Monday, January 25, 2010

James Hamilton makes a lot of sense on Bernanke

Please permit me to suggest that intellectual stamina is the most important quality we need in the Federal Reserve Chair right now.

I wonder which of previous Fed Chairs critics think would be better for the job than Bernanke. Surely you don't think we'd have been better off bringing Alan Greenspan back? G. William Miller fumbled badly with much simpler problems. Arthur Burns is a case study in how not to conduct monetary policy. And while I believe that Paul Volcker was the right person for the job at the time, I'd worry about whether he could adapt his hard money views to the subtlety of balancing the current short-run deflationary pressures with the inflationary potential of longer-run budget deficits. If you roll the dice, statistically you're likely to get someone more like the previous four than Bernanke. I shake my head when I look at the list of senators who say they'll vote "no." How could there possibly be an alternative whom Barbara Boxer (D-CA) and Jim DeMint (R-SC) would both prefer to Bernanke?

Perhaps some senators reason that a "no" vote could score them political points. If so, it's all the more reason to be alarmed. One of my big criticisms of Bernanke has been that he has put in peril the independence of the central bank from political pressure to help solve the nation's fiscal challenges. Even if the present skirmish over reconfirmation proves to be just a shot across the bow, it is not an encouraging development in terms of the long-run health of U.S. monetary policy.

I'm with Abraham Lincoln: don't swap horses in the middle of the stream.

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