I just taped an interview for CNN’s Your $$$$$, which airs at 1 p.m. Saturday and 3 p.m. Sunday. If you watch you can also see Roland Martin and Richard Quest debating the merits of pocket squares (unless CNN chooses to cut that highly informative segment). My interview was about my book, so I won’t belabor it. But there was a non-book-related question that I thought Christine Romans was going to ask me (because the producer had e-mailed me a list). She didn’t have time to ask it, which was a good thing, because I’m still fumbling for an answer. The question:
Did Obama make the right call keeping Bernanke?
My initial reaction was, yeah, sure. Continuity would seem to be important at a troubled economic time like this, and Ben Bernanke is a smart, decent, politically astute but seemingly not politically motivated Federal Reserve chairman. (Brad DeLong makes the case for Bernanke in more detail.) He seems to have succeeded in staving off the second coming of the Great Depression. But none of that necessarily means Bernanke is the right Federal Reserve chairman for the next four years.
Since the Federal Reserve wrested its independence from the Treasury Department in 1951, it has had six chairmen. One of them, former business executive G. William Miller, stuck around for less than two years before moving on to the Treasury Department. So let’s forget about him. That leaves William McChesney Martin Jr. (chairman from 1951 to 1970), Arthur Burns (1970-1978), Paul Volcker (1979-1987), Alan Greenspan (1987-2006), and Bernanke.
The two long-timers, Martin and Greenspan, had hugely successful tenures that were tarnished by what followed: The Great Inflation of the 1970s in Martin’s case, and the Great Recession of 2008 and 2009 in Greenspan’s. Of the two eight-year guys, Burns is generally seen as the worst modern Fed chairman (because he was unwilling to make the hard decisions necessary to beat down inflation), and Volcker probably the best (because he was willing).
Burns was (like Bernanke) a distinguished academic economist and all-around smart guy. But he was the wrong man for the job in the 1970s. Martin and Greenspan seemed to be the right men for the first part of their tenures, but stuck around for too long. Volcker got kicked out by the Reagan administration after eight years, so he didn’t have that problem.
Which brings us to Bernanke, whose first four-year term as chairman will expire early next year. He has been pretty good—if far from perfect—as a crisis manager. But crisis management will not, one hopes, be the main job of the Fed over the next four years. Instead the challenge will managing a return to monetary normalcy (and prodding Congress and the Administration to return to fiscal normalcy) without choking off the economic recovery. Is Ben Bernanke the best person for that job? Who knows? He’s surely not the worst. But this much I know: If he cares about his future reputation, he shouldn’t seek reappointment in 2014.