Monday, October 24, 2005

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Open Bernanke thread

President Bush has nominated Ben Bernanke to replace Alan Greenspan as Federal Reserve Chairman. Comment away!!

Tyler Cowen is all over the nomination. See this post grading Bernanke's capabilities to do the job -- and this one on Bernanke's contributions to the economics discipline.

On current policy debates, Bernanke is best known for his "global savings glut" hypothesis -- about which I blogged here.

For me, the key will be whether -- like Greenspan -- Bernanke will be willing to question his assumptions about the way the economy works in the face of data that contradicts his a priori assumptions. If Tyler's assessment is correct, I'm pretty optimistic.

It's nice to see Bush reverting to the John Roberts mold of picking universally well-regarded nominees -- as opposed to other, less savory molds. Andrew Samwick thinks "Bernanke is an excellent choice." Brad DeLong thinks it's "a very good choice." Max Sawicky thinks it's "the preferable outcome."

On the other hand, Stephen Roach says that Bernanke was his "second favorite choice." One could interpret that as damning with faint praise, but given Roach's general economic outlook, I'd interpret it as grudging acceptance.

UPDATE: Foreign Policy has a boatload of Bernanke-relevant articles up on their main website. In late 2003, Bernanke wrote the following:

Low and stable inflation in many countries is an important accomplishment that will continue to bring significant benefits. But de facto price stability has had another effect, which is now forcing central bankers, as well as the public, to fundamentally rethink inflation.

After a long period in which the desired direction for inflation was always downward, the industrialized world's central banks must today try to avoid major changes in the inflation rate in either direction. In central bank speak, we now face “symmetric” inflation risks....

In short, inflation can be too high, but it can also be too low. So what level of inflation is just right—what, if you will, is the “Goldilocks” level? The best-case scenario is when inflation is neither so high as to impede economic efficiency and growth nor so low that the nominal short-term interest rate routinely flirts with zero. What that ideal inflation rate is depends on the individual economy and on the views and preferences of policymakers.

Although the “just right” inflation rate for the U.S. economy remains an open question, much recent research suggests that it is around 2 percent.

One interesting question at confirmation hearings will be where Bernanke thinks inflation is right now. Given current conditions, deflation is not the source of concern it was a few years ago. At the same time -- as Daniel Gross pointed out yesterday in the New York Times -- it's not completely clear whether inflation should be a source of concern either.

posted by Dan on 10.24.05 at 02:12 PM


I'm opposed to the Bernanke nomination. Bernanke's economically illiterate views on deflation mark him as perhaps today's leading inflationist and disqualify him for a position on the Federal Reserve.

posted by: PrestoPundit on 10.24.05 at 02:12 PM [permalink]

OK -- Presto Pundit, what should the Fed do in the face of deflation?

Just because Bernanke found that some of FDR's policies were the right thing to do is not enough to disqualify him.

posted by: spencer on 10.24.05 at 02:12 PM [permalink]

Bernanke seems like a good, solid, mainstream choice. His balanced view of the risks of inflation and deflation also seem about right. One of the problems in Japan for nearly a decade has been the ever-present risk or, and often reality of, a falling price level. A recongition that a central bank, in a regime of low worldwide inflation, faces risks both of inflation and of deflation is only sensible.

My signle greatest problem with Bernanke is that he seems to favor inflation targeting. It's not clear to me how one would set a reasonable "band"--0% to 2%? 0% to 5%?--or how markets would react if a central bank missed its target--in either direction.

posted by: Donald A. Coffin on 10.24.05 at 02:12 PM [permalink]

Perhaps in line with the first comment on this board, an interesting take on Bernanke here along with a scary prediction:

Bernanke's Rhyme

posted by: Jill Somers on 10.24.05 at 02:12 PM [permalink]

Bernanke is okay with Larry Kudlow and George Bush, so why not overlook his Princeton time and give him the benefit of the doubt? As for the alleged FDR-loving, well, there's something wrong with everybody.

posted by: exguru on 10.24.05 at 02:12 PM [permalink]

One thing I would like to see from any candidate is a good explanation of what they see inflation doing to the consumer. I think one of their great failings is that they see inflation only on a manufacturing and finance basis; strictly a question of what effects it has on inputs to them. All the monetary controls they wish are not doing anything about the prices of insurance, utilities-not just energy related, healthcare and higher education. Many of these are more related to fiscal policy which except for Social Security Greenspan never talks about but these issues effect everyone in America. We do not need another Fed Chief like the one Andrea Mitchell described. The one whom asked why she is going shopping and her answer was you just don't get it do you.

posted by: Robert m on 10.24.05 at 02:12 PM [permalink]

N.B. On my site "preferrable" is spelled correctly.

posted by: Miracle Max on 10.24.05 at 02:12 PM [permalink]

"Bernanke is okay with Larry Kudlow and George Bush,"

Well thank god for that!

posted by: Dustin Ridgeway on 10.24.05 at 02:12 PM [permalink]

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