Counterpoint: Confirm Ben Bernanke

Shaping the future with today’s choices.

Paul Krugman wrote an excellent piece for the New York Times today arguing with major qualifications for Bernanke’s confirmation for a second term as head of the FED. Considering how well my blog went awhile ago arguing that progressives should get off Geithner’s back, I thought I would jump in here also.

Bernanke should clearly on the merits be reconfirmed. The fact that a couple of senators have walked from him is just life in Washington. He represents an irresistible target, a senator can get 5 minutes worth of media advantage by turning on him, so “hey, its just business.” This isn’t even a new Washington phenomenon, it’s always been this way; just a little worse now. But as

I have said before, in Ben Bernanke, the nation and the Fed have a chairman who spent much of his life as an economist studying the Depression and the Fed’s reaction then; learned a lot; and applied that learning creatively and brilliantly to the new circumstances of this financial disaster. It is quite clear that without the fast policy responses of the Fed — led by Ben Bernanke and Tim Geithner, then at the New York Fed — we would have been in a vastly worse situation.

Paul Krugman also raises three qualifications to his own support which, as he acknowledges, makes that support very tepid. First, Bernanke did not foresee the disaster coming and supported as a member of the Fed policies that did not help to turn the course until very late. Second, Bernanke has resisted a number of the major financial sector reform initiatives. And third, Bernanke is underestimating the severity of the current unemployment problem. I agree with the first two of these. Bernanke has suffered from the same syndrome everyone in the Washington policy world always catches: Miles’ law, “where you stand depends on where you sit.” The Chairman of the Fed does not believe he can be seen criticizing the Fed in any significant way. But in this particular case, the U.S. and the Fed would be better off having to contend with the criticism. Krugman is right.

The third issue is tougher. Unemployment is an enormous problem, and it is not going to go away fast. In my view, inflation is not an issue today and the Fed’s course can remain the one it is on - very low interests rates. But I’m afraid circumstances are not going to stay this clear. Our impending deficit and debt problems will begin to hit us before our unemployment problems have been solved and at that point we are going to face an excruciating policy dilemma. On this issue, I think Bernanke is trying to allow himself and his institution some room to maneuver in the future.

I agree with Paul Krugman, with much more conviction.

Roosevelt Institute Senior Fellow and Braintruster Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team.