We will certainly shed no tears here for the departure of Ben Bernanke as chairman of the Federal Reserve, as the man never could quite grapple with the notion that his constant manipulation of interest rates and the money supply was doing nothing to improve the economy while seriously compromising the soundness of the dollar.
Obama's decision not to nominate Bernanke for another term might even been seen as one of his few wise moves if not for the fact that he will almost certainly nominate a new Fed chair who will do exactly the same things. This seems to be coming down to a battle between Larry Summers and Janet Yellen, or more accurately, a battle of social statements as much as a choice between the right skills and philosophies to lead the Fed. And as the Wall Street Journal explains, we should expect nothing different from this administration:
Janet Yellen, the current Fed vice chairman, has emerged as the favorite of the Democratic left. As an economist with long experience at the Fed, she doesn't lack for professional credentials. But her cause has been taken up by the liberal diversity police as a gender issue because she'd be the first female Fed chairman.
Nancy Pelosi has bellowed her support, and Christina Romer, who was chief White House economist for the first two years of Mr. Obama's Presidency, has all but said it would be a defeat for women if Ms. Yellen doesn't get the Fed job. That led our friends at the New York Sun to wonder if they had somehow missed the creation of "the female dollar" given that they thought the Fed's main task is to preserve the value of the currency.
But if the new chairman continues Bernanke's policies of pump-priming and artificially low interest rates, it will be a defeat for everyone. The Fed has never gotten out of the mindset that it's in post-2008 crisis mode, and it can't let go of the idea that it has this dual mission of price stability and full employment. The Fed can't accomplish the latter without endlessly compromising the former, and it needs to stop trying. If the Fed ensures that the dollar is sound, it will have done its job. Reducing unemployment will happen when the federal government adopts pro-growth policies and allows the private sector to produce and grow.
The Journal, which seems to tepidly favor Summers as the lesser of two evils, refers to Yellen's instinct as wanting to keep "spiking the punchbowl." In other words, more printing of money, more manipulation of interest rates, in spite of the fact that they're not working and they're getting the nation drunk on easy borrowing and a weakened currency. That may well be Yellen's default policy, but the truth is it's probably Summers's as well.
It really doesn't matter that much who Obama picks to run the Fed. We're not going to get sound economic policy in this country until Obama is either gone or effectively neutered by massive Republican majorities in both houses of Congress - and that's assuming said majorities would actually restrain spending and embrace pro-growth policies. The last time they ran Congress, they didn't, and many of you blamed George W. Bush for it.
Maybe 2014 can yield us a better crop of Republicans, because neither Obama nor his Fed nominee are going to yield us anything we'll be happy to get.
