Bernanke Nomination - Extended Post

My original post on the nomination of Ben Bernanke as Fed Chief was done while I was at work, and necessarily brief and admittedly completely free of added value. Alas, such are the hazards of the employed blogger. And frankly, given the comment-love I get from my three or four regular readers...tough titties.

However, since I did make a point of putting "Economics" in my sub-title content
description, it would be pretty weak if I didn't comment on this baby.

As mentioned in my original sparse post, the Bernanke selection was considered a very good choice by Brad Delong. Given my time constraints, that was the best commentary I could find on the subject.

Upon arriving home, I hopped over to Brad Setser's blog, where I was reminded that Bernanke was responsible for coining the idea of the "global savings glut" to explain the U.S. current account deficit situation. The essence of the theory boils down to:"US fiscal policy has had essentially no impact on the US current account deficit and continued large current account deficits pose relatively few risks," from Setser in an earlier post on the "global savings glut" here. The earlier post is devoted to what would effectively be the Roubini and Setser rebuttal of that argument. From a political-left perspective, reading about the global savings glut at the time, it was hard not to take away the sense that the theory was mainly an attempt to deflect criticism away from the current fiscal policies, and shift the blame to a nebulous "elsewhere".

More troubling was this New York Times column by Paul Krugman from Jan 25th of this year, prior to his move to the Council of Economics Advisors.(Courtesy pkarchive.org)

The last name one often hears is Ben Bernanke, currently a member of the Fed's Board of Governors. (Before going to the Fed, Mr. Bernanke was chairman of the Princeton economics department, where I'm on the faculty.) If Mr. Bernanke were appointed directly from his current Fed position to the chairmanship, there would be general acclaim. But he may soon move to the Council of Economic Advisers. Why?

Surely it's not because this administration, with its disdain for technical expertise in all fields, wants his advice. I hope I'm wrong, but my guess is that what's intended for Mr. Bernanke is a form of hazing: he will be expected to prove his loyalty by defending the indefensible and saying things he knows aren't true.

That might seem a tolerable price to pay for the Fed chairmanship - but a year of it might well make Mr. Bernanke damaged goods from the point of view of the markets.

It's a dilemma. I don't have any sympathy for the administration's perplexity. But I do wish Mr. Bernanke the best of luck, and hope he knows what he's doing.

But all politically-motivated scare-mongering aside, the man was on the shortlist for Fed Chief for a reason. His resume and background are all absolutely top-notch. As it seems likely that his confirmation will be quick and uncontested, I wish Mr. Bernanke the best and hope he proves any concerns unfounded.