Krugman's Aversion to Fed Chief Job Should Inspire Its Transformation

 |  Includes: BAC, BK
by: The Baseline Scenario

By James Kwak

Paul Krugman says that Simon’s idea that he should be chair of the Fed is “crazy.” Krugman’s point is either that he wouldn’t be confirmed or that he wouldn’t be able to bring the Open Market Committee along. Maybe he’s right about the former; a Republican filibuster does seem reasonably likely.

I don’t think he’s right about the latter; or, more precisely, I don’t think it matters. The FOMC is, on paper, a democratic body: they vote. There is a tradition that the votes are generally unanimous because of the perceived importance of demonstrating consensus. I don’t know how old this tradition is; it was certainly in place under Greenspan. But everyone knows that the members of the FOMC disagree about many things; that’s why the various bank president members go around giving speeches objecting (not in so many words) to the FOMC’s decisions. Given that we all know there are debates involved, how important is this fiction of consensus?

Put another way, I think it would actually be good if we had a non-unanimous FOMC and even a FOMC that voted against its chair now and then. That would help get us away from this ideology of the all-knowing, all-powerful Fed chair, which is clearly wrong and certainly dangerous.

So if Krugman couldn’t get everyone on the committee to back him, who cares? He’s a smart man, and by being on the committee he will move it in his direction, even if not all the way there. As I’ve said before, the job of Fed chair should be a little more like being chief justice of the Supreme Court and less like being Dictator of All Economic and Monetary Policy, which is what it almost was under Greenspan. That’s why I think the administration can be very open-minded about this job. We want to get away from depending on one person, which means we have to stop acting like the Fed chair has to be a demigod.

More important, is this a serious “I don’t want to be considered,” or is it the Bob Kelly variety? Bob Kelly, CEO of Bank of New York Mellon (NYSE:BK), said he wasn’t interested in being CEO of Bank of America on November 4. Then on December 11, it turned out he was talking to Bank of America (NYSE:BAC) about being CEO. What changed in the meantime? Bank of America paid back its TARP money, eliminating restrictions on . . . executive compensation.

Unfortunately, I think Krugman is serious. I mean, why would anyone in his or her right mind want to be Fed chair?