My Last Post on Ben Bernanke

His confirmation, that is. I summarized most of my position in Foreign Policy, which asked me to lay out the anti-confirmation argument. My reasons overlap with Simon’s but are not identical–I think Simon worries about cheap money and asset bubbles more than I do. I was originally not particularly motivated by the anti-Bernanke campaign, because I didn’t think Obama would appoint anyone better, but as Russ pointed out, whether Bernanke should be confirmed and what the alternative is are two separate questions.

Whom would I pick? I certainly don’t know the candidates well enough to make a good choice. But the first thing I would say is that the Federal Reserve chair does not need to be Superman. The Federal Reserve Board of Governors is a board, and while the chair is important, he or she should really be the first among equals. You want someone who will push the Board in a certain direction, but the chair can draw on the experience and skills of the other board members and the staff, who are technically very competent. The idea that the chair must be Superman seems to be a product of the Greenspan era, and we project it back onto Volcker because of his success in fighting inflation in the early 1980s. And it’s a bad idea, just like searching for a savior CEO. In this context, I think it’s limiting to insist that the nominee have experience on the board, or have government experience, or be a prominent academic, or anything in particular.

For a rough parallel, think of John Roberts. When he joined the Supreme Court, he was by definition the least experienced of the bunch–yet President Bush made him chief justice, and no one objected that he was not competent enough for the job (the objections were over his anticipated policies). In short, the nominee must have intellectual heft and people skills, but otherwise President Obama should feel free to pick someone on the basis of his policies. It’s no accident that Ronald Reagan picked an ardent free marketer back in 1987.

My other observation is that the bench on the progressive side is pretty thin, because there has been a de facto consensus around central banking in the past two decades. That is, everyone seems to think that inflation is more important than full employment, and most people at the Fed have shared the pro-innovation/anti-regulation stance of Greenspan and Bernanke, and hence the emphasis on monetary policy as opposed to regulation. (I’m not an experienced Fed watcher, so I’m sure I’m overlooking someone in those generalizations.) But if Obama wanted a progressive choice (which he doesn’t, but just as a hypothetical), there doesn’t seem to be an obvious one.

But anyway, after all that lead-up, what about Paul Krugman? I think he’s said he doesn’t want the job (or was it Treasury Secretary that he didn’t want?), but I’m sure Obama is a hard person to say no to. Or Brad DeLong? He’s clearly smart and knowledgeable, and I like what he says about inflation and deficits. Whether either of them has the people skills to be chair of the Fed I have no idea. But I don’t think we should be confining ourselves to previous board members, especially since this is a fruitless intellectual exercise, because Bernanke will be confirmed sooner or later.

By James Kwak

27 thoughts on “My Last Post on Ben Bernanke

  1. Nobel winners may take issue with the implication that they are not Supermen ….

  2. The caveats in this post are all good reasons to discount James’s views about whether Bernanke should be confirmed.

  3. What about Simon Cowell? He’s just left American Idol and you’ve got to admit that he has a knack for turning rubbish into money

  4. Interesting that the choices remain in the academic rather than the banking circle –as if more than ever today we need that impression of good government representing more than those financial interests and those belly aches of some systemic collapse.

  5. Krugman as Fed Chairman? What’s next, peace in the Middle East? Hoverboards at last?

    All joking aside, I can only imagine Krugman, DeLong, or anyone else of their ilk would be an improvement over a Greenspan-Bernanke consensus candidate.

  6. Leave out the Ivory Tower? How about James Chanos or George Soros. After all, FDR was smart enough to appoint Joseph P Kennedy as first head of the SEC.

    Getting real evil, make the Chair of the Federal Reserve Board an elected office?

  7. Examine the wreckage that it the goodship Amerika. The most expensive, and 43 best healthcare system in the world. Millions of children uninusred lacking basic healthcare. Former global Icons on industry and manufacturing reduced to bankruptsy and or dismemberment. Two 8 yearslong unfinished and unwinnable wars that were and are bruted as noble eneterprizes to keep Amerika safe from evildoers, while in fact both Iraq and Afghanastan are “all about the oil.” The largest most populated prison system on earth. Deepseeted religious, cultural, and class divisions. The American middleclass pounded into oblivion; decades of stagnant wages, loss entitlements, bargaining power, job security, and actual JOBS! Manifold radical increase in every measurable cost of living outlay. The predatorclass elevated to Olympian status. One of the first worlds least competitive education systems. Crushing bubble economies that wrack and wrench American families, while enriching select predatorclass oligarchs. We inhabit a nation and an empire in decline. Only our military and finance oligarchs are competitive globally, and why, because the credit and goodfaith of the US government, and trillions of the peoples taxdollars are funnelled into those select oligarchs alone.

    Bernanke, like Giehtner, Summers, and the entire Obama finance team are predatorclass minions advancing policies of, by and for the predatorclass alone.

