Update: Should Ben Bernanke Serve A Second Term? Economists Say Yes

This post was updated August 12, 2009
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."

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.

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.