AFTER GREENSPAN: BEN BERNANKE?
(FORTUNE Magazine) – FEDERAL RESERVE GOVERNOR BEN Bernanke has spent much of his professional career trying to dispel the Fed's mystique and curtail its freedom to maneuver. Now the Princeton economist has been nominated to head the President's Council of Economic Advisers, putting him one step closer to succeeding Alan Greenspan when his final term as Fed chief ends next January. Ironic, huh?
In his less than 18 months as a member of the Fed's board of governors, the 51-year-old Bernanke has emerged as the second-most-prominent member of the 12-seat policymaking Open Market Committee, behind Greenspan. And for years now, using the British and other central banks as a guide, he's been pushing for the Fed to make a public, explicit commitment to keep inflation in the U.S. at an average level of, say, 2% (he calls that "constrained discretion").
That, he argues, would secure the central bank's credibility when Greenspan retires, give the general public a simpler way to judge the Fed's performance, and thereby keep the central bank from wreaking the kind of economic havoc it helped unleash through the great inflation of the late '70s. Currently, with what he describes as the Fed's cloak-and-dagger way of making policy--complete with a cottage industry of Wall Street analysts paid to decipher the Fed's statements--there's just too much risk of policy going awry and becoming politicized with a change in personnel. As Bernanke has said, "Making the investment now in greater transparency about the central bank's objectives, plans, and assessments of the economy could pay increasing dividends in the future." (He declined to comment for this story.)
Much of the opposition to Bernanke's views comes from those like Greenspan protégé and current Fed governor Don Kohn, who fear that inflation targets would limit the Fed's flexibility, making it harder to keep unemployment low, soften the blow of financial crises, and act in other special circumstances. (Though this debate has been bubbling for a decade, it's unclear whether inflation targets would need congressional approval.)
A move from the Fed to the White House (provided Bernanke is confirmed by the Senate) would be a big change for the economist. He's adored by current and former colleagues for not letting his opinions get in the way of his analysis, and for inviting feedback and open inquiry--hardly a Bush administration trademark. He's also known for his unusual clarity (no Greenspeak here). "He's very driven on the inside, but comes across as a very calm personality--strong-minded, but not argumentative. Like Greenspan, he never raises his voice," said Princeton economist and former Clinton-appointed Fed vice chairman Alan Blinder. "I worked with him for years before I even knew he was a libertarian-leaning Republican."
Despite that support, Bernanke is still seen as a dark-horse candidate for Fed chief, behind Harvard professor Martin Feldstein and Columbia Business School dean Glenn Hubbard. But if Bernanke manages to wow the White House in his new role, he may have a chance to ensure that he and other future chairman are eminently ... well, forgettable. -- Peronet Despeignes