    Bernanke is bent on shielding, advancing, and pouring trillions of taxpayer dollars into the offshore accounts of the predatorclass and predatorclass oligarchs.

    But of course, he will be confirmed and perpetuated and cloak the next bubble, until all hell breaks loose and, then he will come begging for even more trillions of taxpayer dollars to rescue vipers and thieves in the finance sector.

    Any petty thief, if given the same access to imponderale wealth and political power, can conjure some ponzi scheme, hype it as innovation, cheat, lie, bribe, steal, practice fraud, insidertrading, predatory lending, taxevasion, and other acts of skullduggery in the selfperpetuating bubble economy until the bubble busts, – knowing all the while that their purchased plants and parrots in the socalled government will eventually shield and BAILOUT the vipers and thieves whose wanton failures and criminality caused the inevitable collapse. Kleptocracy is not the product of brilliant minds.
    Kleptocrats are no exceptional or supermen.

    They are a den of vipers and thieves who own and control the government. If there ever is a government that truly represents and advances the interests of the people and NOT select oligarchs, – this den of vipers and thieves, you call mastersoftheunivers – would be tarnished, shamed, and ostracised for rank wanton criminality, ruthless disregard for thier less fortunate countryman, and repeated catastrophic FAILURE!!!!!

    These beasts bruting themselves as mastersoftheuniverse are certainly NOT brilliant, or exceptional, or supermen. History records a wild and ruthless legacy of systemic profligracy, wanton profiteering, government capture, fraud, tax evasion, supremist ideology, and a brutal disregard and disdain of the interests of America’s poor and middleclass.

  8. The Fed chairman MUST understand how the monetary system actually operates. Most economists don’t. They are not experts in finance and national accounting. Ben Bernanke doesn’t (“banks lend reserves”). The Fed chair must also be aware of the limitations of monetarism and publicly admit it.

    The Fed chief MUST also be an experienced regulator, not an anti-regulator!. Allen Greenspan and Ben Bernanke are anti-regulators (forget what Bernanke is saying, watch what he is doing — nothing — no accountability, no transparency, no reform).

    William K. Black would do just fine.

  9. Thank you JerryJ. The American people need to start remembering their own history. One of the major causes of the American Revolution was the desire of the colonists to maintain control over the money supply. There’s no reason why citizens today should ignore the lessons of the past by ceding control over the money supply to some unaccountable cabal of regulators who clearly don’t have the public’s welfare at heart. At the very least we could start to move toward a more democratic system by implementing a scheme of representation similar to what Mara Thoma proposes here:

    And to those who argue “the Federal Reserve needs to be insulated from political meddling,” I say get a grip. There’s already tons of evidence showing both Federal Reserve Board governors and chairmen have been influenced by political considerations in the past. More troubling, these kinds of arguments show an utter contempt for the democratic process. I’m continually shocked by how easy it is for so-called neo-liberals to show their complete disregard for basic democratic values like popular sovereignty without getting called to task. Civics teachers everywhere unite! Down with John Locke! It’s time we started teaching our children about Rousseau.

  10. “These beasts bruting themselves as mastersoftheuniverse are certainly NOT brilliant, or exceptional, or supermen”

    Agreed, but they certainly resemble Lex Luthors…

  11. Are you guys suffering from indigestion! Why would we want to go from rain to hail! Don’t you have enough with tinkering of credit fake formation! No more bail outs be those of national giants or community GSE-s! Enough is enough!

  12. I have to say, I did think it was mildly funny that when Simon was on NPR and they put him on the spot who he would choose he could barely stammer and stutter the name “Hoenig” out. I couldn’t help but cackle. I’m thinking. “Come on Simon, say it like a MAN at least.”

    To me it’s like going to the Halloween Party plain clothed and making fun of other people’s costumes, you know, it won’t do. I like Delong, I think he’s a good guy, and I probably agree with him most the time, but he’s become so incredibly political there’s no way you could choose him. Krugman would be a good choice, but he’s also pretty darned political.

    I would choose Alan Blinder, or Alice Rivlin, if they acted like they WANTED the job. My 3rd choice would be call Volcker on the phone and say “name 3 people between 40 and 60 you think would be good for the job” and see what you could find. Laura D’Andrea Tyson wouldn’t be too horrible. What you really need is TWO guys: You need an Eliot Spitzer who can keep his thingy in his trousers, and someone who realizes you can’t lower rates a quarter point every time it looks like the manure is going to hit the fan until you slowly bleed them down to 0% and everybody’s looking at each other going “Oh what do we do now??” Blinder and Spitzer for Fed Co-Chairman. We can have the wedding outside the Rand Corporation Headquarters just to rub their noses in it.

