The debate about whether Ben Bernanke should get another term as Chairman of the Fed is starting to heat up. Yesterday in the New York Times, Nouriel Roubini came out in favor of four more years.
From the Times:
Last week Ben Bernanke appeared before Congress, setting off a discussion over whether the president should reappoint him as chairman of the Federal Reserve when his term ends next January. Mr. Bernanke deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.
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.
After this endorsement Roubini blasts Bernanke for failures that Roubini believes contributed to the financial crisis and recession and lauds him for the swift and unconventional action he took once he realized the depth of the problems. Despite his criticisms he sticks with his recommendation that Bernanke should get another shot.
Before I step up on the soap box and voice my opinion let me say that in the end Bernanke’s fate is probably going to be sealed one way or the other by how well the economy is doing by year-end. If a recovery, however tenuous, is under way then he probably gets the job. If we don’t get the expected bounce in the third or fourth quarter then his goose is cooked. At that point the mob will be calling for heads on a pike and Bernanke’s will be the most readily available. He may retain the job simply by dint of lucky timing with regard to the economy.
Personally, I would like to see someone else get the job. I can’t get around the huge policy mistakes for which he as a member of the Board of Governors during Greenspan’s tenure must bear some responsibility. His misjudgement of the early warning signs of this recession was equally grievous.
The larger issue to my mind is the jeopardy in which he has placed the Fed’s independence. While too much can be made of that in normal times, I think that we are going to sooner rather than later find ourselves in a position in which some very tough choices must be made between stimulating growth and protecting the solvency of the country. Those times will call for a Fed chairman who is willing to stand up to the political gales and who doesn’t have baggage that can be used to bend him towards the politicians' way. Ben Bernanke has not shown himself to be that sort of man.
For the record, I think he will be reappointed.