Federal Reserve Bank Chairman Benjamin Bernanke reaches the end of his four-year term in January. The position is appointed by the president, rather than elected, but Bernanke nonetheless has started a 2010 campaign, of sorts, with a town-hall meeting in Kansas City. It's probably still too early to judge, but how well has Bernanke handled the extreme challenges of the U.S. economy? And should he be the one to lead the Fed out of the recession?
Of the fifty-two economists surveyed recently by the Journal, nearly all came out in favor of Fed Chairman Ben Bernanke staying for a second term, and together they attached a 71 percent probability to his being reappointed. Diane Swonk, chief economist of Mesirow Financial, and whose current market and economic views appear elsewhere on this site, makes a sensible case for a second Bernanke term:
"Continuity is critical as we emerge from this crisis. Otherwise we could slip back in again," .... "Bernanke is the best suited to undo what has been done when the time comes."When I first saw that Chairman Bernanke was reaching out to a broad television audience -- you can see the meeting on the web site of PBS -- I figured that the econo-blogging community would be all over it, but actually there was little reaction. Maybe it was just the timing, in the middle of the summer. Or perhaps that some of the most important effects of Chairman Bernanke's decisions, and the trajectory of the recovery, have yet to unfold, and most observers are withholding judgment until they have make a more complete view.
But a few big hitters have cast their votes, and present enlightening viewpoints. Anna Jacobson Schwartz, who collaborated with Milton Friedman on the masterpiece A Monetary History of the United States, 1867-1960, does not endorse Bernanke for a second term.
She authored a critical op-ed piece in the Times in late July, faulting the Fed for, among other things, failing to properly caution investors of the risks in the exotic mortgage securities that cost banks billions, and inconsistent handling of banks in trouble, such as saving Bear Stearns, while letting Lehman Brothers hang out to dry a few months later.
Another economics all-star, Paul Kasriel of Northern Trust, has critiqued her criticisms. In an excellent essay, he points out that the Fed is not the manager of the financial markets, and it's not for them to tell investors what to buy or avoid.
But even though Kasriel admires his bold policies in liquifiying the U.S. financial system, he does not recommend a second term for Bernanke:
In my opinion, the seeds of our current economic and financial market problems, if not sown, were fertilized in the early years of this decade, which included Bernanke's tenure as a Fed governor (2002 - 2005). Never once during his tenure as a Fed governor did Bernanke officially dissent from a majority decision of the Greenspan-led FOMC. [I]n my opinion, this is Bernanke's disqualifying sin of omission.Nouriel Roubini, the NYU economist known for foreseeing the financial blow-up and consequent downturn, also faults the Chairman for standing by while the financial risks fermented. But he nonetheless calls Chairman Bernanke "The Great Preventer," also in a Times op-ed, and endorses him for another term.
Mr. Bernanke understands that in the Great Depression, the collapse of the money supply and the lack of monetary stimulus during contractions worsened the country's economic free fall. This lesson has paid off. Mr. Bernanke's decision to keep interest rates low and encourage lending has, for now, averted the L-shaped near depression that seemed highly likely after the financial collapse last fall.As yet no one has asked for my vote, but I'm with Roubini. Yes, Chairman Bernanke was part of the regime that started all this mess, but when it was time, he took some very bold and creative steps based on his thorough understanding of the Great Depression. He best understands what the Fed's actions are meant to achieve, and should be at the helm to carry them out, or adapt them as needed, in the coming recovery.