links for 2009-08-28
If You Are So Rich, Why Aren't You Smart?

DeLong: Project Syndicate: Obama Has Lucked Out with Bernanke

Obama lucky to have Bernanke -- Shanghai Daily | 上海日报 -- English Window to China New: WILLIAM McChesney Martin, a Democrat, was twice reappointed chairman of the United States Federal Reserve by Republican President Dwight D. Eisenhower.

Paul Volcker, a Democrat, was reappointed once by the Reagan administration (but not twice: there are persistent rumors that Reagan's treasury secretary, James Baker, thought Volcker too invested in monetary stability and not in producing strong economies to elect Republicans).

Alan Greenspan, a Republican, was reappointed twice by Bill Clinton. And now Barack Obama has announced his intention to renominate Republican appointee Ben Bernanke to the post.

The Fed chairmanship is the only position in the US government for which this is so: it is a mark of its unique status as a non or not-very-partisan technocratic position of immense power and freedom of action - nearly a fourth branch of government, as David Wessel's recent book "In Fed We Trust" puts it.

The reason American presidents are so willing to reappoint Fed chairmen from the opposite party is closely linked to one of the things a president seeks: The confidence of financial markets that the Fed will pursue non-inflationary policies.

If financial markets lose that confidence - if they conclude that the Fed is too much under the president's thumb to wage the good fight against inflation, or if they conclude that the chairman does not wish to control inflation - then the economic news is almost certain to be bad.

Capital flight, interest-rate spikes, declining private investment, and a collapse in the value of the dollar - all of these are likely should financial markets lose confidence in a Fed chairman.

And if they occur, the chances of success for a president seeking re-election - or for a vice president seeking to succeed him - are very low. By reappointing a Fed chairman chosen by someone else, a president can appear to guarantee to financial markets that the Fed is not too much under his thumb.

But US presidents seek more than just a credible commitment to financial markets that the Fed chairman will fear and fight inflation. They seek intelligence, honor, and a keen sense of public interest and public welfare.

Presidents' futures - their ability to win re-election, to accomplish other policy goals, and to leave a respectable legacy - hinge on the economy's strength.

It may or may not be true, especially these days, that what is good for General Motors is good for America and vice versa, but certainly what is good economically for America is good politically for the president.

It is here that Obama has lucked out. Ben Bernanke is a very good choice for Fed chairman because he is intelligent, honest, pragmatic and clear-sighted in his vision of the economy. He has already guided the Fed through two very tumultuous years with only one major mistake - the bankruptcy of Lehman Brothers.