On the surface he seems to be a decent choice, has qualifications and credentials, and doesn’t seem to be an idealogue. His main strike against would seem to be that he is a trusted Bush advisor, which should NOT be a disqualification in and of itself. Wall Street has responded positively. What else do we look for in a Federal Reserve Board Chairman? What should we expect – a continuation of Greenspan’s slow but methodical approach or something more bold? I suspect the Street favors someone who doesn’t rock the status quo too much, particularly when the market is doing okay.
Also, how long is a normal term for a Fed Chairman? Greenspan’s been there forever – since Reagan IIRC. Volcker preceded him and presided for 8 years. I have absolutely no recollection of who was out there before Volcker.
I was hoping for Kohn, myself, given his political independence and longtime practical experience, but I can’t argue with the selection of Bernanke. He’s definitely one of the top minds when it comes to monetary policy. His only weakness is his relative lack of policymaking experience. I’m not a big fan of his advocacy of hard inflation targets, which both Volcker and Greenspan tended to avoid. But again, there’s no doubting that he’s extremely qualified.
The thing that occured to me is that Indiana’s governor, Mitch Daniels, had been a top Bush financial advisor. If he hadn’t jumped ship to run for governor, he might have been the nominee for Fed chief. I wonder if he regrets his choice.
Bernanke to head Fed
I am somewhat surprised, I think President Bush is making an excellent choice for Federal Reserve Chairman Alan Greenspan successor.
Ben Bernanke is apparently a well respected economist.
Wall Street liked the move and rallied on the news.
I heard on NPR that at least one extreme right winger complained, “He isn’t a supply sider” (This is an excellent recommendation to me).
From what I have heard he is not a Bush crony and is barely political. An academic more than anything else.
So do you agree this a good choice?
Do you think Bush is reeling from the Michael Brown appointment and the current Harriet Miers fiasco and wanted to ensure that a qualified person was appointed?
Thank you Rico, I could not figure it out either and decided to just start it in GQ.
Only becuase my posts had many questions and I really only heard about Mr. Bernanke today.
BTW: You’re right, ‘Head of the Fed’ would make a good band name.
I’m going to bump this once for the daytime crowd.
Good Morning all,
I guess I am hoping for more information on Ben Bernanke or if anyone thinks it is a good or bad choice.
He’ll be fine. Unlike pretty much any central banker I can think of, I read some of his stuff (with Blinder) in Monetary Theory. I’m a little dubious about the extent to which his recent “savings glut” argument applies, but I wouldn’t be surprised if finds occasions to make noises about the US fiscal imbalance in spite of it.
Greenspan was first appointed Chairman of the Federal Reserve by Ronald Reagan in 1987. Prior to that, he served under Prez Nixon informally as an economic advisor, and then formally under Nixon and Gerry Ford (beginning in 1974) as Chairman of the Council of Economic Advisers. He was re-appointed to the Fed Chair in 1992, 1996, 2000. The Fed Chairman is appointed (by the president and confirmed by the Senate) to a term of 4 years.
G. William Miller was Fed Chairman prior to Paul Volcker - but only for slightly more than one year; Miller moved up to Sec. Treas under Carter in 1979. Arthur Burns was Fed Chairman (Feb. 1970 to Jan. 1978) prior to Miller. Nixon had an ongoing feud with Burns over Burns’ perceived independence and Keynesian practices.
It looks like Bernanke will probably follow many of the same monetarist policies as Greenspan - who followed the monetarist policies of Volcker.
Monetarism is the economic theory which holds that variations in a given economic systems (such as inflation) are most often caused by money supply. Monetarism seeks to control variations in economic conditions by regulating (most often expanding it) money supply in an incremental fashion - hence Greenspan’s seeming obsession with the interest rate.
Keynesian economic theory, on the other hand, holds that overall economic conditions can best be controlled through employment; that unemployment signalled inefficient consumer spending. Thus, Keynes said that government spending, particularly deficit spending, was the valve by which the economic activity could best be regulated.
