Ben Bernanke to Chair CEA

It's not often that I write that a White House personnel decision has increased my trust and confidence in the Bush administration. But that is the case today:

FT.com / World / US - White House chooses Bernanke for CEA: The White House has nominated Ben Bernanke to serve as chairman of the Council of Economic Advisers.... ‘I am honoured by the president's intent to nominate me and subject to Senate confirmation I look forward to this new opportunity,’ Mr Bernanke said....

During his two years at the Fed, Mr Bernanke has proved himself to be an effective communicator. He has been an advocate of transparency in policymaking at the Fed. A keen supporter of inflation targeting, Mr Bernanke's influence lay behind the decision this year for the Fed to start providing two-year inflation forecasts, to help guide market expectations on the central bank's objectives.

Mr Bernanke is seen as a leading contender for the job of Fed chairman, along with Glenn Hubbard, a former CEA chair in Mr Bush's first term, and Martin Feldstein, a Republican economist who held the position during the Reagan administration....

Mr Bush has now put in place the team that will have to make the economic case for the president's chief domestic priority: Social Security reform. The White House is expecting to wage a long campaign to win the introduction of private savings accounts and, while the president has so far failed to win public support, his aides warn against writing off the reform effort so early in the second term.

IMHO, the first thing that Ben should do is to make a stand on a technical-but-vital issue where the CEA should have made its stand: get the Bush administration to reduce the clawback real interest rate on its proposed private accounts from 3% plus inflation to a floating rate equal to the U.S. Treasury's borrowing rate (or the borrowing rate minus a small margin). That would keep Bush's private accounts from being a bad deal for the non-rich who opt for them...

Comments

[liberal]

Brad wrote, "IMHO, the first thing that Ben should do is to make a stand on a technical-but-vital issue where the CEA should have made its stand:..."

Come on. Anyone willing to take a position in this adminstration is prima facie not going to take a principled stand for anything. It's part of the job description.

[knut wicksell]

It's a wash. Taylor leaves Treasury, Bernanke goes to CEA. Maybe net negative. It would have been better had Bernanke gone to Treasury. In any case, no net improvement. Professor B. is angling for the Greenspan memorial chair in monetary economics.

[Jim S]

I've got to agree with liberal. By this time it's obvious to anyone who joins the Bush administration that their only job is to toe the line for whatever the White House tells them to say. No one will join them who isn't willing to do so.

[chris]

I thought Bernanke's helicopter money comment showed him out of the reality community unless you do want to see the greenback become helicopter money. As a central banker he hasn't taken a principled stand for the dollar.

[Dubblblind]

Max started the BERNANKE REPUTATION DEATH WATCH two days ago.

"...his career has now reached its apex. It's all downhill from here. The first lurch southwards will be his testimony defending the panoply of disastrous Administration policies."

http://maxspeak.org/mt/index.html

[ChasHeath]

OK, Brad - but the interest charged should be the actual cost of the money.

Since the money will not always be recovered, the clawback should cost the TIPS rate, plus an insurance premium to recover the funds if the loan is not fully repaid. That can happen at least two ways; one, if the clawback exceeds the account value - quite likely for high income earners if there are any benefit cuts - and two, if the private accounts are inherited.

[dsquared]

"When a management with a good reputation takes on a company with a bad reputation, it is usually the company's reputation which survives" - Warren Buffet.

[wkwillis]

I wonder what the interest rate will be when we stop importing money? We imported 600 billion dollars last year and real interest is around minus two percent. God knows what it will be next year in nominal terms. What it will be after inflation is something even God doesn't know.
Borrowing money at nominal three percent during inflation is not necessarily a bad idea.

[anne]

When the President is going about doing all that is possible to tell us the Social Security trust fund is of no value, the fund we have worked so hard to build for a generation, then I do worry no matter the surrounding economists.

[Dave]

What happened to Harvey Rosen? The FT piece says his appointment was only temporary, but as far as I know the White House never said that. Why didn't the WH nominate Bernanke a month ago?

[anne]

The guess is Ben Bernanke is actually slated as the coming Federal Reserve Chair.

[JiminVirginia]

Anne is right. It will be a short stay at CEA, I bet. He wouldn't have been interested otherwise.

[Auros]

ChasHeath -- what if inherited accounts were inherited by depositing them into the inheritors' SS private account, and came with the liability still intact? Would that balance things out?

In any case, carve-out accounts are a lousy idea regardless of how you fund them.

[Maynard Handley]

Are you crazy, Brad? This is, of course, to test the guy out. If he’s willing to say any BS, fine, he follows Greenspan. And if he remains annoyingly sane, he gets left at the CEA, and pleasantly enough, he’s not at the fed and able to make trouble for Greenspan’s successor, who will, of course, be a bona fide Bush yes man—- no pessimistic inflation fighting for him.

[chris]

whattaya mean "no pessimistic inflation fighting for him." Bernanke and Greenspan are the kings of inflation. One hundred dollar a barrel oil or house prices jumping are just manifestations of inflation. I stumble into this on-line community of liberals that still think Bernanke and Greenspan have something to do with the Fed's job description.

[Maynard Handley]

Chris, you may think Greenspan is less aggressive than he should be; certainly I do. However he could easily be replaced by someone as pliant and pathetic as Nixon's friend Arthur Burns. You don't think Bush would leap at the chance to install someone even less concerned about inflation than Bernanke?