Saturday, January 23, 2010

Should the Senate Confirm Ben Bernanke?

Yes.

You might be suprised by that answer. To be clear, I think the Fed has erred tremendously during Ben's first term, both by supporting the bailouts and by expanding the Fed's actions beyond standard open market operations (e.g., buying up mortgage-backed securities).  In my utopia, the Fed would not exist at all.

But we do not live in that utopia (yet).  If Ben is not confirmed, we will stil have a Fed, and someone will be chairman.  So the following points argue in favor of confirmation:

1. Hindsight is easier than foresight.  The Fed had to act in real time. Many of Ben's current critics supported the Fed's actions as they occurred, even if they disagree now.  And macroeconomists as a group believe Ben has done a good job.

2. Ben took the actions he did because he was convinced they were right for the economy.  He may have been mistaken, but his intentions were always benevolent.

3. Most distinguished candidates to replace him will be horrified if he is not confirmed.  So, his successor may be far less talented.

4. Ben is being made a scapegoat (perhaps by politicos within the White House), to soothe populist rage.

5. Stability in policy is important, even if that policy is not perfect.  If Ben is not confirmed, uncertainty about monetary policy increases dramatically.

So I endorse Ben for a second term, without reservation.

24 comments:

Anonymous said...

Without reservation? I think that's too strong an endorsement for any politician. I can concede that he's probably no worse than anyone that President Obama would appoint and receive Senate approval—but I still have reservations.

Fady said...

I think all the noise about Bernanke is just that -- noice. A lame attempt by Democrats at populist post the Brown shelacking. Overall I agree with Jeff - Bernanke is the good for the job and an upheaval now will have a negative impact on the fragile (very fragile) recovery (if you even call it that).

Dan Suraci said...

I felt the same as Dr. Miron until recently, when Mr. Bernanke said that low interest rates from the Fed had nothing to do with the housing bubble.

I nearly fell out of my chair on that comment.

I would hope that rejecting Mr. Bernanke would be taken as an attack on his economic/monetary paradigm, and not simply on the man playing a cog in a faulty system.

Perhaps though, I'm too optimistic. :)

Anonymous said...

I cannot agree less. I don't see how ANY of your 5 points can be taken as a reason for confirming Bernanke.

Quote: "1. Hindsight is easier than foresight. The Fed had to act in real time. Many of Ben's current critics supported the Fed's actions as they occurred, even if they disagree now. And macroeconomists as a group believe Ben has done a good job."

That's not even vaguely true. As a macroeconomist, I didn't support almost ANYTHING Bernanke did (except maybe emergency liquidity provision). Neither QE, nor lending facilities, nor apocalyptic announcements live at CNN. And almost all macro guys I know agree with me on many measures. So I don't really know: who are those macroeconomists that AS A GROUP (?) think Bernanke did a great job?

Quote: "2. Ben took the actions he did because he was convinced they were right for the economy. He may have been mistaken, but his intentions were always benevolent."

So now intentions are the metric to judge policy results? I mean, something like: it screwed big time and repeatedly, but hey, he's a nice guy and it meant for good... Really, what is this?

Quote: "3. Most distinguished candidates to replace him will be horrified if he is not confirmed. So, his successor may be far less talented."

I don't even understand what that means. Who is horrified? Who is less talented? Anyway, how the feelings of other candidates might be a reason to confirm him?

Quote: "4. Ben is being made a scapegoat (perhaps by politicos within the White House), to soothe populist rage."

So what? That's a reason for not reconfirming congressmen in Fall, not for voting in favor of Bernanke.

Quote: "5. Stability in policy is important, even if that policy is not perfect. If Ben is not confirmed, uncertainty about monetary policy increases dramatically."

Uncertainty about monetary policy is easily solved if Obama declares who is the future Chairman one minute after the vote. That's it. Problem solved. But also if you were right: you don't want to keep in charge a guy that thinks loose monetary policy was not responsible for the developments of mortgage markets in 2000s, just because ofstability reasons.

antonio

MICHAEL KITCHENS said...

"1. Hindsight is easier than foresight. ... Many of Ben's current critics supported the Fed's actions...And macroeconomists as a group believe Ben has done a good job."


Yes they do and they did. Krugman and the rest of the Keynesians realize that it was the free market that caused all this.


"2. Ben took the actions he did because he was convinced they were right for the economy. He may have been mistaken, but his intentions were always benevolent."

You support his reappointment because he didn’t mean any harm? Using this logic, I assume that you will continue to support the war. Sure, it is bankrupting the country, killing innocent civilians and our soldiers, but we have good intentions.

"3. Most distinguished candidates to replace him will be horrified if he is not confirmed. So, his successor may be far less talented."

Talented to do what? Is Bernake "talented" enough to know where to set the interest rates?

"4. Ben is being made a scapegoat (perhaps by politicos within the White House), to soothe populist rage."

