J. Bradford DeLong: August 26, 2009
Bernanke’s Reappointment J. Bradford DeLong University of California at Berkeley and NBER delong@econ.berkeley.edu August 26, 2009
William McChesney Martin, a Democrat, was twice reappointed to the job of Chair of the Federal Reserve by Republican President Dwight Eisenhower. Paul Volcker, a Democrat, was reappointed once by the Reagan administration (but not twice: there are persistent rumors that Reagan's Treasury Secretary James Baker thought Volcker was too invested in monetary stability and not invested enough in producing strong economies in presidential years to elect Republicans). Alan Greenspan, a Republican, was reappointed twice by President William Jefferson Clinton. And now President Obama has announced his intention to renominate Republican Ben Bernanke to the post. Thus it is more remarkable for a President to fail to reappoint a Fed Chair of the opposite party than to reappoint one who wishes it. Reagan's failure to reappoint Volcker and President Carter's failure to reappoint Arthur Burns are the only two cases--two as opposed to five. The Federal Reserve Chairship is the only position in the U.S. Government for which this is so: it is a mark of its unique status as a non- or not-very-partisan technocratic position of immense power and freedom of action—nearly a fourth branch of government, as David Wessel’s recent In Fed We Trust puts it.
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J. Bradford DeLong: August 26, 2009
The reason, I think, that Presidents are so willing to reappoint Federal Reserve Chairs from the other political party is closely linked to one of the two things that a President seeks from a Federal Reserve Chair: the confidence of financial markets that the Chair will pursue non-inflationary policies. If financial markets lose that confidence—if they conclude that the Chair is too much under the thumb of the President to wage the good fight to control inflation, or if they conclude that the Chair does not wish to control inflation—then the economic news is almost certain to be bad. Capital flight, interest rate spikes, falls in private investment spending as businesses find lenders demanding extra insurance in the interest rate against future inflation, a collapsing value of the dollar—all of these are likely should financial markets lose confidence in a Federal Reserve Chair, and if they come to pass then the likelihood of an economy strong enough to give a President a reasonable chance of reelection or a Vice President a reasonable chance of succession is very low. By a reappointing a Federal Reserve Chair chosen by somebody else, a President and guarantee financial markets that the Federal Reserve Chair is not too much under the President’s thumb. And that can be a very valuable asset that an incumbent Federal Reserve Chair brings to the table that no other candidate can much. But Presidents seek more than just a credible commitment to financial markets that the Federal Reserve Chair will fear and fight inflation. They seek intelligence, honor, and a keen sense of the public interest and the public welfare. Presidents’ futures—their ability to win reelection, to accomplish other policy goals, and to leave a legacy—hinges on the strength of the economy. It may or may not be true, especially these days, that what is good for America is good for General Motors and vice versa, but certainly what is good economically for America is good politically for the President as well.
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J. Bradford DeLong: August 26, 2009
It is here, I think that President Barack Obama has lucked out. Ben Bernanke is, I think, a very good choice for Federal Reserve Chair because he is so intelligent, so honest, so clear-sighted in his vision of the economy, and so pragmatic. He has already guided the Federal Reserve through two very tumultuous years with only one major mistake—the bankruptcy of Lehman Brothers (although that really was a beauty). His deep knowledge of the Great Depression and of financial crises is exactly the base of knowledge that we would wish a Federal Reserve Chair to have right now. And his commitment not to ere on the side of underestimating either the difficulty of the situation or the value of keeping employment high would make him, I believe, one of the very best possible choices for Federal Reserve Chair, even were he not now the incumbent. 706 words
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