He seems to be a good choice, given that the market rally didn’t stall at the announcement. He seems to be a bit less fixated on inflation than Greenspan, and perhaps would be less trigger happy on the brake when the economy picks up steam. Given the month that Bush has had, he did remarkably well with this appointment from everything I’ve heard.
Greenspan’s seeming obsession with the interest rate rather than the money supply should give you a clue that he wasn’t a monetarist. To be fair, he did pretend that he was, but he never acted like it.
Benanke’s work on why it’s the credit channel and not money as such that matters as well as his advocacy of inflation targeting (not monetary targeting) should tell you he isn’t a monetarist either.
Both of them are advocates of price stability as the role of the central bank as a means to growth. This does not make them monetarists.
Dozens of sources say you’re wrong on this. Even the vaunted ('round these parts anyway) Wikipedia says, “The current head of the United States Federal Reserve, Alan Greenspan, is generally regarded as monetarist in his policy orientation.” AmericanChonicle.com even goes as far as calling Greenspan the “monetarist icon,” in a recent article.
Loans are one of the most efficient methods known for “creating money.” By stimulating, or depressing, loan origination through manipulation of interest rates, Greenspan contolled the expansion and contraction of the money supply.
I might agree with this, however. But Bernanke, by everything I’ve heard, intends to continue managing the Fed through the same means as Greenspan.
Sigh. A certified ho gets appointed to the Fed, and this is all you guys can come up with? Geez.
Yes, I’m here to stir the pot a little. A few years ago, Bernanke gave his infamous helicopter speech . In said speech, he earned his presidential kneepads through the following passage:
The day he was appointed, stocks rallied and bonds dropped. The reason why? As the above shows, he is willing to a) inflate like mad (also known as debasing the currency) if prices should have the bad taste to actually fall (it should be noted that they actually did this as regularly as they rose from 1792 through 1920 without, apparently, retarding the growth of the US, since we ended that period as only the largest industrial economy on the planet), and b) do or say anything to get to be chairman of the Fed, since the above passage was so obviously a signal to the White House that they had a friend at the Fed named Bernanke.
Then there’s this equally infamous passage:
I suppose it’s a good thing that he does actually realize that all those little green pieces of paper and flying electrons have only the value the Fed suffers them to have, as he will be cooperating with Our Illustrious Leader in his determined effort to stomp on the currency 'til it looks like the Turkish lira, or worse.
I’ll be shuffling off to bed soon, but I promise to be around in the coming days to receive the appropriate punishments, should y’all be willing to offer them.
I’ll leave pantom’s post aside for the moment and reply to UncleBeer.
To a fair degree this is terminology, and I wouldn’t want to get all Humpty-Dumpty about it. But I think asking whether these blokes are monetarists is a little bit like the question of whether today’s Chinese government is communist. In a sense they are, but not really.
Let me explain my earlier
The bit I quoted from UncleBeer is indeed pretty much the heart of monetarism:
That the economy is pretty much stable
That prior excessive monetary expansion or contraction can be destabilising
That there is no long term trade off between inflation and unemployment
That monetary policy effects are subject to long and variable lags
That a steady and moderate expansion of the money supply is the best way to go about central banking.
Now think of Greenspan talking about interest rates and the NASDAQ and growth and all that stuff: clearly he saw some potential for elements of the economy to be destabilising (due to irrational exuberance or whatever) and part of his role as central banker was to counteract these (perceived) destabilising forces, mainly by threats to raise interest rates if the boom got out of hand in some unspecified way. Notice this is quite different to a monetarist approach where the source of instability is always the monetary authorities themselves. Threatening to choke off booms or stimulate the economy with low interest rates is not consistent with a monetarist view (as I’ve defined it). It is consistent with the view that the Fed should concern itself primarily with price stability, but under Greenspan, intervention and judgment were required to achieve appropriate policy outcomes.
