Assessing Bernanke

Adam Posen, senior fellow at the Institute for International Economics, discusses President Bush's nomination of Ben Bernanke as the next chairman of the Federal Reserve Board.

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ROBERT SIEGEL, host:

More now on Ben Bernanke from Adam Posen, who is senior fellow at the Institute for International Economics in Washington.

And, Adam Posen, you're a colleague to some extent of Ben Bernanke's.

Mr. ADAM POSEN (Senior Fellow, Institute for International Economics): I've known Ben for well over a decade, and I had the privilege to co-author a book with him. And actually my first published paper was in a volume he edited. So I've known Ben and admired him for quite a long time.

SIEGEL: Well, in the universe of economists, bankers, people in the equity markets, what does this signal, the choice of Ben Bernanke?

Mr. POSEN: This is pure meritocracy. This is someone who is the best monetary economist or one of the top two or three monetary economists in the world, who has had exposure working directly on practical central banking issues and who has not been politically compromised and, above all, who's incredibly good at articulating policy issues for the public, both written and spoken.

SIEGEL: He has written a great deal about inflation.

Mr. POSEN: Yes. I mean, if you're a central banker, that's your number-one issue because you--that's the one thing that central banks not directly control but can influence most. And it's the one thing that you believe over the long run a central bank can provide--is price stability, and then things get better in other ways. He's also written, of course, on deflation. Ben is one of the great analysts of all time on what happened in the Great Depression, what the Fed did wrong then, the things that had to be--take in account to prevent that from happening.

SIEGEL: I read a very wary column about him in the National Review, a conservative magazine, saying, `Watch out. This guy, Ben Bernanke, he is no supply-sider.'

Mr. POSEN: Gots to thank God. He is no supply-sider, that's absolutely right, and no mainstream serious economist is a supply-sider.

SIEGEL: So there may be some people in that wing of the conservative movement or the Republican Party that'll be disappointed by this...

Mr. POSEN: There may well be, and I would view that as good, just as I would view it as good that he's not someone who, from the far left, believes you can create jobs like printing money. I mean, this is--certainly he's conservative in the sense that he's a Republican. He's identified with this administration. He's comfortable with this administration's stance on taxes and Social Security, which not necessarily all of us are. But on monetary policy, I mean, Ben is not just the mainstream; he's defined the mainstream for the last five, 10 years.

A central bank's primary job is to keep price stability. It's not its only job. You have to worry about growth; you have to worry about jobs. But there are limits to what a central bank can do, and you have to publicly explain what a central bank can and cannot do. That's the work that he and I and others did on inflation targeting--was about that, about disciplining the central bank to explain things to the public, justify when it deviates from focusing on inflation. It's a much more transparent world, and I think that's going to be a shock for people when they get Ben in office.

SIEGEL: Alan Greenspan has been many things but transparent is not one of them. What would you expect in the way of Ben Bernanke's style as Fed chairman that might be different from Alan Greenspan's?

Mr. POSEN: I think there are going to be three major differences. First, as we've already discussed, he's going to be much more clear in his statements. He believes in central bank communications; he believes in being a communicator himself. You're just going to have much more straightforward statements.

Second, I think he's going to be more collegial; that doesn't necessarily mean he's going to talk less than the chairman, but that there's going to be much more clearly promotion of people like Don Kohn, Roger Ferguson, Tim Geithner, other senior people in the system. And it won't necessarily be read as, `Do they agree with Bernanke or not?' They will be able to make their own statements.

The third point that I think--in style is he's probably going to be much more disciplined about not talking on issues that are not central bank issues. I mean, one of the biggest complaints with the chairman, Greenspan, which I certainly feel is he's gone overboard in occasionally opining on Social Security or tax policy or things that, frankly, are not his remit. He may know about them, but they're not his job. And I think Bernanke, I expect, will be much more disciplined about sticking to central banking issues, financial issues, banking issues.

SIEGEL: So we're not going to hear him commenting on real estate values in the United States anytime soon?

Mr. POSEN: You might hear him say, `If you're a bank and real estate values are overvalued, you should probably provision a bit more against real estate values going down.' You're probably not going to hear him lecturing the public, `Hey, don't take out that interest-only mortgage.'

SIEGEL: Adam Posen, thanks a lot for talking with us.

Mr. POSEN: Thank you, Robert.

SIEGEL: Adam Posen of the Institute for International Economics speaking with us about Ben Bernanke, President Bush's nominee to be chairman of the Federal Reserve Board.

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