...and so we save his job because we feel sorry for him?

"5. Stability in policy is important, even if that policy is not perfect."

Stability?! You've got to be kidding me! When has the Fed provided stability? The boom-bust cycle is a result of the Fed. I guess they have consistently provided booms & busts. Is that the stability you’re looking for?

Last point:
Professor Miron, you supported candidate Brown for Senate because he seemed like a pretty good guy—the lesser of two evils. Now, he’s talking about a gov’t run health care system. You thought Brown would stop health care. No chance of that.

http://www.youtube.com/watch?v=Ygy0HbbKVM8&feature=player_embedded

Now, you support Bernake because
he seems like a pretty good guy, and his policies were alright. Do these compromises get us any closer to that utopia? No. These kinds of “compromises” continue to undermine our goal of a free society.

John said...

Seems like Ben has done a pretty good job. The optimal inflation for growth is in the range of about 0.3% and 3.0%. The core rate has stayed in the optimal range. While bank reserves grew like crazy to head off deflation, M1, M2, and currency in circulation have quite reasonable long term growth rates.

If low interest rates cause bubbles we should have had bigger bubbles in the 1950s. I am not aware of any bubbles in the 1950s that had to deflate. There must be another cause for bubbles besides low interest rates.

iamse7en said...

I only have this to say:

Watch this amazing video of Bernanke's perceptions and predictions prior to the financial crisis: http://www.youtube.com/watch?v=HQ79Pt2GNJo

His economic philosophy is clearly flawed. Austrian economists around the world warned that easy money for this long was precipitating a dangerous real estate bubble, which would eventually burst, causing an evaporation in wealth for families and firms. Bernanke said there was no bubble and continued his policy of low interest rates. He directly contributed to the pain and depth of this recession (along with Greenspan).

The Fed Chairman is there to have a sense of the economic trends so he knows which open market operations he should conduct to stabilize the economy. He read those trends SO POORLY, and he's on record showing how wrong he was, and this clearly shows how bad of a Fed Chairman he is.

I agree there should be no Fed or fixing/manipulation of interest rates. But we have one, and we might as well have someone as Chairman that understands sound economics. He clearly does NOT. Just look at that video to see how wrong his economic philosophy is. That alone should be incriminating enough for him not to be reconfirmed. If we had a smart economist who understood and believed in the Austrian explanation of the business cycle as Fed Chairman, our economy would be in a MUCH better state right now. Instead, it is in a fragile state, and he continues the policy of easy money and re-inflation of bursted bubbles. This awful monetary policy, along with Obama's fiscal policy, will lead to a dollar crash and further dismantling of our economy. We might as well have an economist who would have FORESEEN such an awful disaster, and there were many of them. Ron Paul is (officially) no economist and he predicted this collapse in stunning detail.

The only way I could see myself in support of reconfirming Bernanke, is if we would get someone even worse than he is to replace him. That is most likely the case, therefore, maybe I see myself in very begrudging agreement with Dr. Miron. Okay, reconfirm the moron.

Anonymous said...

I agree. I'd love to get rid of our central bank, but if it exists, I see no other alternative at the moment.

If Bernanke is not re-appointed, Do I really want a statist like Obama to stick Roamer, Summers, or Blinder in there? Hell no. I'll take the lesser of the evils.

Jess Austin said...

So, his successor may be far less talented.

This is my problem with the whole exercise. I don't want this position to require talent. As Prof. Miron says, better if it didn't exist. But in the meantime, by way of experimentation, why not pick the worst possible candidate? Someone confident, a "leader", so he won't be intimidated by his new colleagues, and who has an intuitive grasp of micro, but not the foggiest notion on the macro side. Let's say one of the hundreds of car dealers who got their Chevy franchises stolen over the last year. I bet that would be zany!

OK, maybe this is something of a modest proposal. All the experts would despair at such a monetary disaster. I contend that, four years on, if one only examined numbers, paying no heed to names or dates, one wouldn't be able to distinguish the decisions and tenure of the amateur Fed Chair from those of his predecessors.

Perhaps this would be because investors would discount the resulting policy blunders, and try to figure out the future for themselves. Perhaps it would be because the inflation numbers would become even more obviously fake and gamed, and everyone other than the Social Security Administration would stop paying attention to them. (Seriously, how can an asset bubble, in a costly asset owned by a plurality of citizens, come and go without affecting broader prices at all? They expect us to believe that?) Or perhaps (and here I'm a bit optimistic) the new Fed Chair would be more effective, just by virtue of not being at the beck and call of the titans of finance? Give them a term of that, and Goldman et al. will probably join the calls to eliminate the Fed.

I think that little thought experiment is pretty damning for the whole apparatus.

Anonymous said...

Ben Bernanke is featured in the new movie "Stock Shock-The Short Selling of the American Dream" The DVD is pretty much everywhere but cheaper at www.stockshockmovie.com

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