Q: What’s the worst thing that Mr. Bernanke or the Fed could do?

A: The worst thing I think at the moment would be to reduce interest rates in order to help the people who are struggling with losses. That would just convince them that the Federal Reserve is going to rescue them if they take on large risks and so the next time the problem will be even greater -- and I think they understand that.

Q: Do you think there should be some rate cuts from the Federal Reserve?

A: Not yet. The Federal Reserve’s job is not to protect people who’ve made mistakes. It’s to protect us from them. So their job, as they have said, is to watch the economy -- the big picture. What’s going to happen to employment and inflation, primarily -- to respond to that and not to respond to the cries of the people who made mistakes.

Q: I suspect you would say that the Fed’s most important job is to keep inflation down, low or nonexistent?

A: That’s their main responsibility. They have what is called a “dual mandate” -- that is, seeking low inflation and low unemployment. We currently have a low unemployment rate and a not terribly high inflation rate. They want to get it lower, and I think that is the right thing to do. They won’t want to make it lower at the expense of a substantial increase in the unemployment rate.

Q: Knowing what you know about the ancient and recent history of the Federal Reserve, are you confident that it will do the right thing?

A: No. Not completely. It doesn’t have a tremendous track record. I think it’s trying now to do the right thing. But one has to recognize that there are tremendous pressures coming from the banking markets, the financial markets, the Congress and others to do more -- to cut rates. It’s hard to know whether or not the Federal Reserve will feel forced to accede to that.

Q: These crises come along every so often --

A: This is not a severe one, by the way, compared to the standards of the past.

Q: Do we -- the media and politicians -- make too much of them? Or are they just part of the roller-coaster reality of capitalism?

A: Yes, they are. I often say, “Capitalism without failure is like religion without sin -- it doesn’t work.” So this is one of those times where people got exuberant.

Q: Where will the Dow be at the end of the year?

A: I have no idea. One of the things you learn as an economist is that economists are very poor at forecasting. They are better than most people, but that’s not very good.