Paul Krugman for Fed Chair: “Crazy”

Paul Krugman says that Simon’s idea that he should be chair of the Fed is “crazy.” Krugman’s point is either that he wouldn’t be confirmed or that he wouldn’t be able to bring the Open Market Committee along. Maybe he’s right about the former; a Republican filibuster does seem reasonably likely.

I don’t think he’s right about the latter; or, more precisely, I don’t think it matters. The FOMC is, on paper, a democratic body: they vote. There is a tradition that the votes are generally unanimous because of the perceived importance of demonstrating consensus. I don’t know how old this tradition is; it was certainly in place under Greenspan. But everyone knows that the members of the FOMC disagree about many things; that’s why the various bank president members go around giving speeches objecting (not in so many words) to the FOMC’s decisions. Given that we all know there are debates involved, how important is this fiction of consensus?

Put another way, I think it would actually be good if we had a non-unanimous FOMC and even a FOMC that voted against its chair now and then. That would help get us away from this ideology of the all-knowing, all-powerful Fed chair, which is clearly wrong and certainly dangerous. So if Krugman couldn’t get everyone on the committee to back him, who cares? He’s a smart man, and by being on the committee he will move it in his direction, even if not all the way there. As I’ve said before, the job of Fed chair should be a little more like being chief justice of the Supreme Court and less like being Dictator of All Economic and Monetary Policy, which is what it almost was under Greenspan. That’s why I think the administration can be very open-minded about this job. We want to get away from depending on one person, which means we have to stop acting like the Fed chair has to be a demigod.

More important, is this a serious “I don’t want to be considered,” or is it the Bob Kelly variety? Bob Kelly, CEO of Bank of New York Mellon, said he wasn’t interested in being CEO of Bank of America on November 4. Then on December 11, it turned out he was talking to Bank of America about being CEO. What changed in the meantime? Bank of America paid back its TARP money, eliminating restrictions on . . . executive compensation.

Unfortunately, I think Krugman is serious. I mean, why would anyone in his or her right mind want to be Fed chair?

Update: StatsGuy nominates Michael Woodford.

By James Kwak

79 thoughts on “Paul Krugman for Fed Chair: “Crazy”

  1. Dr. Kwak —

    To reiterate my previous comment:

    Krugman does NOT believe “too big to fail” is a problem. He has said so explicitly and repeatedly.

    This appears to be directly at odds with both your and Prof. Johnson’s view of the issue.

    And mine. “Too big to fail” is, in my opinion, the very source of our problems.

    Never mind that the guy is sufficiently partisan that his decisions would almost certainly depend on which party happened to be in power…

  2. I know Krugman is not as hard-line as some–Hoenig is the first one to come to mind. But I think when Krugman says he does not think TBTF is a problem, he is playing on words. He thinks the problem is “too interconnected to fail.” I think “interconnected” is a subset of big. That is, when he says TBTF is not the problem, he is saying that you shouldn’t just look at balance sheet assets. I agree with that.

    You are right he is on the “regulate and supervise” side of the line. But I don’t think he’s nearly as far on that side as, say, Ben Bernanke.

  3. Krugman would tilt the Fed away from its bias against wage inflation and towards full employment. That’s the most important thing to look for in a Fed chief, and in its self, would help the general economy immensely. Wall Street still has this short sighted notion they can become billionaires when domestic demand is crumbling. China wants to create their own billionaires, an has no interest in New York or London draining their wealth (a la 100 years ago). Better stimulate the domestic market.

  4. ‘too interconnected to fail’is an expression I first
    read in Gillian Tett’s book.Imho, from what I have
    gathered from respective speeches, and given the
    ‘populist’curb, the job can only go to an ‘insider’,
    capable of unwinding Bernankoff’s spiderweb or ‘dark holes’, my bets would be on J.Yellen or D.Lockhart

  5. Re: “I mean, why would anyone in his or her right mind want to be Fed chair?”

    I think you may have just hit on the explanation for Greenspan’s long tenure!

  6. kind of like having HC be his Secretary of State. But then who do I read instead every day?

  7. The Fed chair doesn’t have the authority to break up big banks anyway, but does have the authority to regulate and supervise – so appointing Krugman to the Fed does not harm an aggressive anti-TBTF agenda.