  13. Always a bracing, cold slap in the face. Thanks Tony. I love this site for its intellectual diversity and range of opinion. I know that the particulars raised and discussed on Baseline are vital, but when I stop and think about the indictment laid out in Tony’s 1st paragraph I can’t help but wonder where this country will be in 50 years…

  14. One thousand thanks mag on money, and word Ted K! The predatorclass owns and controls Amerika. We either accept this evil and pernicious reality, or we don’t. If we do, then woe on us for we will actually deserve whatever fiery pit and hell the predatorclass hurls us into…. If we are not,- then the predatorclass is accountable for ruthless crimes, and catastrophic FAILURE!!!

    Either we live in a world where there are laws and accountability, – or – we don’t! If we don’t then we inhabit a world where there are effectively NO laws. And in a world where there are no laws, – there are no laws for anyone predatorclass biiiaaatches!!!

  15. I think Krugman would be a horrible choice. Talk about someone who is blinded by his own ego and seemingly unwilling to listen to opposing economic schools of thought. He also is blatantly political which in my mind immediately disqualifies him.

    On a broader point, I think proposing anyone from academia is a mistake as so much of current economics seems to require you subscribe to one school of economics or another. New Keynesians, Chicago School, Salt water or Fresh water, Austrian…until economics as a discipline comes to terms with the fact it deals with an inherently chaotic system and that it’s theories are not scientifically testable, academics should stay out of the top spot at the FED because they do too much damage with their ideologically driven policy.

    For my money, give me someone who has a strong regulatory background as well as experience in the markets, knowledge of all economic schools of thought without strict adherence to any of them, and is as apolitical as possible. I have no idea who that person might be though.

  16. too much is at stake to experiment…when youre barely ahead in the ninth inning of the last game of the playoffs and the bases are loaded with nobody out, you bring in your closer from the bullpen…hence, volcker…and if we win this one, then krugman, delong or who have you can start opening day next year…

  17. There shold be a couple of very good candidates currently in the regional FRBs. As an academic, maybe Charles Calomaris. (Too bad we can’t get Stan Fisher to come back to the U.S.!)

  18. Several years ago New England Economic review ran a piece that analyzed central bank performance comparing relative ‘independence’ and concluded that ‘independence’ was over rated as a factor in national economic performance. That said, how could it be argued that someone like Greenspan was anything other than an ideologue and in the pockets (so to speak) of the Financial sector. The Fed is insulated from Congress but not from financial elites. This kind of flaw permeates the institutions of government in the U.S. dating to its 18th century inception. Private power has always operated effectively in the interstices because the framers were obsessed with state power (or, if you are a Beardian, arranged it so on behalf of their own economic interests).
    While it might seem attractive to have a relative dissenter such as Krugman or even Blinder as Fed chair, their capacity to alter the structural arrangements that are in part responsible for the catastrophe would be very limited.

  19. Re: SJ suggesting Hoenig for Fed Chairman:

    I didn’t see the show you mention, and I am far from expert in econ or finance, but over the past year or two, I have read a few of Hoenig’s papers and he has always struck me as eminently sensible. When conversation among family or friends turns to the question of “if not Bernanke, then who?,” I always mention Hoenig’s name (right after saying “Anyone but Larry Summers!”).

  20. A Superman Fed Chair is an existential necessity. By Superman I mean one who will make super efforts to maintain liquidity in the financial system. Anything less and the markets freeze up again. They may anyway in which case Bernanke will wish he had never been born, nor Obama.

  21. The real fight on this issue took place in 1913. The democratic view, for total decentralization of government banking “regulation,” lost. Today populists like myself would agree that a centralized regulatory system is essential. Lets not worry who a President who raised tons of cash from the finance industry would appoint to be Fed Chairman. Lets talk about having a federal agency that regulates banking that is composed entirely of Presidentially nominated and Congressionally approved members, NONE OF WHOM may be an active bank or hedge fund or financial intermediary officer during her or his service on the board and for 10 years afterwards. Discussing anything else would be a waste of time.

  22. How about Thomas Hoenig, who seems to agree with Volcker and Greenspan on the appropriate fate for the big players. What really turned me off about Bernanke is two things, first his obvious penchant for more secrecy than the FED deserves, and second, that he claims he doesn’t have the tools to bring down the banksters. C’mon Ben, you have almost unlimited power, just not direct, but if you had wanted to, you could have sat them down and told them to either support reinstatement of Glass-Steagall or you would make it impossible, by policy manipulation, to make even a dollar’s worth of bonuses, and going back to the old way of doing business (pre-1999) would be in their best interest if they wanted to survive in any form. Am I wrong, can’t he?

  23. The Fed’s Board of Governors still VOTES. A chairperson who was too hard on the big banks would be out voted by the current board. Look at the way people go from finance industry jobs to the FED and then back to finance industry jobs. The expectation of a good post-Fed job has a huge effect on decisions made while a Fed member.

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