Should Bernanke be reappointed?

Mark Thoma says yes (with links to a debate) and I think his analysis is on the mark.  Nonetheless he is leaving out one very strong point in favor of his view.  The Obama administration has done plenty of interfering with the car companies and also with executive compensation.  These episodes make me nervous.  Reappointing Bernanke, who is from an opposing party, is a signal that such meddling won't be applied to the Fed and that the Fed will be allowed to regain some of its autonomy vis-a-vis Treasury.  Not reappointing Bernanke would make the markets very nervous about the future autonomy of the Fed.  (Even if Alex is right more generally about central bank independence, I don't want the current Fed to resemble General Motors or Chrysler.)  There's lots of talent in the current White House, but given how much policy has been run from the White House, it would be a bad signal to look to the White House for a Fed pick.  Many of the other possible picks seem to be largely untested at a major league level.  You can complain about Bernanke all you want but his likely successors probably have the same list of drawbacks that perhaps you are ascribing to him.

So yes, Bernanke should be reappointed.


People often confuse criticisms with real available alternatives. I can't find anything I couldn't do better, but I can't do everything better, so I log my complaint and then buy the I-Pod with no voice recorder or I go with the alternative with better battery life but crappy interface and poor PC connectivity and lack of "I'm cool because I conform" and more "I'm cool because I found something with features you didn't."

So, who is the alternative to Bernanke? Summers? Bernanke it is.

If Summers gets the nod then Marc Faber's quote about the "Federal Reserve being an asylum for economists who have turned insane", will be even more apt.

It's hard to think of two prominent economists with worse records. Bernanke thought it would be best to let the housing bubble grow unchecked or did not even realize there was an asset bubble (check out youtube). And Summers appears to still believe in Wall Street and played a key role in passing 90s deregulation.

Yet they are only options?

Bernanke will not be reappointed.

What happened to the semi-official Marginal Revolution creed of commenting only on ideology and generalized policy and not promoting specific political candidates?

Any chance of replacing Bernanke with a computer program? That would be a truly independent Fed.
And I'm only half joking about the idea.


hell, why don't we just program up some taylor-like reaction function and let that handle interest rates?


"Bernanke thought it would be best to let the housing bubble grow unchecked"

Housing price peaked in the first quarter of 2006 and he did not become chairman until February 1, 2006.

Someone still has to tell the program what to do. So instead of having "a group of unelected people having enormous power" over a limited amount of time. You would have whoever created the program having an enormous amount of power over the life of the program.(which could be a very long time). And, personally, I don't believe a program could be created to incorporate every variable in the economy, or at least enough to make a difference.

I favor Bernanke because short of Ron Paul, who is better?

But what really irks me is that somehow these people know that without exactly what Bernanke did, the economy would have collapsed and we'd be cooking with twigs and eating worms. "It would be so much worse!"

Well, it's pretty bad. Worse than anyone short of intentional sabotage has made it quite a while. Yes, Lehman Bros. was allowed to fail, it was tough, but we survived. That proved they weren't too big to fail if too big to fail means a calamity worse than what we had. And, today's problems are not from bank failures, they are from people running out of leverage. Most commentators don't want to do that again but I don't think they can say we'd be a lot worse off if we'd done things a little differently.

This is the same logic the War on Terror crowd uses. "Thank goodness for what they do that we never know about because if they didn't we'd already have a mushroom cloud." Hogswallop.

I would prefer to see Bernanke reappointed. However, there is a very
respectable alternative to him and certainly to the execrable Summers
who is being touted in parts of the media and blogosphere: Janet Yellen.
She is president of the San Francisco Fed and a voting member of the
FOMC. She also was on the Board of Governors for some time in the 90s
before being CEA Chair in 97-99. Long at Berkeley, she was also on
the staff of the Board of Governors in the late 1970s in the international
finance division.

She is also married to Nobelist George Akerlof, with whom she has
coauthored some famous papers in macroeconomics. She is a very level
headed individual who is extremely capable according to pretty much
everybody who has had anything to do with her.

One reason against is avoiding using Greenspan's tenure as precedent to make Fed chairman a lifetime appointment.

I agree with the comments regarding Janet Yellin.

What's laughable, of course, is that we know when the Fed's independence is the most compromised: when a Republican is in the Oval Office (cf. Burns, Arthur and Greenspan, Alan). I'm surprised this fact is ignored by the author.

Joan, You can find videos of Bernanke as CEA Chairman on youtube saying that home prices wouldn't fall - they would just stop rising. "Home prices have never fallen in a coordinated manner" blah blah.


OK. How about arrogant and hypocritical? He was removed as president of
Harvard for lying to the Harvard faculty.

Not talking about anyone in specific in this post or any others, but it amazes me that people who follow the news a few hours a day think they know more than an economist who knows the Great Depression probably more than 99% of the country and who follows the economy at least 8 hours a day.

Considering he was in the middle of the mess since 2002(when he was part of the Fed Board of Governors, then Chairman of the President's Council of Economic Advisers, then Fed Chair), he wasn't paying attention until it all exploded in his face. That's not exactly someone who inspires confidence. So that 99% figure is meaningless.

Devin Snead:
See ISLM's comment right below yours.

The article: Ben "Systemic Risk" Bernanke proves that Bernanke knowingly maintained a strict monetary policy long after he knew of the sub prime problem as he knew it would cause of the "Depression".

It shows that he probably engineered it on purpose!

If you want to sleep tonight, Don't Read It!

"In contradiction to the prevalent view of the time, that money and monetary policy played at most a purely passive role in the Depression, Friedman and Schwartz argued that "the [economic] contraction is in fact a tragic testimonial to the importance of monetary forces" (Friedman and Schwartz, 1963, p. 300).

The slowdown in economic activity, together with high interest rates, was in all likelihood the most important source of the stock market crash that followed in October.

In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it.

Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930."

Governor Ben S. Bernanke
Money, Gold, and the Great Depression.
At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University,
Lexington, Virginia.
March 2nd, 2004

You can read also: Preparing for the Crash, The Age of Turbulence Update: 27/07/09., which tries to accomplish Greenspan Mission Impossible:

"That is mission impossible. Indeed, the international financial community has made numerous efforts in recent years to establish such oversight, but none prevented or ameliorated the crisis that began last summer.

Much as we might wish otherwise, policy makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances.

Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away.


The clear evidence of underpricing of risk did not prod private sector risk management to tighten the reins.

In retrospect, it appears that the most market-savvy managers, although conscious that they were taking extraordinary risks, succumbed to the concern that unless they continued to "get up and dance", as ex-Citigroup CEO Chuck Prince memorably put it, they would irretrievably lose market share.

Instead, they gambled that they could keep adding to their risky positions and still sell them out before the deluge. Most were wrong."

Alan Greenspan
The Age of Turbulence: Adventures in a New World [Economic Order?].

The Age of Turbulence: Plea for a New World Economic Order. explains the nature and causes of economic depressions and proposes a plausible alternative solution.


OK. How about arrogant and hypocritical? "

I'll give you that. How about we meet in the middle and put in -Scott- Summers?

If Obama's smart, he won't reappoint Bernanke. He seems like a good dude, but he's hobbled by his ideology. He'll always be three steps behind the banksters, because he just cannot accept the possibility that an entire industry can be built on bad faith.

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