fed’s experiments are already being emulated by other central banks. And Mr. Bernanke’s many admirers say it is hard to imagine that anyone else could have done more under the circumstances to restore the economy. Fortunately, they say, his lifelong study of central banking under stress meant that he not only knew the available options but also understood that those options weren’t enough. And he had the credibility necessary to persuade a hidebound institution to change quickly.
“It’s hard to say that the Fed has accomplished what could have or should have been accomplished,” said Michael Woodford, an economist at Columbia University. “Yet in the context of the difficulty of the challenges, the likelihood is that few other central bankers could have been as bold as Ben has been.”
Throwing Stuff at the Wall
Mr. Bernanke was a rising star at Princeton in 1994 when he persuaded 953 people to elect him to a second job — as a member of the Montgomery Township Board of Education. “I did think he was a little crazy” to add that second role, said Mark Gertler, a New York University economist who was a frequent academic collaborator with Mr. Bernanke during the 1990s.
But the move was instead an early sign of Mr. Bernanke’s restlessness with the theoretical world of academia and his nascent interest in public service. And the experience helped to prepare him for larger things.
For six years, he spent several nights a month in the library of the local high school, usually dressed in a sport coat with elbow patches, calmly contributing to heated debates about building new schools in his rapidly growing community.
“When I met him he was shy and awkward,” Professor Gertler said. “It developed his ability to moderate meetings and interact with people.”
It is obligatory to say that Ben Shalom Bernanke was born in 1953 in Augusta, Ga., was raised in one of the few Jewish families in the small town of Dillon, S.C., and went to Harvard at the urging of friends despite the uneasiness of his parents.
But the trajectory of his adult life really began to take shape at the Massachusetts Institute of Technology, where his doctoral adviser, Stanley Fischer, introduced him to the work of Milton Friedman and Anna Schwartz on the causes of the Great Depression of the 1930s. In Mr. Bernanke’s Fed office hangs an old photograph of four central bankers who, through their failures in office, helped to make that depression so great.
Mr. Fischer also inculcated the view that government, in moderation, could improve economic outcomes — a pragmatic middle ground in the wars between the Keynesian belief in active management and the hands-off absolutism of rational expectations theory. Mr. Bernanke is a pragmatist by nature. A baseball fan, he cheered for the Boston Red Sox until the Nationals came to Washington in 2005. He now attends Nationals games regularly.
In 2002, when Glenn Hubbard, then chairman of President George W. Bush’s Council of Economic Advisers, called to gauge his interest in becoming one of the Fed’s seven governors, Mr. Bernanke jumped at the chance. He had expected to be an “academic lifer” — he still seems most comfortable when talking with college students — but he found that he liked the practical challenges and potential impact of public service.
After his nomination was announced, he sent an e-mail to some former colleagues on the school board, according to Laurie Navin, one of the recipients.
Mr. Bernanke related that President Bush had asked him whether he had ever served in an elected position.
“It may mean nothing here, but I served on my local school board,” Mr. Bernanke said he told the president. “And Bush said: ‘It’s good enough for me. You’re in.’ ”
Three years later, Mr. Bush made Mr. Bernanke the first modern Fed chairman who had ever held elective office.
In his public speeches during his time as a governor, Mr. Bernanke gave a two-year master class on monetary policy, reinforcing the perception that he had the intellectual heft to succeed Mr. Greenspan. But Mr. Bernanke won the job in part by impressing Mr. Bush in a different way, according to people briefed on the selection process.
During a brief stint in the White House as an economic adviser, Mr. Bernanke had distinguished himself by his willingness to answer the president’s questions by saying, “We don’t really know, but here’s how I think about it.”
As the financial system began to fall apart on his watch, it became clear that Mr. Bernanke had other valuable qualities: an ability to remain calm under pressure and a deep historical understanding of economic crises. Shortly after joining the Fed in 2002, he promised Mr. Friedman and Ms. Schwartz that the central bank would not repeat its mistakes of the 1930s.
“You’re right, we did it,” he said at the time. “We’re very sorry. But thanks to you, we won’t do it again.”
Now he urged his colleagues and staff members to set aside their habitual care and find new ways for the Fed to pump money into the financial system. Mr. Bernanke sometimes invoked President Franklin D. Roosevelt’s marching orders to throw a lot of stuff at the wall and see what stuck.
