Talents Guarantee Good Fit
Ben Bernanke, President
Bush's top economic adviser, will take over the Federal
Reserve from retiring Alan Greenspan in January.Bush
named him to the Fed board in 2002.
FLINT, Mich. — Succeeding Alan Greenspan
as Federal Reserve Board chairman will surely be a tough act to
follow, but newly appointed Fed chair Ben Bernanke has exactly
the right combination of talents, skills and background to
effectively guide the U.S. economy as successfully as Greenspan.
Bernanke's prolific research has significantly advanced our
understanding of how monetary policy is linked to financial
markets and economic growth, and makes him ever better qualified
academically than Greenspan to lead the Fed.
In fact, a new era of monetary policymaking under Bernanke could
actually be an improvement upon Greenspan's impressive 18-year
record of low and stable inflation. Here's why.
Bernanke has a rock-solid background as an academic economist in
the area of monetary economics, with almost 150 scholarly
articles in top economics and finance journals.
As an MIT-trained economist, Bernanke has a first-rate
quantitative background in statistical modeling and forecasting,
giving him another possible advantage over Greenspan, who has
generally shunned the mathematical approach to economic analysis
As a balance to his quantitative strengths, Bernanke has also
done important research in macroeconomic history, focusing
specifically on monetary policy during the Great Depression. In
particular, Bernanke has confirmed Nobel economist Milton
Friedman's findings that the Fed's misguided, inappropriate and
destabilizing monetary tightening in the early 1930s turned an
otherwise ordinary recession into the "Great Contraction."
According to Bernanke, the main lesson to be learned from the
Great Depression is the importance of price level stability for
monetary policymaking, which should calm the inflation-skittish
Complementing Bernanke's academic background, is his
policymaking experience, first as a Fed governor for three
years, and most recently as the chairman of the Council of
Compared to Greenspan in 1987, Bernanke now assumes the Fed helm
with both more academic experience in monetary economics and
with more monetary policymaking experience.
Federal Reserve Chairman
Alan Greenspan is retiring in January.
The controversial subject that could clearly sets Bernanke apart
from his predecessor, is the issue of inflation targeting to
guide monetary policy. While most developed economies around the
world have adopted inflation targets over the last decade, only
Japan and the Greenspan Fed have resisted targeting. In
contrast, Bernanke is one of the leading international
proponents of transparent targets for inflation.
Therefore, look for the Bernanke Fed to move in the direction of
an inflation target, with a corresponding reduction in
uncertainty about the future direction of monetary policy,
inflation and interest rates.
Without the anchor of a transparent inflation target, a certain
element of uncertainty and Fed-watching always swirled around
the Greenspan Fed, as everybody had to guess what the Maestro
would do next. Under a Bernanke Fed with an inflation target,
Fed-watching will disappear, as a publicly-announced, formal
inflation target will be known to the world.
As Bernanke has explained in his writings, an inflation target
would create an important institutional commitment to increase
the transparency of monetary policy, and would be a long-run
solution to monetary stability that would not be dependent on a
single individual like Greenspan. By formalizing Greenspan's
credibility and established record of low and stable inflation
with an inflation target, Bernanke's success as Fed chair could
eventually surpass the Greenspan legacy.
Perhaps history will credit Greenspan as being the Fed chief
with the longest record of price level stability in Fed history,
and Bernanke as the Fed leader who captured and distilled much
of the Greenspan wizardry into a transparent inflation target.
We can be certain about two things — the U.S. economy benefited
greatly over the last two decades because of Greenspan's
effective leadership at the Fed, and there is no better
candidate than Ben Bernanke to continue, and possibly surpass,
the legendary Alan Greenspan.
Mark J. Perry is a professor of economics and finance at the
Flint campus of the University of Michigan. Readers may write
him at UM/Flint, 350 David M. French Hall, Flint MI 48502-1950
or e-mail him at