CNN Money has a discussion of Bernanke’s nomination as the new chair of the White House Council of Economic Advisers. CNN Money reports:
One of Bernanke's top responsibilities will be helping Bush sell his Social Security plan for private investment accounts, an effort that has so far faced resistance from Congress and the public.
...While a Republican, Bernanke is not an activist and has developed a reputation as an independent thinker. He joins a White House that expects its top officials to toe the policy line and prizes loyalty.
Bernanke's area of expertise is macroeconomics and monetary policy -- not a field directly related to items at the top of Bush's economic agenda such as overhauling Social Security and revamping the tax code.
...Bernanke has sometimes been mentioned as a dark horse candidate to succeed Greenspan when he steps down from the Fed in early 2006.
Some analysts thought a stint at CEA could burnish Bernanke's credentials for possibly taking the helm at the Fed. But others said the timing might not work out that well because Bush would have to find yet another CEA chairman in a short period of time.
So a top
priority is to sell the Social Security privatization plan. I had hoped
he wouldn’t, but assumed it was part of the bargain. The question will
be whether he will shill for the administration or be an honest broker.
I am encouraged that the press appears to be watching for the same
thing, and am hopeful Bernanke will be an honest broker, but that
remains to be seen.
The press also seems to have picked up on the fact that this may be a test for the job of Fed chair which is also encouraging as his actions will be interpreted in that light. The potential damage to his reputation if he compromises principle to attain the Fed job is also noted.
It’s also interesting that he is being played as a non-expert on Social Security and tax reform (“…not a field directly related to items at the top of Bush’s economic agenda…”). I don’t know if that’s the independent conclusion of CNN, or political protection from the administration, but if it’s the latter I see it as a sign that this is the first step to becoming Fed chair.
If he is appointed Fed chair we can expect a change in the conduct of monetary policy. From The New York Times:
Mr. Bernanke argued that the Fed should set a public "inflation target," which he contended would make Fed policy more transparent to investors. Mr. Greenspan opposes that idea, saying it would overly restrict the Fed's flexibility.
I interpret this, and I’d like to hear other views, as a movement away from discretion and more towards a commitment to a Federal Funds rate rule. Given the results that imply that inflation stabilization also stabilizes output (e.g., see Woodford’s book), I would not oppose such a change in operating procedure. Do others agree?
One final question, of the candidates listed for Fed chair, Bernanke, Hubbard, Feldstein, etc., what are their views on operating procedures? Do they agree with Bernanke or Greenspan? I haven’t seen anything on this at all and don’t know if any of them would be in favor of changes relative to current operating procedures. If anyone has heard statements from potential candidates for Fed chair on the conduct of policy, particularly changes they would institute, please let me know. Thanks.