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Friday, June 17, 2005

The New York Times on Bernanke

I haven't had a chance to read this closely yet, and won't until much later today, so I thought I'd pass it along. It's an article in the New York Times about Bernanke.  Let me know what you think of it:

Fed Official Moves Up and Into Politics, by Edmund L. Andrews, New York Times: For years, some of his closest friends did not know that Ben S. Bernanke was a Republican. It is not that Mr. Bernanke has been shy about his views. As an economist at Princeton, he broke new ground on the causes of the Depression. And as a governor on the Federal Reserve Board since 2002, he spoke bluntly about weakness in the job market, the dangers of deflation, the impact of higher oil prices and the need for the Fed to reduce uncertainty by being more open. "If monetary policy is like driving a car," he mused last December, "then the car is one that has an unreliable speedometer, a foggy windshield and a tendency to respond unpredictably." But now Mr. Bernanke (pronounced ber-NANK-ee) is moving directly into the political arena, taking over next week as chairman of President Bush's Council of Economic Advisers. He is also on the short list of potential candidates to succeed Alan Greenspan as chairman of the Federal Reserve. The two jobs are related, if only because Mr. Bush will be looking to name a new Fed chairman that he knows well and trusts. Two other possible candidates to succeed Mr. Greenspan, who has been atop the Fed for nearly 18 years, are also former council chairmen: Martin Feldstein, who served under President Reagan; and R. Glenn Hubbard, who worked for President Bush from 2001 to 2003. Mr. Bernanke built a sterling reputation while at Princeton, and has won widespread praise for his cogent analyses while at the Fed. But he has studiously avoided partisan political issues, at least in public. He has said little about issues at the top of Mr. Bush's agenda, like Social Security and tax cuts, and his economic writing betrays few hints of political ideology. "If you read anything he's written, you can't figure out which political party he's associated with," said Mark L. Gertler, a professor of economics at New York University who has written more than a dozen papers with Mr. Bernanke. Mr. Gertler, who said he did not know his close friend's political affiliation until relatively recently, added: "He's not ideological. I could imagine Ben working with economists in the Clinton administration." Alan S. Blinder, a longtime colleague at Princeton who has advised numerous Democratic presidential candidates, also said he had worked alongside Mr. Bernanke for years without having any sense of his political views. "We wrote articles together and sat at the same lunch table thousands of times before I knew he was a Republican," Mr. Blinder recalled. "We never talked politics." Mr. Bernanke enjoys enormous credibility among economists in academia as well as on Wall Street - an advantage for him that may also pay off for Mr. Bush."I think Wall Street would be more comfortable with Bernanke as Fed chairman, if only because he isn't viewed as being ideological," said William C. Dudley, chief United States economist at Goldman, Sachs. The disadvantage is that Mr. Bernanke may not be able to build up close ties in the White House, where Mr. Bush's inner circle places high priority on personal loyalty and passionate support for the White House's policy goals. Mr. Bernanke declined to be interviewed until he starts his new job. The Senate approved his nomination in a unanimous voice vote on Wednesday and he is expected to start early next week. But administration officials and people who know him said Mr. Bernanke was eager to switch from the Fed to the White House. Ben Shalom Bernanke, 51, established his academic prowess early in life. The son of a pharmacist in Dillon, S.C., he won the state spelling bee in sixth grade, only to falter in the national championship on the word "edelweiss." In high school, he taught himself calculus because his school did not offer it. He earned the highest SAT scores of any student in South Carolina the year he applied to college. He went on to study economic history at Harvard University and then earn a doctorate in economics at Massachusetts Institute of Technology. "I always thought I would be an academic lifer," Mr. Bernanke recalled in a speech to the American Economic Association in January, adding that his biggest complaint about the Fed was the need to wear a suit to work. Following on the work of Milton Friedman and Anna Schwartz, who blamed the Depression of the 1930's on misguided Fed policy, Mr. Bernanke forged his academic reputation by arguing that the problems had been made worse because the United States and many other countries clung to the gold standard. The key to economic recovery, he wrote, came when Franklin D. Roosevelt let the dollar float and then reset its value at a much lower level in relation to gold. The "gold standard orthodoxy," Mr. Bernanke remarked in a speech last year, led to "disastrous consequences" and highlighted the dangers of adhering to rigid but untested economic ideas. As a professor at Princeton, Mr. Bernanke became a tireless advocate of "inflation targeting," which calls for a central bank to publicly establish a target for inflation - perhaps no more than 2 percent - and to set monetary policy with that target in mind. Mr. Bernanke, along with many other economists, contends that setting public targets would be a major step toward greater openness at the Federal Reserve and would make it much easier for investors to anticipate policy. It is an idea that Mr. Greenspan adamantly opposes, on the ground that it would reduce the flexibility of the Fed and be difficult to carry out in practice. But even though Mr. Bernanke openly disagreed with Mr. Greenspan, the dispute does not appear to have hampered his relations with the Fed chairman. Indeed, analysts believe Mr. Bernanke has played a significant role in making the central bank more transparent. In a major departure in 2003, the Fed began giving investors what amounted to advance guidance by declaring that it would keep interest rates low for a "considerable period." Over time, it gradually changed its guidance and has been telling investors for the last year that it would raise rates at a "pace that is likely to be measured." Though Mr. Greenspan clearly supported the advance guidance, the practice fit neatly with Mr. Bernanke's thesis that the Fed needed to communicate more clearly with the public. In moving to the White House, Mr. Bernanke appears ready to make a major career change. He recently informed Princeton, where he has been on a leave of absence, that he will officially resign his professorship at the end of this summer. That is a departure from his three most recent predecessors - Harvey S. Rosen, N. Gregory Mankiw and Mr. Hubbard - who all returned to their academic posts. Mr. Bernanke also bought a house on Capitol Hill and adopted the Washington Nationals as his hometown baseball team. His wife, Anna, is teaching Spanish at the National Cathedral School here. People who know Mr. Bernanke say he is entirely comfortable in supporting President Bush's economic policies. He has expressed little worry about the current budget deficit, which is expected to be about $350 billion this year, and he has supported Mr. Bush's call to overhaul Social Security. But that may not be enough. Lawrence B. Lindsey, director of the Mr. Bush's National Economic Council in the first term, infuriated White House officials by publicly suggesting before the war in Iraq started that it could cost $100 billion to $200 billion. He was immediately silenced, and later forced to resign. Since then, the cost of the war has exceeded his estimate. Mr. Mankiw never veered from White House policy, but came under heavy attack when he described the "outsourcing" of jobs to other countries as a form of trade that would ultimately benefit the United States. The comment was consistent with Mr. Bush's perspective, but Mr. Mankiw was forced to apologize publicly to House Republicans anyway for his politically incorrect views. As he moves to the White House, Mr. Bernanke's most valuable political preparation may have been earned serving on the school board in Montgomery Township, N.J., where he fought to win support for the construction of new schools. Mr. Bernanke recently described that experience as "six grueling years during which my fellow board members and I were trashed alternately by angry parents and angry taxpayers." In the end, Mr. Bernanke and his side won the day. The last school under debate at that time was recently completed.

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