Suppose Bernanke and Co. skillfully steer the economy through the meltdown. They succeed in propping up confidence in the markets, lubricate financial markets by taking on toxic assets, and then carefully selling them off as valuations improve, etc. etc. Bernanke will be hailed as a genius, and the whole episode will be taken as vindication of technocratic economic policy-making. This will drive a bunch of people crazy. Austrian foes of central banks, for one. Small "d" democrats, for another. We the people certainly never agreed to buy AIG!
Now, the democrats leave me mostly cold. If the government is going to be in the business of regulating and insuring markets, I'd much rather a bunch of ultra-elite economists do it that than a democratic body. Vetting these kinds of appointments is democratic enough. What we're seeing these days with unusual clarity is the structure of the de facto American constitution. The best universities in the world select for ability and turn out highly elite economists. Informal but powerfully entrenched professional networks draw many into government service, which is assigned high status within the profession. A combination of reputation, connections, and political ability puts people like Bernanke into the Fed. This is simply incredible, since Bernanke is perhaps one of the two or three most qualified people in the world for this job. And the Fed's de facto power is evidently immense.
But would we be better off without Bernanke's job? I sincerely don't know. I am torn about the strong version of the Austrian story. I think they might be right that none of this would have happened had there been a free market in money, etc. But I half-suspect that we wouldn't be able to sustain such complex, globally-integrated financial markets in the absence of a relatively active government regulatory role. That is, we might not be as rich as we are now had we been living in a world of financial laissez faire. And if, as I half-suspect, I am wrong about that, I wonder how relevant it is. I very generously put the probability of the abolition of the Fed in the next twenty years at .10. If my dreams of awesome intellectual influence were suddenly realized, my advocacy of its abolition I think moves the probability of it to about .20. But there are other hopeless crusades that matter rather more to me. I leave this one to Ron Paul.
So what can I really be for in the present circumstances. Merely that the Fed do better. That ice catch fire and the Fed disappear? I guess there's no reason I can't be for both.