We first expressed our opposition to the reconfirmation of Ben Bernanke as chairman of the Fed on December 24th and again here on Sunday. Since then a wide range of smart economists have argued – at the American Economic Association meetings in Atlanta - that Bernanke should be allowed to stay on.
I’ve heard at least six distinct points. None of them are convincing.
- Bernanke is a great academic. True, but not relevant to the question at hand.
- Bernanke ran an inspired rescue operation for the US financial system from September 2008. Also true, but this is not now the issue we face. We’re looking for someone who can clean up and reform the system – not someone to bail it out further.
- Bernanke was not really responsible for the failures of the Fed under Alan Greenspan. This is a stretch, as he was at the Fed 2002-05, then chair of the Council of Economic Advisers, June 2005-January 2006. Bernanke took over as Fed chair in February 2006, when tightening (or even enforcing) regulation could still have made a difference. He had plenty of time to leave a mark and, in a very real sense, he did.
- Bernanke understands the folly of the Fed’s old bubble-building ways and is determined to reform them. This is wishful thinking. There was nothing in his remarks this weekend (or at any time recently) to support such an assessment.
- Bernanke will be tough on banks when needed. Again, there is not a shred of evidence that would support such a view – the markets like him because they see him as a soft touch and that’s great, except that it encourages further reckless risktaking by banks considered Too Big To Fail and leads to another financial meltdown.
- Dropping Bernanke would disrupt the process of economic recovery. This is perhaps the strangest assertion – we’re in a global rebound phase, fueled by near zero US short-term interest rates. Official forecasts will soon go through a set of upward revisions and calls for further worldwide stimulus will start to sound distinctly odd. Now is the perfect time to change the chair of the Fed.
By Simon Johnson