    If you want TBTF dealt with, appoint a Volker Commission and give it a pledge to propose legislation as recommended. In fact, go ahead and appoint Hoenig to that commission as well – he’ll do some good for a change.

    It’s going to take something as significant as a Krugman appt. to the Fed to generate enough credibility to stabilize price levels to compensate for the velocity-contracting administrative policies required to deal with moral hazard and TBTF.

    (By contrast, appointing Volker to Fed Chair and Krugman to chair a legislation-writing committee, would be an unqualified disaster.)

    Who cares if Krugman wants the job? Anyone who DOES want the job (like Plosser, who seems to think he’s a Fed Chair even though he’s not) should NOT have it.

  8. I don’t often agree with PK, but he is dead right about this. He should not be the Fed chair; it would be truly crazy – that’s not just a figure of speech. He would not only continue Bernanke’s ruinous debt-preservation strategy, he would enlarge upon it.

  9. Krugman has said he really hasn’t got the disposition to be part of official-dom. I took that to mean that he’s not always devoted to political correctitude.

    I think he’s right, regretfully. He has a kind of puckish and irreverent humor which is great in print but likely grates some in person.

    He can probably do more good on the outside pissing in than he can on the inside pissing out.

  10. How about Brooksley Born or Tall Paul? They’ve been right on the money about these problems for a long long time.

  11. Actually, as I think more about this – there is a name that would accomplish all the good that Krugman would achieve, without the baggage.

    Michael Woodford.

    There are sooooo many good reasons why this fellow should chair the FOMC.

  12. Why don’t they ((Fed, Congress, the White House) create a category of “Too Big and It’s Too Bad” for outfits like Goldman — profitable on their own, no discount window access, and if they lose money, too bloody bad! To get on this list, profitable companies (measured by how much they pay out in bonuses) could not enter into insurance transactions on the sell side and could not have recourse to the Fed or US Treasury. TBITB companies could be identified, and any one doing business with them would know it’s at their own risk. Goldman is fine, cut them loose. Add to the TBITB list over time. If they find themselves at a competitive disadvantage because pension funds and others do not want business links to them, it’s too bad. That will pass as the Fed blacklist gets larger. How about that, Dr. K? Nobody told them to get that big in the first place.

  13. If you’ve read Krugman’s books, you know that he really understands monetary policy at its most profound levels, and would do an extraordinarily great job as Fed Chair.

    But, he’s poured cold water on govt appointments through many administrations.

  14. Paul Krugman is a brilliant man. But Mr. Johnson, we need more than a pilot to fly the plane. What happens if some of the staff on board are also seasoned hjackers ? Paul Krugman is better swimming freely in the sea than getting choked up in a well with frogs.

  15. to all the lunchbucket populists who have no idea what you are talking about or the economic impact of your trial balloons, I re-nominate Ben Bernanke. You want to cause a 10%+ market tumble and make foreign money raise their eyebrows as if we’ve lost our collective minds, then keep up with this pitchfork garbage.

  16. we should leave to big to fail to that old guy . krugmen would be an incredible asset to the obama administration. this is to good to be true. it will not haqppen

  17. Whoever, now is a great time for the administration to ‘bow to the will of Congress’ and change the philosophical direction of the Fed. If this is a one term administration at least the new Fed chair will be around to give President Palin sane advice.

  18. Krugman is a polemicist. As such, he cannot be held responsible for the results of policies he advocates. He can always say he wasn’t serious or that officials did not implement his policies correctly. As a policy maker, he would not have that luxury.

  19. Actually pitchfork garbage is what’s been needed for quite some time. Tim’s an insider working for the public and has trouble with the conflict apparently. (e.g. AIG memos) As for the 10% correction, that’s just boilerplate wall street thuggery. Naked shorts anyone?

  20. Well said–

    And possibly have the purchase of Treasuries dry up in a week? The capital markets will freeze up temporarily if Bernanke is replaced with a lesser econnomist.

    Obama should finish this up before they seat Brown.

  21. FYI

    You can vote for who you’d pick for Fed chair (should Bernanke not be confirmed) at CalculatedRisk (

  22. Krugman, if he knew any better, would be to dissolve the bankrupt Federal Reserve System and help re-organize it under bankruptcy protection.

    This will wipe out all of the worthless toxic financial paper we call derivatives and credit-default swaps from the balance sheets that helicopter-Ben transferred from Goldman Sachs and JP Morgan.