“We rolled out 12 new products in 12 months,” recalled the former Fed governor Kevin Warsh, who worked closely with Mr. Bernanke during the crisis period. “The Federal Reserve hadn’t rolled out a single new product in a generation. But he said the Fed had to operate fundamentally differently to get through this. Because Ben was in some ways the dean of the academy in monetary policy, he realized how little we knew.”
Mr. Bernanke said later that the crisis in the fall of 2008 was “the worst financial crisis in global history, including the Great Depression.” He had not seen it coming; he had done nothing to soften the initial impact. But he kept his promise to Mr. Friedman and Ms. Schwartz.
It was a monumental achievement. It was also incomplete. Almost eight million Americans had lost their jobs.
Constrained by Reality
There was a time when Mr. Bernanke seemed to know exactly how a central bank should jolt a country out of an economic malaise.
In a swaggering 1999 paper, he accused Japan’s central bank of lacking the will to take obvious steps to revive that nation’s economy. One prescription, which earned him the nickname “Helicopter Ben,” was that the Bank of Japan should agree to offset a large tax cut by buying an equivalent amount of government debt, a strategy that Mr. Bernanke compared to a “helicopter drop of newly printed money.”
The point, which he repeated at his first meeting of the Fed’s policy-making committee in 2002, was that central banks had plenty of ways to stimulate growth even after flooring the gas by cutting short-term rates to zero.
“I’m not one who worries about zero bounds,” Mr. Bernanke declared.
Yet in the five years since the Bernanke Fed hit that zero bound in December 2008, it has not taken the drastic steps that Mr. Bernanke recommended to Japan. Instead, it has relied on two of what Mr. Bernanke once described as the least potent options available to a central bank: declaring that the Fed intends to keep short-term rates near zero until unemployment declines, and “quantitative easing” — buying large quantities of Treasury securities and mortgage-backed securities to accelerate job growth.
“During the crisis, it was clear that they were pulling out all of the stops to try to find a solution, and once the financial system stabilized and the problem was merely 10 percent unemployment, then they moved more slowly,” said Laurence Ball, an economist at Johns Hopkins University, who wrote in a 2012 paper that Mr. Bernanke has lacked the courage of his convictions.
Mr. Bernanke has said that critics misunderstand the context of his writings. He was arguing that central banks always have the power to prevent deflation, as the Fed has done in recent years. He did not initially embrace the idea that the Fed should act with comparable force to spur job creation. That case was made by others, including Charles Evans, the president of the Federal Reserve Bank of Chicago, who called for officials to act as if their hair were on fire.
But even as he grew increasingly concerned about unemployment, and pressed for stronger action, friends and colleagues say Chairman Bernanke found himself constrained in ways that Professor Bernanke did not anticipate, and that his academic critics still don’t seem to appreciate: by political realities, internal opposition and a heightened awareness of consequences.
Several of his most potent prescriptions, like the helicopter drop, require the cooperation of fiscal authorities. But Congress in recent years has shown little interest in helping to stimulate the economy. Instead, the Fed’s efforts have been undermined by repeated rounds of federal spending cuts.
The Fed has also struggled to anticipate those cuts — one reason that its stimulus campaign was only slowly expanded to its present scale. Mr. Bernanke has acknowledged that the Fed did not do enough in the first years after the crisis.
Perhaps most important, internal resistance has increased with each expansion of the Fed’s stimulus campaign as officials fret that the economic benefits are shrinking even as the chances increase that something will go wrong.
“He came in as a brilliant academic — a very smart guy with a very deep background in monetary economics — but it was as an academic,” said Donald Kohn, who served as the Fed’s vice chairman under Mr. Bernanke until 2010. “And one of the things that necessarily happens to you when academic theory meets the real world is you become more aware of the limitations of the theory and the models and how you need to operate in the real world that may not function the way your models suggest that it should function.”
Mr. Kohn added that, in his view, Mr. Bernanke rose to these challenges.
Last autumn, after months of quiet campaigning, Mr. Bernanke won support for two experiments that made job creation the clear focus of Fed policy. The Fed announced in September that it would buy $40 billion a month in mortgage bonds until the labor market outlook improved “substantially.” In December, it said it would hold short-term rates near zero at least so long as the jobless rate remained above 6.5 percent.
Mr. Bernanke spoke of the Fed’s “grave concern” about unemployment, a problem that he said should concern every American.
But many of the officials who supported the program did so tentatively, and their growing unease drove the decision for Mr. Bernanke to announce in June that the Fed intended to reduce its bond-buying before the end of the year.
