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I met Ben Bernanke on my first day at Princeton University in 1992. As a new PhD student from a relatively poor country – Bulgaria – I was fortunate that the economics department had offered me a full-tuition waiver, a scholarship and work as a research assistant before classes started.
I was assigned to work for Professor Bernanke. It turned out that this was the start of my four-year employment as a research assistant – circumstances that resulted in a very rewarding co-authorship with the future US Federal Reserve chairman.
Ben helped me tremendously to develop as an economist, and did so with consideration and humility. People in academia know that raw talent is often wasted, stalled because there is no mentor to guide it. Ben was the best adviser one could wish for: down to earth, demanding and willing to promote his students and help them achieve their potential. He was for me the symbol of an academic who pushed the frontiers of economic knowledge.
That is why it surprised me when he said he might run for chairman of the Federal Reserve. I could not imagine how this softly spoken, calm and detail-orientated academic would survive in a politicised environment that requires a constant media presence. Plus, he would have to wear a suit and tie every day.
Then came the financial crisis. With the world’s largest economy in a tailspin in 2008, politicians bickering about the stimulus package and constant criticism of bailouts (or the lack of them), it seemed the global economy was going to collapse.
Instead of caving to demands to stand aside, Ben wrote a new chapter of monetary economics, not with a pen but through his actions. He went beyond simple quantitative easing by unblocking credit channels that had stopped working because of fear, uncertainty, and lack of liquidity. Without his bold actions, a depression loomed for the world.
Critics were quick to pounce on him. Figures in the media demanded the Fed be shut down. In January 2009, students told me investment bankers with whom they had worked were ready to bet on hyperinflation because of Ben’s policies. I told them I would take the other side of the bet at any time.
After the recovery started, I realised Ben’s actions were linked to his areas of expertise, which were exactly the kind the world needed at that time. To manage the crisis, we needed someone steeped in monetary policy, someone who profoundly understood the Depression and the macroeconomic dynamics in Japan during the 1990s. We needed someone who comprehended the mechanics and the importance of credit.
In addition, following the brave expansion of the money supply, the markets wanted a chairman with impeccable credibility in terms of controlling inflation. Ben fitted the role perfectly – he wrote one of the first books on inflation targeting. His most-cited papers are on monetary policy and the role of credit, as well as scholarly work on the Depression. He even wrote one of the most insightful articles on Japan’s problems, in which he proposed quantitative easing.
During the crisis Ben showed the ability to grasp the dynamics of a rapidly deteriorating economy and the imagination to think creatively under fire. Understanding what is going on and devising a potential response, though, is only part of the story. Implementing the measures is a different challenge, especially when entering uncharted waters and while everyone is predicting your policies will ruin the US economy.
Ben’s response reminded me of these famous Rudyard Kipling lines:
If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too …
There is a leadership lesson in this story. First, you need the knowledge. In a crisis, there is no way forward without knowing your industry, your business. You must also be willing to listen to counsel and integrate disparate data and information, yet act with determination. Being prepared to take risks, able to think outside textbook prescriptions and ready to go beyond what others have done are qualities that become essential in dealing with the most severe crises. When this knowledge, determination and creativity are combined with humility and humanity, the leader becomes an inspiration.
Ilian Mihov is dean of Insead, with campuses in France, Singapore and Abu Dhabi
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