This is the transmission mechanism issue. How exactly does a monetary loosening work its way into the economy? I’m going to try not to get into this too much, because it’s a bit esoteric beyond a certain point. But the pretty much accepted idea these days is that central banks can control interest rates, but they can’t control the money supply (and that it works through credit rather than “real balances” - changes in the value of money people hold). The reason we think we know this is that when monetarism was all the rage in the late 70s and early 80s, central banks tried explicit monetary targeting. In Australia, the RBA would announce that M3 would be increased by 8% in the next quarter and then the figures would come back that it had increased by 30% despite the central bank’s efforts. This was because the quite stable relationship between the monetary base and broader aggregates breaks down as you try to manipulate them. If base money becomes more expensive relative to broad money or other liquid financial assets, people not surprisingly substitute towards them. Gradually the view became that central banks could influence the credit markets by changing the official interest rates. Again, not really consistent with a monetarist view because rather than a “set and forget” rule of predicable monetary expansion, the central bank has to review the interest rate and judge whether it remains compatible with continuing price stability.
So how would I characterize these folks? Inflation targeters would be one term. Neo-Keynesian another. It’s the current orthodoxy. It’s got roots in both monetarist and Keynesian thinking: inflation control is the bank’s key role; no long term trade off between inflation and unemployment; but the interest rate and not the money supply is the policy variable and the real economy may need cooling or kicking from time to time. Inflation targeting - what we have here in Australia, and what you may well move to under Bernanke - is a combination of rules and discretion: the RBA explicitly states that it will keep underlying inflation between 2 and 4%, but it has no rule about how it will achieve that.
Some disagree with the current orthodoxy. Real business cycle people think the expectations augmented Philips Curve (the trade-off between inflation and unemployment) is vertical even in the short run. Others think there is an excessive focus on inflation and that central banks could credibly promise to rein in inflation before it got going and run looser policy to help employment until then.
Indeed, if you compare the US with New Zealand, that’s what you’ve got now. And that’s why some people see inflation in the US’s future: lack of fiscal discipline and a Fed that can backslide.
That’s not been ignored here. BrainGlutton’s quote from Wikipedia included a passage about “Helicopter Ben,” and includes everything substantive in your post. I think the reason nobody has addrressed it is because it doesn’t really matter. At the time of Bernanke’s speech, deflation was a real worry.
Hawthorne, thank you for elucidating your objections to my application of the monetarist label. There’s valuable information to be considered there and some important nuances entirely missing from the big brush of my posts. You are obviously far more informed and better equipped in matters economic than I. I’m a bit of a neophyte in economic issues, but am trying to learn. I will defer to your superior knowledge in this matter - which is more of a sidebar here anyway.
Nah, don’t defer UncleBeer. It was a perfectly reasonable question and I certainly had to think about my reaction. If you look at the wikipedia article on monetarism you’ll see how deep this sort of thing runs:
Flexibility? Emerging situations? To me that just sounds like the oppositie of monetarism. I think what underlies this is that in the political domain “monetarist” means an advocate of “sound”, inflation first, small government, establishment types as opposed to people who adhere to a particular school of thought.
I’ve been hangin’ out in this neighborhood for a long time, but I have to say, this is one of the strangest threads I’ve ever seen. Apparently, in this thread, we’re still living in a world where the head of the Fed is an independent authority whose opinion on matters outside of his narrow brief are of no consequence.
Meantime, out in the real world, Greenspan blew that myth wide open when he sat between Tipper and Hillary at Clinton’s first inaugural, then spent the next eight years lauding the fiscal rectitude of that time, only to do a complete 180 degree turn when Dubya came in, spending the time since then praising his tax cuts. Most people would find this contradictory. But one need only consider the result: Greenspan retired when he wanted to, not when some President wanted him to.
So, the question, hard as it is to face, isn’t whether Bernanke is this or that flavor of economist. The question, instead, is how far is he willing to go to keep the present occupant of the White House happy.
Quite far, apparently. So no, Uncle Beer, the question isn’t only the helicopter speech. Let us continue with his views, as summarized in a neat little article on TheStreet.com, Rethinking the Bernanke Bonanza:
Each of his views on each of the above issues, taken separately, are reasonable stances. But put them together as a package, and guess what? They happen to match exactly the views of the Administration.
Coincidence? Maybe in this thread, but not in the real world. And a Fed chairman who isn’t independent of a President with as woeful a record as this one when it comes to spending other people’s money is a disaster waiting to happen.
