Krugman:
That said, however, what is the alternative? Calculated Risk says we can do better. But can we, really?
It's not that hard to think of people who have the intellectual chops for the job of Fed chair but aren't fully part of the Borg. But it's very hard to think of people with those qualities who have any chance of actually being confirmed, or of carrying the FOMC with them even if named as chairman (which is one reason why this suggestion is crazy). Does it make sense to deny Bernanke reappointment simply in order to appoint someone who would follow the same policies?
I'm new to the obscure world of the Fed, but I don't think things are as hopeless as Paul assumes. "FOMC" is the Federal Open Markets Committee, of which the Fed Chair is just 1 vote. It is made up of the Federal Reserve Board, the President of the NY Fed and four other rotating regional Fed Bank Presidents. I'm guessing that in the Greenspan and Bernanke eras, the FOMC (and Fed Board itself) would back the Chair without fail. What if that changed?
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| Paul's concern is worth consideration, if Obama picks someone outside the mold of the usual "GOP Daddies" the banking world is used to, could s/he be regularly at loggerheads with the FOMC? What would be the implications of a Fed Chair unable to effectively lead the institution?
For one thing, Paul is missing that Obama isn't limited to just replacing Bernanke as Fed Chair with some DFH, leaving him or her to face this group alone:
It turns out that there are two vacancies* on the Federal Reserve Board. A new Chair would not have to be without allies.
Next, the Federal Reserve Board gets to elect 3 out of the 9 members of the boards of each regional Fed Bank, the "Class C" directors. The Class C directors are not bankers, they're there to represent the People, and they also serve as the Chair and Vice-Chairs of the regional boards. If any one of the 4 incumbent members of the Federal Reserve Board is persuadable (only one has a term that ends during Obama's first term, though this guy was an Obama pick, on his first day in office), the new Chair could start to turn around the management of the regional banks, many of which are due to replace their Presidents in 2011. The point here being that those Presidents also serve on the FOMC, and if some of them can be replaced with people less inured to the Greenspan financial system consensus, again a better Fed Chair than Bernanke could improve policy at the Fed.
Clearly the Federal Reserve System was designed to make it difficult for a first term President to make a huge policy impact, but it certainly seems like now is the time to start this fight. Rather than giving up on the premise that it would be better to have a GOP Daddy who can at least "get things done", maybe Americans should see Obama's Fed Chair pick fighting with the entrenched players. Paul acknowledges that Bernanke has been ignoring the "full employment" part of his mandate while fixating on inflation. Perhaps the institutional culture of the Fed agrees with this, but that's all the more reason to start turning this ship around now, rather than later.
Obama is evidently looking for ways to "be on the right side of the debate" (h/t illissius):
In talks with his financial team, Mr. Obama started letting his frustration show, asking why he was on the wrong side of the "too big to fail" debate.
[...]
In December, Mr. Obama decided he wanted to be on what he saw as "the right side" of the debate, according to an administration official.
This is a good one.
* - No doubt I will be informed that some silly Senate convention means that the two vacancies get picked by Mitch McConnell, and if Obama doesn't obey this convention, the Republicans will be extra mean to him and oppose his legislative agenda while giving Joe Biden noogies on the Senate floor. |
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