Federal Judiciary

Did Ben Fold? -- By: NRO Symposium

Is John McCain right to oppose Bernanke?s confirmation? We asked our economics experts if Ben Benanke should become the Fed ex-chairman.


BRUCE BARTLETT
I think that much opposition to Ben Bernanke among those on both the right and left has less to do with his qualifications than with the desire to blame someone for the Great Recession and many of the policies adopted in response to it by the Federal Reserve and other institutions.

Whatever Bernanke and the Fed did to cause the economic crisis, I think his actions during the crisis have been exemplary. We could have done far worse, as we did from 1929 to 1933. For that reason, I am inclined to support Bernanke?s reconfirmation. Those who oppose him have a responsibility, I believe, to explain exactly what Bernanke should have done differently and to propose someone else as chairman with at least a chance of getting the president?s support and a Senate confirmation.

I think it serves no purpose to have Bernanke replaced by someone worse from whatever perspective one comes from. Also, I don?t think it is desirable to leave the Fed without a chairman for any length of time. And I think the Fed chairmanship is too important for it to be the object of partisan game-playing.

-- Bruce Bartlett is a columnist for Forbes, and his latest book is The New American Economy: The Failure of Reaganomics and a New Way Forward.


JOHN BERLAU
Looking back at the Federal Reserve Board?s attempts at self-justification after the Great Depression in Free to Choose, Milton and Rose Friedman concluded that the Fed ?blames all problems on external influences beyond its control and takes credit for any and all favorable occurrences.? Critics of Ben Bernanke, including John McCain, suspect that not much has changed at the Fed, and that the time has come to hold Bernanke accountable for the mistakes that led to our most recent economic crisis.

This nomination should be about the future -- how Bernanke will lead the Fed in his next term. And Bernanke?s recent statements and actions show that he does not deserve confirmation. He has failed to recognize the mistakes that led to the crisis, and he has shown a tin ear to calls for more transparency at his agency.

In a speech to the American Economic Association early this month, Bernanke pointedly refused to acknowledge that that the Fed?s loose monetary policies played any significant role in the housing bubble or the financial crisis. Stanford University economist John Taylor responded in the Wall Street Journal with the simple fact that ?the real interest rate during this period was persistently less than zero, thereby subsidizing borrowers.? Bernanke?s failure to see this raises the possibility that he will allow monetary policy to cause future bubbles -- and future crises.

Bernanke has also been tone-deaf to calls from the left and right for making the Fed more transparent. Both sides of the political fence were disturbed by the various aspects of the bailouts, including the inconsistency of banks holding AIG?s credit-default swaps getting paid 100 cents on the dollar while bondholders in the auto-company bankruptcies got less than 50 percent of the face value of the bonds. They want to know more about the decision-making process that led to these outcomes.

Rep. Ron Paul sponsored the ?audit the Fed? bill, which gained bipartisan support and ended up being included in the financial-reform bill that passed the House in December. But Bernanke, until very recently, fought tooth and nail any attempt to audit the Fed instead of working to reach a reasonable compromise. The Competitive Enterprise Institute was one of many groups to sign onto a left-right coalition letter calling for delaying his confirmation until the Fed was subject to an audit by the Government Accountability Office, as nearly every other facet of government is.

The Obama administration may very well choose someone worse if Bernanke withdraws or is defeated. But Bernanke clearly does not deserve a second term.

-- John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute.


PETER FERRARA
The primary cause of the 2008 financial crisis was the excessively loose Fed monetary policy from 2001 to 2006. Real interest rates were even forced below zero during that time. This greatly encouraged excessive borrowing and risk taking, which was reflected in particular in the housing bubble. The bursting of that bubble produced the financial crisis.

Bernanke was the top cheerleader for that excessively loose Fed monetary policy from his perch as a Fed governor, then as chairman of the Council of Economic Advisers. His reaction to the financial crisis as Fed chairman in 2008 helped to spread panic, and his embrace of bailouts and the ?Too Big to Fail? doctrine has damaged the economy -- and will continue to do so until those policies are reversed.

Since the crisis, he has continued an excessively loose monetary policy that threatens to bring back inflation. With this long record of failure, Ben Bernanke is not the right man for the job, and should not be confirmed for a second term as Fed chairman. John McCain consequently deserves our praise for opposing that confirmation.  

-- Peter Ferrara is director of entitlement and budget policy at the Institute for Policy Innovation, and general counsel of the American Civil Rights Union.


BURTON FOLSOM JR.
According to Sen. John McCain, Fed chairman Ben Bernanke ?must be held accountable for many of the decisions that contributed to our financial meltdown.? Good point -- by keeping the federal-funds rate very low in 2004, for example, Bernanke gave high-risk borrowers incentives to buy houses and exploit the Community Reinvestment Act. The result was a mortgage disaster and helped lead to a near meltdown in banking in 2008 and 2009. Therefore, Senator McCain plans to vote against Bernanke?s reappointment.

I sympathize with Senator McCain?s frustration, but disagree with his conclusion. First, we must give Bernanke credit for learning a lesson of the Great Depression: Don?t raise interest rates, and step in if the banking system becomes highly unstable. Second, if Bernanke is ousted, who will the president appoint? If the answer to that is ?Steve Forbes,? then go ahead and send Bernanke packing. But given what we have seen so far of the president?s ?czar? appointments, I suspect we would see a new Fed chairman committed to using the money supply to promote alleged social and economic needs for targeted voting groups in American society. We are better off with Bernanke.

