Bernanke: Some see ideology, some do not
Dionne on Bernanke:
Bernanke gives us all reason for concern. Just last Thursday, there he was, telling Congress’ Joint Economic Committee that the initial Bush tax cuts had “increased disposable income for all taxpayers, supporting consumer confidence and spending while increasing incentives for work and entrepreneurship.” Later tax cuts, he said, “provided incentives for businesses to expand their capital investments and reduced the cost of capital by lowering tax rates on dividends and capital gains.”
Well, a Bush appointee would say that, wouldn’t he? But this is a terribly rosy view of reality. Consumer confidence has actually been going down. Disposable income is not going up for everyone (just ask General Motors employees and retirees).
Really, this is just nonsense. If tax cuts do anything at all, they — tautologically — increase after-tax income and increase incentives for businesses and investment. It’s simple arithmetic. Even the NYT is more balanced in its article on the new Fed Chairman and former head of the Princeton economics department:
Mr. Frank, a liberal professor at Cornell, and Mr. Bernanke were an odd couple as authors of “Principles of Economics,” published in 2001. While Mr. Frank wears his politics on his sleeve, Mr. Bernanke does not. “When the news first came that he was a candidate to be named a Fed governor, I thought it was interesting that the Bush administration would nominate a Democrat,” Mr. Frank said. “I was surprised. I worked with him and did not know he was a Republican.”
Meanwhile, Michael Darda at NRO thinks Bernanke is not enough of a monetarist:
It’s likely that the key federal funds interest rate will be at 4.5 percent when Greenspan relinquishes the chairmanship to Bernanke, which means in all likelihood that the Fed’s tightening effort will be close to complete. This takes a certain degree of pressure off Bernanke, but it doesn’t tell us much about how Bernanke will monitor price-level pressures after that. I preferred Hubbard to Bernanke only because I thought Bush’s former CEA chief would be more open to a price-rule approach to monetary policy, whereby the Fed would shadow sensitive forward-looking indicators of excess liquidity and incipient inflation: gold, commodities, the dollar, and the Treasury yield curve (and perhaps the TIPS spread and the real short rate).
While I’m told that Bernanke is open to market indicators, he also seems overtly committed to an explicit target for the core inflation rate, which I view as problematic. Trying to stabilize a backward-looking index of prices by manipulating short rates probably is an impossible task, not to mention an undesirable one. Most core inflation indices lag the Fed’s monetary actions by no less than 18 months, which means that responding to a price index reflective of the stance of monetary policy more than a year prior would be like running through an obstacle course backwards and blindfolded. Doing so wouldn’t prevent a hard landing — it would ensure it.
I also have some concern about Bernanke’s view of the inflation process, which seems to be driven by different measures of “slack” in the economy instead of indicators of excess liquidity, which is explicitly under the control of the Fed. The slack-based approach is embraced by many Reserve Bank presidents and Fed governors, and is also favored in academic circles.
After three decades in and out the the banking industry, we are pretty firmly in the monetarist camp ourselves, but Bernanke looks like a pretty good choice. For the most part, we really won’t know about this Fed Chairman until he needs to, and makes, some difficult decision at some point in the future.