Nomination for Next Fed Chair: Ben Bernanke

It's official. President Bush named Ben Bernanke of Princeton University, former Federal Reserve governor and currently chair of the president's Council of Economic advisers, to be the next Fed chair (home page with vita). I don't expect any trouble over confirmation.

Personally, I am pleased with this nomination. Here is one reason I'm encouraged:

Fed Official Moves Up and Into Politics, by Edmund L. Andrews, New York Times: ...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 do not believe Bernanke will politicize the job as much as Greenspan did. My worry is the opposite, that he will not speak forcefully enough on issues such as the budget deficit that impact monetary policy. The credibility he has on Wall Street mentioned in the article is important and I don't imagine this upsetting markets. His credibility in the academic world is at least as strong, another factor working in his favor from my perspective.

How will Bernanke differ from Greenspan? First, Bernanke is a much stronger advocate of inflation targeting than Greenspan (see his Journal of Economic Perspectives paper with Frederic Mishkin on this topic, free link from author web page). Second Bernanke is more likely to push for a publicly announced inflation target. Third, Bernanke is an advocate of Fed transparency and though large movements in this direction have already occurred, with this nomination I expect there to be even more transparency in the future. Thus, under the familiar rules versus discretion debate (here too), Bernanke is closer to the rules side than Greenspan.

Who will oppose Bernanke? The strongest statement against him is this tirade by John Tamny from the NRO. As noted in the write-up on Tamny's statement and by Brad Delong, Tamny's arguments have little validity. The piece seems to have been motivated by Bernanke's refusal to drop solvency as part of Social Security reform.

The speculation isn't over as this brings up more questions. Who will be the next chair of the CEA? Who will fill the other open seat on the Federal Reserve Board of Governors?

[Update: Link to video of Bush's announcement and Bernanke's acceptance of the nomination.]

[Update: Link to WSJ econolog. A large number of blogs talk about Bernanke. Econbrowser, William Polley, New Economist, Calculated Risk, Glittering Eye, and the trackbacks here link to most of them. Prestopundit has links as well, and casts a dissenting vote. I just know I missed someone I should have included...]

Comments

[pgl]

Kash praises this choice as well and since our blog is not taking comments - let me say it here: Well done, Mr. President!

[pgl]

Speaking of Brad DeLong v. the NRO - first check out the latest from Kudlow and then go to Brad's blog for the takedown.

[Spectator]

The merry Keynesians are all happy to point to low inflation and justify printing money at will. Why don't you'll just go ahead and drop that helicopter money and get it over with.

First, anyone with any common sense knows inflation is significantly understated. Second, this period of globalization and China's coming online is producing significant deflation in manufactured goods. Using that to justify printing money is the equivalent of these pay no money for 3 months offers. The bills will come due - only it may not be immediately obvious.

Now with "Printing Press" Bernanke holding the controls, it's only a matter of time before the currency is destroyed. You can fool the world only for so long. God help us!

[Will]

Is there a bio available somewhere online for John Tamny? I have not been able to find one. As far as I can tell, he's just a grown up version of that Mises-quoting gobshite all of us sat behind an undergrad econ class at some point. Does he have any econ qualifications, or is he just another Ayn Rand fan who got into journalism?

[John Tamny]

Are these posts serious? Does Dr. DeLong really believe my opposition to Bernanke has something to do with his position on Social Security?

I didn't even know Bernanke was going to counter to the Admin. on Social Security, and though I'd love to see private accounts, don't care that much.

My quarrel with him has to do with his belief that growth is inflationary. Not only is that not true, the distortions that will result from the Fed trying to monetize what it deems scarcity aren't insignificant.

Dr. DeLong has correctly pointed out that Bernanke's beliefs are rooted in the Phillips Curve. If he would like to debate its merits, I'll gladly do so. One thing I can say is that I have appreciated his willingness to advertize Bernanke's leanings; something many on the right have been unwilling to.