    The Federal Reserve is un-Constitutional and should be abolished IMMEDIATELY!

  23. ….and mr chairman has shown the same sort of insider sympathy and extraordinary consideration. Who was in the room with him during his abyss-staring deliberating moments? GSachs????? jes sayin….

  24. Everyone knows she’s qualified, but think about the context of this debate. Right now, we’re all the way on the right side of the spectrum with Bernanke. He’s Keynesian, but only when it benefits the banks. Bair is reasonable and would be a competent head, but she is still a Republican, and still on the right side of the political debate over the Fed. Krugman is on the left, and that means if we put him forward, we have already shifted the entire debate, and have a much better chance of getting a reasonable person as Fed Chair.

  25. Of course that’s the single biggest issue with Krugman. But remember, this is the Fed Chair we’re talking about, not Treasury Secretary. Krugman has proven time and time again that he has an incredible understanding of economic patterns, and putting him in a position of power where he has influence over interest would be a fantastic idea. Krugman could use that power to actually push good monetary policy and bring some stability to lending markets. I think that has to take precedent over his stance on “too big to fail.”

  26. I guess someone passed around the koolaid for all mental giants to believe that there will actually be a change in the Fed Chair. Earth to Baseline, come in Baseline. The Bearded One will continue along with Geithner and Summers to blather false indignation while they protect the financial monster they have created, I give you, Frankenstein!

    In 2008 we called this Barrrrrackkk Obama for President. Today we call this mental masturbation.

  27. There is one thing to be said for having Professor Krugman as the Fed Chief. He would demonstrate he is a human being who can’t magically drum up consensus and then step out from the Fed’s holy of holies saying God wills it! He would put an end once and for all to the fiction perpetuated by Bernanke and Greenspan that they are inerrant high priests of the Money Temple who know best.

    As things have turned out, they’ve become more like the Wizard of Oz scaring the wits out of the world from behind a curtain with their noise makers, smoke, and mirrors. They’ve weakend the Fed in the eyes of the world leading many to now trip nervously down the Yellow Brick Road.

  28. I’d abolish it, but I don’t see a case for it’s unconstitutionality, but with this neo-fascist dominated Supreme Court, what the hell!!!

  29. No matter who they try to appoint,the republican machine will stop it even if they try to name the most beloved republican,they would try to stop it. I think they should go ahead and turn it all over to the republican machine trying to argue your point is lost before you open your mouth.disagreeing with a republican is like wrestling a pig, after a while you figure out that they really really like it.

  30. What nobody here seems to understand is what business Krugman is in. He sure is a brilliant man, but he is primarily a columnist now. His business is selling books, editorials, speeches to HIS audience. His academic position and his research history give him a lot of credibility. His interest, however is now is sell opinion, primarily the opinion his audience wants to hear. The same goes for all the current lineup of media economists no matter what political leanings: Joe Stiglitz, Jeff Sachs, etc.
    This is the real reason why Krugman will never do this. He would be stupid. Inadvertently, he would come to a point, where he has to decide between the best interest for the country or his market value. And even if that were not the case, this is how his decisions would be viewed. I’d rather have a technocrat in this position than an ideologue.

  31. What about service to one’s country. I too am a big fan of Mr. Krugman. But its easy to bitch about something from the outside than slog through the bureaucracy and make real changes for the better. Mr. Krugman should put his Nobel on the line and fight for the American people. Otherwise he is a political pundit/gasbag like all the rest.

  32. There is a nice post about the above interview with former St. Louis Fed economist Michael Belongia at Scott Sumner’s page(

    If Belongia is to be believed, Greenspan set the Fed funds rate on his own. So, a new chairman could mean a different approach to monetary policy at the Fed.

  33. Right! The country needs him and he should respond positively. No more talk, no more columns, action!
    This is his big opportunity to prove that he knows what he’s talking about.
    Maybe a draft Krugman campaign?
    I’ll be the first to sign.

  34. lol @ krugman for fed chair. this keysnesian hack called for creating a housing bubble in a 2001 article of his and ppl like him are the chief reasons why we are so messed up now. ron paul for fed chair! (because he would END THE FED!)

  35. the interesting thing is that republicans might not even filibuster if Obama was crazy enough to nominate Krugman, they’d want to force Democrats to vote him down in a simple majority, so you’d need 9 senators to cross. which I probably think they would via the moderates.

