The winner of the Nobel Prize in Economics 2022 is one of the most influential economists of recent decades: Ben Bernanke (68), former chairman of the Federal Reserve, the US central bank, now active for think tank Brookings Institution in Washington. On Monday, the Royal Swedish Academy of Sciences announced that he and fellow economists Douglas Diamond (University of Chicago) and Philip Dybvig (Washington University, St. Louis) will receive the prize for groundbreaking research into the role of banks during financial crises.
It wasn’t hard to see a hint of irony in it: Bernanke headed the Fed from 2006 to 2014, and was at the helm when the credit crunch erupted in 2008. He initially underestimated the danger that falling house prices could pose to the real economy. Bernanke thought that it could only lead to a “mild recession”, he acknowledged when he retired. In reality, the US housing market crash led to the worst economic crisis since World War II.
When the collapse of Lehman Brothers put the entire financial system in jeopardy, Bernanke intervened strongly. He cut interest rates sharply and pumped many billions of dollars into the American economy, partly by buying low-yielding mortgage loans from banks. In the years that followed, the Fed continued to buy bonds and other loans from banks. Thus Bernanke was one of the founders of quantitative easing (QE), expanding the amount of money in the economy to drive inflation and business – a practice that persisted in the US and Europe until last year.
Also read: Nobel Prize in Economics goes to researchers at banks in financial crises
Bernanke’s approach also came under considerable criticism. That he kept the very banks that caused the crisis afloat, while thousands of people ended up on the streets, meant critics say he only cared about Wall Street’s interests. Monetary easing exploded government debt worldwide, and it has been around among economists for years discussion about the extent to which it helps the real economy move forward. The fact that Bernanke has now been awarded the Nobel Prize led to some scornful reactions on social media on Monday. The Nobel Committee has as little understanding of economics as Bernanke himself. tweeted the American commentator Peter Schiff, for example.
The Nobel Committee praises Bernanke’s influence. He receives the prize for a 1983 paper in which he examined how bank failures contributed to the onset of the Great Depression in the 1930s. According to the committee, his insight that governments must do everything they can to keep the banks afloat, precisely to help society as a whole, helped solve the credit crisis, according to the committee.
The response to the corona pandemic in 2020 was also based on this, the Nobel Committee writes: citizens partly maintained their confidence in the economy because central banks and governments lowered interest rates and came up with generous support packages.
Co-winners Diamond and Dybvig also published an influential paper in 1983 on how governments and regulators can keep banks afloat in times of crisis. “These insights form the basis of modern banking regulation,” the committee said.