John

[Mark Thoma]

John - Speaking of are you serious, once again you are mixing up the most basic part of economics, demand and supply. Growth, an increase in supply, is not inflationary, just the opposite. Excessive demand is inflationary. To say Bernanke believes growth is inflationary is, well, let's just say misinformed.

And please explain what you mean by "monetizing scarcity" as that term makes no sense.

[Mark Thoma]

John:

One more question. You keep saying you didn't know anything about Bernanke's views on Social Security (e.g. in your last comment here you say "To begin, I have no clue of Ben Bernanke's views on Social Security."). Your column appeared ten days after remarks he made on this, remarks that evoked quite a reaction and were widely reported. So what you are telling us is that you wrote an entire column about Bernanke without even bothering to check his recent public statements? You have no clue about his views? Really? When you wrote that, you had already left another comment weeks earlier on the same post (see here)- do you not read the posts you comment on?

I hate to see you so unimformed about this. A sample of what you say you didn't know:

Hassett in Bloomberg:How President Bush's Social Security Reform Died, Kevin Hassett, Bloomberg: Social Security reform is dead. … Until two weeks ago, Social Security reform was sort of dead. But now it seems to be all dead. The breakdown occurred when the administration backed away from a proposal making its way through the House of Representatives that would have introduced personal accounts without specifically restoring solvency to the system. Ben Bernanke, chairman of President ... Bush's Council of Economic Advisers, publicly signaled the White House's displeasure with such an approach. Asked if restoring solvency was an inviolable condition, Bernanke said, “Yes, I think the president will insist on maintaining the long-term solvency of the Social Security system.” The word from … up on Capitol Hill, is that this signal from the president sucked the remaining life out of the House measure. …From a WaPo storyConservative economists were disappointed by the statement -- and somewhat skeptical. "I don't think the White House is drawing any lines in the sand, these comments notwithstanding," said Rep. Paul Ryan (R-Wis.), a Ways and Means Committee member and proponent of the accounts proposal. "If that's their position, they will be stubborn and this whole thing will go down," Lawrence A. Hunter, chief economist at the conservative Free Enterprise Fund, said of Bernanke's statements. "Solvency is dead on arrival." … White House National Economic Council Director Allan Hubbard appeared to accept that strategy last week on CNBC when he called the approach "a very important first step." … But Bernanke said firmly that he would recommend the president stick to his "basic principles" and oppose a plan that does not address the system's core problems.

[anne]

There is a concern that James Galbraith or Dean Baker might echo about Federal Reserve policy in general. Has the Fed too often simply assumed that as growth continues and unemployment decreases through a business cycle, the decrease in unemployment will tend to increase wages and production costs and lead to troubling price increases. Alan Greenspan trusted the conservative fiscal policy of Bill Clinton and Robert Rubin enough to allow for short term lower interest rates than might have been the case in earlier years. Unemployment fell and fell, but prices stayed well contained. Can then the Fed be more tolerant of lower unemployment?

[jacqueline fernandez]

Good afternoon Mr.Ben Bernanke March 21,2006

You truly are the right choice for the feds office..
Keep up you good work and just keep smiling..
Do not move up those long term rates whether it is 10 years or 30 years..Just leave them at todays rates..
I thank you from the bottom of my heart...
Just smile a little before the camera,especially
when we all have to see you on television or the computer...

[Bill Roth]

Ben Bernanke: Every time the Fed interest rate is CUT, my disposal income is lowered. It forces me to spend less and conserve more. At the same time, the banks increase their rates to consumers on credit cards. I fail to see HOW this approach promotes consumer spending and economic growth. During the depression we had insurance, mortgage, and banking intermingled. Their control and scams help promote the depression. Today, we have allowed these companies to merge again. What do we see? History repeating itself. They have too much power to manipulate all of us for their GREED. We need to break up these monopolies for our own salvation. Regards, Bill Roth