  36. Re: “Who in…? Who in their right mind would take A Rand seriously? Admittedly a radical empiricest remark

  37. But wouldn’t a 10% market tumble leave stocks still about 10% overvalued? I think we’d need Krugman for Fed chair and Stiglitz for Treasury to get the market back in line.

  38. I am not sure at all, but then, I like Thomas Hoenig, Joseph Stiglitz, or our man, Simon. I really don’t see Krugman as being hard-nosed enough, but a little squidgy around the edges, and just a bit to much of a pure academic. I think that he might be a little too soft for the kind of pressure that comes with the FED Chair. I do like him, and I agree with the majority of his views, just don’t think he’s strong enough.

  39. In 2004, on Bush’s 500B deficit: “Well, basically we have a world-class budget deficit not just as in absolute terms of course – it’s the biggest budget deficit in the history of the world – but it’s a budget deficit that as a share of GDP is right up there. It’s comparable to the worst we’ve ever seen in this country. So, we have a deficit, which is—which our political system is now unwilling to be realistic, unwilling to contemplate doing what has to be done to bring it down significantly”

    In 2009, on Obama’s 1.7T deficit: “Important political fact, which is that whatever you would do with the deficit, the public won’t notice. In 1996, a majority of Republicans thought that the deficit had increased under Clinton, even though we had in fact been on an incredible run. So no, I mean, the deficit doesn’t matter. The economy matters. And that’s why somehow or other, Obama has got to get jobs being created.”

  40. Kenneth Rogoff letter to Joseph Stiglitz:

    “The Stiglitz-Laffer theory of crisis management holds that countries need not worry about expanding deficits, as in so doing, they will increase their debt service capacity more than proportionately. George Bush, Sr. once labeled these ideas “voodoo economics.” He was right. ”

  41. Krugman should be Treasury Secretary or the president’s chief economic adviser. Trouble is, he should have been offered these posts within 2 days of Obama’s election. Instead Obama, looking at his big victory, figured he could afford to double-cross the public and put 2 Wall Street stooges into those positions, and Geithner and Summers very predictably gave away the store. The thieves have already run off with the merchandise. All Krugman could do now is prevent Wall Street from burning the place down for the insurance money.

  42. Yes, you have a good way of looking at it.

    I agree that Krugman is to the left of most of these people, on this issue.

    (Which is not the same thing as really being “on” the left; Krugman’s a centrist and willing to lean right where beneficial for Democrats; sometimes pretty far right on things like private health mandates without cost controls.)

    You’re right to emphasize “shifting the debate”. That high-profile campaigns, even proposed nominations that never come to fruition, can help shift the debate is an important point most commentators and advocates miss because they’re so obsessed with immediate results, however meager.

    That’s part of the reason we’re in the hole we’re in and have such little prospect of climbing out. Most of the people who want real change in theory can’t bring themselves to take a long-haul perspective.

    They don’t understand the fact that you need strong, principled action, and you need victories of principle, even if these actions don’t always achieve short run structural improvement; even if they sometimes make things even harder in the short run.

    They build morale, they build movement cohesion and momentum. They make you stronger for the long run.

    That’s why getting Bernanke’s scalp would be a good thing in itself, even if his replacement is “no better”. That’s why the fetish of who-will-replace-him is so beside the point.

    That’s why the utter cowardice of most “progressives” in the face of the whole health racket sellout, and the fetish of using an electron microscope to try to convinve oneself the bill is marginally “better” than the status quo because it claims to make a few wretched little crumbs available, and never mind how it will further entrench the protection racket, is so wrongheaded.

    Tyranny is the issue, not “process” and some alleged crumbs it may generate.

    Liberty vs. slavery is the issue, and it’s a fight for years, for decades, for generations. But when even well-meaning people try to tackle it from the instant-gratification mindset so endemic to Americans, they doom themselves to immediate failure. This same failure then occurs immediately every time, and no progress is made, ever, because you’re always right back where you started.

    Sorry, that got a little beyond the scope of the topic. The point is, scalping Bernanke and making demands regarding who is to replace him and what policy should then be followed are action fronts in themselves and should be valued in themselves, rather than pre-surrendered to defeatist notions on who’s really going to replace him and what policy is really going to be followed.