Central Bank Straight Talk
On an unusually warm day in January 2012, Mr. Bernanke walked into a room filled with reporters, sat down behind a desk dressed with the Fed board of governors seal and announced that the Fed wanted inflation to be about 2 percent a year — the first time the Fed had detailed its economic objectives so specifically.
It was a moment of his own construction. For two decades, he had been perhaps the foremost proponent of the idea that central banks could increase the power of their actions by speaking clearly about their intentions.
As a member of the board of governors, he argued publicly for the Fed to adopt an inflation target despite the opposition of Mr. Greenspan, the powerful chairman, who believed that talking about the future would constrain the Fed’s flexibility.
Mr. Greenspan had quickly marginalized other academics sent to the Fed to counterbalance his dominance, but his impending retirement made it necessary to talk about other ways of running the Fed, and Mr. Bernanke carefully presented his approach as a method of bottling Mr. Greenspan’s magic.
That was merely politic. Mr. Bernanke believed that making the Fed more predictable would improve its performance. He wanted it to spend more time operating on autopilot. He wanted to reduce the chairman’s importance.
“The thing I think he’ll be known for, if it lasts, is depersonalizing the institution,” Professor Gertler said. “The idea is that the Fed has a systematic response to the economy. It’s not the hunch of the chairman; it’s communicating to the public clear rules of thumb for monetary policy.”
Yet by the time Mr. Bernanke was able to achieve his goal, his purpose had changed. Stabilizing inflation, which he described in his first speech as Fed chairman as the primary goal of monetary policy, no longer seemed enough. Indeed, announcing the target seemed to make it easier for the Fed to suggest that it wouldn’t mind if inflation rose a little above 2 percent during its campaign to spur job creation.
Paradoxically, by emphasizing communication through innovations like regular news conferences, which he introduced in April 2011, Mr. Bernanke in some ways increased the chairman’s role rather than submerging it in the institution. And the emphasis on transparency remains more popular with academics than with policy makers whose roots are in the markets.
Paul A. Volcker, the former Fed chairman, has argued that transparency can encourage investors to become overconfident about the path of policy, resulting in undue risk-taking, basically because people aren’t very good at minding the difference between a forecast and a promise.
When Mr. Bernanke sought earlier this year to shake some speculative excess from financial markets by announcing that the Fed intended to reduce the volume of its bond purchases, some argued that he was being forced to fix a problem created by his own communications policy.
“I think transparency in central banking is kind of like truth-telling in everyday life,” Mr. Bernanke said in response. “You’ve got to be consistent about it.”
In the weeks after his initial remarks, Mr. Bernanke and other Fed officials made the same points over and over again until they felt that they had been heard. If the Fed pulled back later this year, they said, it would be doing so only because it was finally starting to achieve its goals.
‘I’m Sure You’ll Miss Us’
Mr. Bernanke told The New York Times in the spring of 2010 that he had accepted a second term as Fed chairman for two reasons.
“First I wanted to see through the process of financial regulatory reform, which will have long-lasting impacts on our economy,” he said. “Second, I felt that I could play a useful role in managing the exit from our extraordinary policies, including our highly accommodative monetary policies.”
As he prepares to step down, the work of regulatory reform is a long way from finished and the Fed’s exit remains entirely in the future.
Nonetheless, Mr. Bernanke is already starting to let the weight of the last eight years slip from his shoulders. In June, he delivered a lighthearted baccalaureate address at Princeton, looking more comfortable wearing medieval robes in a Gothic chapel than he has often looked in new suits.
“I wrote recently to inquire about the status of my leave from the university,” he joked, “and the letter I got back began, ‘Regrettably, Princeton receives many more qualified applicants for faculty positions than we can accommodate.’ ”
In July, Mr. Bernanke did not bother suppressing a snort of laughter when a senator, thanking him for his service at what may well have been his last Congressional hearing as the Fed chairman, added, “And I’m sure you’ll miss us.”
And, this past week, he skipped the annual late-summer gathering of central bankers at Jackson Hole, Wyo., where he had spoken in each previous year of his chairmanship.
“It really seemed that the burden of dealing with the crisis, just the way he would carry himself when you would see him, it looked like a tremendous weight,” Professor Woodford said of Mr. Bernanke.
“And I hope that either because the economy recovers or he can hand off his job to someone else, I’m hoping that he does indeed become much more lighthearted again.”
And who knows? Someday, he might even be able to sell his town house for a profit.
Kitty Bennett contributed research.

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