More on Bernanke

Yesterday I directed you over to a post from January of this year on Ben Bernanke. I quoted Paul Krugman in that post and it is worth repeating here.

The last name one often hears is Ben Bernanke, currently a member of the Fed's Board of Governors. (Before going to the Fed, Mr. Bernanke was chairman of the Princeton economics department, where I'm on the faculty.) If Mr. Bernanke were appointed directly from his current Fed position to the chairmanship, there would be general acclaim. But he may soon move to the Council of Economic Advisers. Why?

Surely it's not because this administration, with its disdain for technical expertise in all fields, wants his advice. I hope I'm wrong, but my guess is that what's intended for Mr. Bernanke is a form of hazing: he will be expected to prove his loyalty by defending the indefensible and saying things he knows aren't true.

Well Mr. Beranke did indeed move to the Council of Economic Advisers but has he been defending the indefensible? E. J. Dionne Jr thinks he may have.

But Greenspan never lost his ideological side. When Bush took office, Greenspan, in an act that will always mar his tenure, suggested that there was ample room for the tax cuts Bush favored, that there might be terrible problems from paying off the debt too quickly. Greenspan became the great enabler of Bush tax policies that have produced massive deficits -- which Greenspan now dutifully condemns. When the great mechanic gave way to the flawed policymaker, the results were less than pleasing.

And that is why Bernanke gives us all reason for concern. Just last Thursday, there he was, telling Congress's Joint Economic Committee that the initial Bush tax cuts had "increased disposable income for all taxpayers, supporting consumer confidence and spending while increasing incentives for work and entrepreneurship." Later tax cuts, he said, "provided incentives for businesses to expand their capital investments and reduced the cost of capital by lowering tax rates on dividends and capital gains."

Well, a Bush appointee would say that, wouldn't he? But this is a terribly rosy view of reality. Consumer confidence has actually been going down. Disposable income is not going up for everyone (just ask General Motors employees and retirees). And Bernanke is a fan of explicit inflation targets, which Greenspan rejected in favor of a more pragmatic approach. Would inflation targets unduly hamper growth?

I have never been a big fan of Greenspan and think the myth that surrounds him is as inflated as the stock market bubble of the 90's and the current housing bubble. Dionne correctly points out that recently Greenspan's ideology has taken precedence over economics.

But Greenspan never lost his ideological side. When Bush took office, Greenspan, in an act that will always mar his tenure, suggested that there was ample room for the tax cuts Bush favored, that there might be terrible problems from paying off the debt too quickly. Greenspan became the great enabler of Bush tax policies that have produced massive deficits -- which Greenspan now dutifully condemns. When the great mechanic gave way to the flawed policymaker, the results were less than pleasing.

So what can we expect from Bernanke? From what we have heard recently it doesn't look to promising.