? Burton Folsom Jr. is a professor of history at Hillsdale College and author of New Deal or Raw Deal?: How FDR?s Economic Legacy Has Damaged America.

LARRY KUDLOW
What exactly did Ben Bernanke promise Senate Democratic leader Harry Reid? That?s the big question right now. Reid reluctantly endorsed Bernanke after a one-on-one meeting. Here?s what Reid said, according to the Las Vegas Sun: ?I made it clear that to merit confirmation, chairman Bernanke must redouble his efforts to ensure families can access the credit they need to buy or keep their home, send their children to college, or start a small business.?

So, in a desperate search for votes, is Bernanke going around the Hill making easy-money promises? Even easier money than we have had in the last year? A Wall Street Journal editorial on Monday opposing Bernanke?s nomination is spot-on. Monetary quid pro quos will destroy Federal Reserve independence and could generate yet another bubble.

And while Bernanke was right to gun the printing presses in the fall of 2008, he has overstayed his easy-money welcome by at least six months. The emergency has long passed, but the emergency policies continue. Breaking a window between 2002 and 2005 -- when Greenspan and Bernanke kept rates too low for too long (especially negative real interest rates) -- and then fixing that window later on is no way to run a policy.

Bernanke?s trillion-dollar purchase of mortgage bonds and other consumer loans is a fiscal action, not an appropriate monetary policy. Over the past year, while the dollar has fallen about 10 percent, and the gold price has risen 20 percent, the consumer-price index has increased 2.7 percent, with producer prices jumping 4.4 percent. Bernanke?s blatant disregard for preserving a stable King Dollar, and his stubborn resistance to using inflation-sensitive market-price indicators as a monetary guide, are two important reasons why he should not be reconfirmed.

Sen. John McCain intends to vote ?no? on the Bernanke nomination; ?I believe that he must be held accountable for many of the decisions that contributed to our financial meltdown,? McCain said. He is dead right. The Fed missed the boat in terms of monetary and regulatory policy. It is time for a change at the Fed.

And following the Scott Brown victory, Republicans have an opportunity to push for a much sounder monetary thinker for the Fed post.

-- Larry Kudlow, NRO?s economics editor, is host of CNBC?s Kudlow & Company and author of the daily blog Kudlow?s Money Politic$.

SAMUEL R. STALEY
Voting to confirm Ben Bernanke as chairman of the Federal Reserve Board might be complicated from a political perspective, but, at the end of the day, it?s the right choice. True enough, the financial markets tanked under his watch, and he is culpable for the frenzy of miscues and misfires that plagued the federal response to the economic meltdown. The monetary-policy excesses during his predecessor?s term, of which Bernanke was a key player, also can?t be dismissed and were an important contributor to the current economic downturn.

Nevertheless, Bernanke wasn?t out of step with most leading economists at the time. Moreover, as just about everyone concedes, the market collapse was unprecedented in modern times. Criticizing Bernanke now for poor decisions in 2008 is Monday-morning quarterbacking.

Of more concern is who would be nominated in Bernanke?s place. The alternative candidates are likely to be a lot less market-oriented and much more prone to activist regulation. At least with Bernanke the Fed will be chaired by someone who understands and respects the role monetary policy plays in the economy. Turning Bernanke away now may open the door for another nominee who?s much more in line with the liberal economic wing of the Democratic party and much more prone to using monetary policy to engineer the economy.

? Samuel R. Staley is Robert W. Galvin Fellow and Director of Urban & Land Use Policy at the Reason Foundation.

ANDREW STUTTAFORD
To suggest that Ben Bernanke?s stint at the Fed has been flawless would be absurd. As a member of its board since 2002 and chairman since 2006, he must take his share of the blame for the (primarily regulatory) failures on the Fed?s part that contributed to the 2008 meltdown. That said, the decision to reappoint him should be based on what Bernanke?s continued presence at the helm could mean for the country now, not on what he did or did not do then.

Don?t believe the happy talk. Fundamentally, the economy remains in very poor shape indeed, but the fact that we have avoided a complete financial collapse is in no small part due to Bernanke?s efforts. To take him off the job at this point makes extraordinarily little sense. Yes, some of what he has done has been messy, but emergency operations often are. The ER is not a place for purists.

A sustained recovery will be impossible without a return of confidence. That return is already being delayed by continuing global economic uncertainty, not to speak of fears over what Obama may be planning on the tax and regulation fronts. To add to that the prospect of a rising know-nothing populism of both left and right (and have no doubt, the removal of Bernanke would be seen as evidence of just that) is asking for disaster.

And there?s one other thing. Do John McCain and the other Republicans who wish to see Bernanke disappear really think that a veering-to-the-left Obama will replace Bernanke with someone that they can trust? If they do, Uncle Sam?s creditors will have a lot of Treasuries that they will only be too glad to sell to them.

-- Andrew Stuttaford is a contributing editor of National Review Online.

Full post as published by Bench Memos - National Review Online on January 26, 2010 (boomark / email).