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Monday, September 19, 2005

Greg Ip: Don’t Worry, Greenspan is Replaceable

Greg Ip of the WSJ explains why there is nothing to fear when Greenspan is replaced.  The Fed as an institution and its reliance on sound economic principles, not the talent of any individual, is the key to its success.  This fact is illustrated by central banks around the world who have compiled records similar to the Fed’s even without, in every case, their own magician behind the curtain pulling the monetary policy strings.  He also provides a quote endorsing Bernanke as Greenspan’s replacement:

Don't Worry About Post-Greenspan Era: Central Banking Itself Has Been Elevated, by Greg Ip, WSJ:  …As Mr. Greenspan's retirement approaches in January, anxious investors wonder: Can anyone reproduce his record? A glance at Australia and elsewhere suggests that the answer is yes. While the U.S.'s economic performance has been superb during the Greenspan era, it isn't unique. "Very similar results have been attained elsewhere," says Stanley Fischer, a former Citigroup executive who runs Israel's central bank. A review of nine major countries' economic performance, based on data compiled by Global Insight Inc. … shows that Australia, Canada, the United Kingdom and Spain have done as well or better than the U.S. in reducing inflation and unemployment since 1987. However, only Australia and Spain have grown faster overall, and the U.S. has enjoyed the most stability -- just five quarters of negative economic growth during that period.

Whatever qualities have made the Greenspan Fed successful, many other central banks appear to share them. This means that President Bush probably doesn't have to find a Fed chairman with Mr. Greenspan's eclectic mix of smarts, intuition and rigor, to continue his success. It does mean that choosing someone outside the mold of a modern central banker is risky. What explains central banks' widespread success? In the past two decades, central banking has become a "much more professional, technical job," says Alan Budd, who served in the British Treasury and the Bank of England during the 1990s and is provost at Oxford University's Queen's College. "It's not just a question of taking the politics out, but of putting the economics in." The Bank of England adopted inflation targets, regular policy meetings and inflation reports in 1992 … Australia, Britain and Canada adopted numerical inflation targets in the early 1990s, a step the Fed has declined to take. Debate rages among academics about their value. …

Other countries' good performance doesn't diminish Mr. Greenspan's achievements. Because of the U.S.'s overwhelming influence on world growth and financial markets, it is unlikely other countries could have done so well had the U.S. performed badly... And Alan Blinder, a former Fed vice chairman, says other central bankers have learned from Mr. Greenspan... [Rory Robertson, an economist at Macquarie Bank in Sydney] … says foreigners don't generally like Mr. Bush's foreign or fiscal policies but have taken comfort that "someone smart and sensible is running the Fed." Foreign investors want the next chairman to be a "straight up-and-down central banker type." The candidate who most closely fits that description, he says, is Ben Bernanke, a former Fed governor and monetary scholar who is Mr. Bush's economic adviser. Investors, he says, "know how he thinks."

    Posted by on Monday, September 19, 2005 at 01:11 AM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (18)


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