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Monday, October 24, 2005

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...]

    Posted by on Monday, October 24, 2005 at 10:01 AM in Economics, Monetary Policy, Politics | Permalink  TrackBack (4)  Comments (10)


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