The FT on Monday wades into the escalating debate over the future of Fed chairman Ben Bernanke with a strong argument in favour or reappointing the bearded one – a “Bernanke booster” that is bound to rile legions of his critics out there.
A central banker “must combine the technocrat’s virtues with those of the politician”, pronounces the FT. “Ben Bernanke, chairman of the US Federal Reserve board, possesses both. He should be reappointed when his current term expires in January.” Continues the editorial comment:
The imperfect art of monetary policy requires more than hard technical skill. Mr Bernanke’s fine judgment has stood him and the economy in good stead. Decisions to lower interest rates in early 2008, excoriated by many other central bankers at the time, have since been vindicated.
Of course, his tenure is “not flawless”, acknowledges the FT. “Like others, he overestimated financial markets’ ability to regulate themselves.” But – and the “but” is big – “he has proved a pragmatic crisis manager not hostage to dogma.Playing God and forcible matchmaker for individual banks leaves him open to criticism, as does the subsidisation of financial groups by taking risky assets on to the Fed’s balance sheets. Nonetheless, these decisions were made with the financial system on the brink of collapse and in a legal framework limiting the tools available. Mr Bernanke’s decisiveness and creativity were appropriate. He must now finish the job – of combating the crisis and of containing the consequences of how he does so.Okay, you get the message. Yes, some folks here at the FT like Bernanke, or rather, the job he’s doing.
Actually his term doesn’t expire until January 31, 2010. But already, such arguments for – and the overwhelming number against – Bernanke’s reappointment are beginning to crowd the blogosphere, ad nauseum.
Interestingly, despite all the bitchin’ and moanin’, it seems economists favour Bernanke’s style. As Jon Hilsenrath, Sudeep Reddy and David Wessel noted last month on Brad DeLong’s blog, Bernanke’s reputation on Wall Street “has ebbed and flowed”. But a Wall Street Journal survey conducted of 46 private-sector economists found that 43 endorsed his reappointment.
One pithy comment from blogger Holman Jenkins on Laticonomics gave us the title of this post, and concluded:[Bernanke's] moment of twisting in the wind [during his June congressional testimony on the Bank of America's acquisition of Merrill Lynch] has created, surprisingly, an opportunity for Mr Obama, who, after a suitable pause, can now reappoint the Republican-appointed Fed chief and make him a bit more of an Obama man.
Larry Summers, who is believed to want the job, is problematic on two counts: The White House might be accused of trying to install a political operative to support Mr Obama’s re-election; yet the ambitious and unclubbable Mr Summers might actually prove a headache for the White House if he decided he should run the economy single-handedly.
Better the devil you know (and like personally). There’s even an opening for a steroid replay of the Clinton-Greenspan bargain of the early 1990s: Mr Obama gets a grip on spending; Mr Bernanke keeps interest rates low. Just maybe we get out of today’s mess without wrecking the dollar or snuffing the economy with killer taxes.
But perhaps one of the most comprehensive – and acerbic – takes on Bernanke comes from Willem Buiter, writing last month on his FT.com blog on the ins and outs of what he calls “Bernanke’s re-election campaign” and the general issue of central bank appointments. Here, he gives us a nice feel for Ben’s “campaign tactics” and a link to James Pethokoukis’s blog post, “Candidate Bernanke hits the campaign trail”:
Chairman Ben Bernanke is running for re-appointment. The open way in which he does this is, at least to me, toe-curlingly embarrassing. James Pethokoukis has a rather nice piece on it here. In case you believe I am making this up (I wish I were), the Federal Reserve Board provides you with a video record of much of the Punch-and-Judy-show here. The Fed itself calls it a town-hall meeting (a “Town hall event with Chairman Bernanke . View video excerpts from the town hall event with Chairman Bernanke at the Federal Reserve Bank of Kansas City on July 26, 2009“).
Is it really necessary, asks Buiter, to defend the institution of the Fed, and what remains of its independence, by making statements such as: “The best way to have a strong dollar is to have a strong economy”, “I don’t think the American people want Congress running monetary policy”; “I was not going to be the Federal Reserve Chairman who presided over the second Great Depression” or “When the elephant falls down, all the grass gets crushed as well”?
The first of these statements, says Buiter, is “utter nonsense, although US politicians use it all the time”. He continues:
As regards the second statement, I wish it were true but I am not so sure. As regards the third statement, I will take chairman Bernanke’s word for it. He has, however, apparently decided to go down in history as the Federal Reserve chairman who presided over the creation of the biggest moral hazard machine ever. As regards the fourth, this is obviously incorrect if you make sure the elephant is in a place where there is no grass.
Touché, Willem…
Related link:
Mohammed El-Erian on Bernanke’s bold prose – FT Alphaville