For and against Ben Bernanke
By Edward Hadas and Richard Beales
It is easy to imagine a better candidate than Ben Bernanke to run the Federal Reserve. But actually finding one is another matter. The current chairman should get a second term, even though he does not unequivocally deserve it.
Bernanke has worried too much about deflation, and not enough about excessive leverage, trade imbalances, financial deregulation and fiscal irresponsibility. He has probably not paid enough attention to the global role of the dollar. He was arguably too soft on the financial industry when that industry was riding high — and he may now be too eager to consolidate regulatory power at the Fed.
In his defense, though, he did well in the thick of the banking crisis in 2008. Along with the New York Fed and the Treasury, he helped rescue and reshape the industry after the bankruptcy of Lehman Brothers.
That policy flexibility belies his reputation as an excessively pure academic and probably avoided a series of confidence-crashing bank failures. Moreover, for all its failings the Fed did a less bad job of financial regulation than most other U.S. watchdogs.
Overall, that’s no ringing endorsement. But consider the alternative. A new chairman would need experience in central banking — this is no time for an amateur. He or she should have post-crisis intellectual credibility — say, a long record of warning about the dangers of asset price inflation. The post-Bernanke Fed boss should command immediate respect from counterparts at other central banks. And both Democrats and Republicans should be keen.
Dream on. The only candidate who comes close is the 82-year-old Paul Volcker, Fed chairman from 1979 to 1987 and currently the big man in the Obama administration’s anti-bank attack.
Volcker might still be up to the Fed job. But his hawkishness could rattle some lawmakers once they thought about it. Besides, his talents are better used helping shape President Obama’s regulatory and fiscal plans than in a nostalgia-driven third term at the Fed.
It’s hard to imagine anyone else with the requisite experience and ready-made reputation. The central banking profession owes the world an apology for its negligence during the credit bubble. Bernanke could do his penance by serving another term — and promising to be harder on excess this time around.