  43. Noone would be better than Krugman to be the head of the Fed. Unfortunately, Obama’s goon squad mocked him and attacked him last year when he reminded them that the sky really was going to fall unless more action was taken to stablize and then grow the economy and that the stimulas package was far too small. Krugman called the explosion of the banking system and the bursting of the housing bubble years before it finally happened. Nobody with power wanted to listen to his warnings and now we all pay for their refusal to heed his warnings.

  44. Krugman has repeatedly argued that the economy is in a liquidity trap, so that monetary policy has lost its effectiveness, and therefore we need to rely in fiscal policy to restore the economy to full employment. Somebody who believes that monetary policy has lost its effectiveness would be a horrible choice for Chair of the Fed.

  45. “Krugman, if he knew any better, would be to dissolve the bankrupt Federal Reserve System”

    What a bunch of crock. The Fed turns billions of dollars of earnings on its investments over to the U.S. treasury each year. What kind of bankruptcy is that?

  46. Krugman would be Borked more than Bork was. The rest of his qualifications, in the public’s and poltico’s eyes, would be overwhelmed in the deluge. Snowball. H$ll.

  47. Pardon me while I flame a little here.

    Krugman’s a “centrist”???

    The “stimulus” was too small???…100% debt to GDP is not enough???…ROTFLMAOFFF!!!

    The “stimulus” was a “shovel ready” product of Keynesian Multiple Theory used for bailing out bloated inefficient governments at the Federal, State and Local level…and…this is the MOST important point you simply must take home with you…the current majority government LIED to the people to get it passed…it’s that rather large PINK PACHYDERM standing in the middle of the room right in front of you.

    Good Lord…nothing to see here…move along people.

  48. Krugman is a gasbag who talks his book. He made that clear when backing the Senate insurance bailout bill.

    You need a new messiah. Nothing to see here.

  49. Let’s be fair here. In 2009, there was an economic crisis requiring huge deficit spending. In 2004, there was no economic crisis. Bush was just deficit spending for the hell of it. Big difference there.

  50. Krugman would never work. The man has never executed anything resembling a business. Theory is fine on paper but he is not a person to lead any effort like the Federal Reserve even disolving it. Krugman should continuing braying in the newspaper.

  51. That’s what really scares me. It seems like the market is indeed overvalued, but that all of officialdom is hellbent on keeping that a secret (as though it ever was).

    And they have a point. The current state of the economy is a state of denial. And it ‘works’, to the extent that as long as the house of cards remains standing, money can be made off of it, and as long as money can be made, it will be kept standing. Nobody knows what would happen if true ‘market fundamentals’ were brought to play in the system, and the ‘winners’ in the game as it stands are terrified of finding out. That includes just about all politicians in office today.

  52. Time for the Stiglitz movement. What say you, Mr. Johnson? If he campaigns for the position in favor of the Paul amendment, he could garner enough Republican support to be approved.

  53. I totally agree with your main point here. As the former french president said: “The graveyards are full of indispensable men.”

  54. This is quite an inaccurate characterization. Krugman’s point is that *conventional* monetary policy — lowering interest rates, and even to some extent QE — has lost effectiveness. To avoid being stuck in a “bad” equilibrium of high unemployment and deflation, you need to resort to:
    (1) Keynesian fiscal stimulus, temporary in nature, which in normal times one should be averse to
    (2) *unconventional* monetary policy, which could include inflation targeting, e.g. “the FOMC is going to target 5% annual wage and CPI inflation for the next three years, then bring it back to 2% over the next three years, and we will print money, buy bonds, buy euros and yen and sterling and pesos and C$ and A$ and anything else we think of that will help us achieve this”

    See in particular criticisms of Japan’s failed efforts to fight deflation in the late 1990’s, available at

  55. Usually to stimulate job creation the Fed would lower its rate. The rate is already 0. What else can the Fed do?

  56. Well Krugman has spent years explaining why the stimulus was too small. In fact Keynes himself spent his life talking about it. If you subscribe to the save-during-a-recession-even-though-it-didn’t-work-for-Hoover doctrine, I say move along, there’s nothing to see here.
    Besides being too small, it did have a lot of tax cuts that were put in there by Republicans, which did nothing. It IS unfortunate that the Democrats don’t have a sense of when it’s time to pounce, but whatever.

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