Bernanke a victim of Brownmania?
posted at 6:05 pm on January 22, 2010 by King Banaian
Hard to believe, but the Bernanke reconfirmation may be in serious trouble. Ed Morrissey fleshes out the story. The stock market sags partly in response. The WSJ Market Beat blog has a roundup of economists’ reactions. A current tally shows 17 votes for reconfirmation, 12 against (including five Democrats), with five more Democrats answering that they are at this time undecided. Many of the Democrat opponents, including Barbara Boxer and Russ Feingold, announced their opposition today. Majority Leader Reid and Minority Leader McConnell are now jointly counting noses to see if they have 60 votes (as the more anti-Fed types like Jim Bunning are placing a hold on Bernanke’s nomination.)
Opposition to the Fed chair seems to have increased since the election of Scott Brown on Tuesday. The Huffington Post reports this afternoon that
The election in Massachusetts has senators who previously considered themselves safe watching their backs, and they don’t relish the prospect of a vote in favor of a man who failed to foresee the financial crisis and is closely associated with Wall Street.
A recent poll found that 47 percent of Americans think Bernanke cares more about Wall Street than Main Street, while only 20 percent think he works for Main Street. Independents, who swung heavily for Brown in Massachusetts, are even more opposed to Bernanke than Democrats or Republicans. Fifty percent of independents think he cares first about Wall Street; 15 percent think he prioritizes the needs of Main Street. That’s a difficult vote in the face of an angry public.
If Bernanke is confirmed, he’ll have to rely on the same coalition that moved the bailout through Congress, when the leadership of both parties joined forces to oppose the rank and file.
We get this rather unprincipled announcement from Sen. Boxer:
“I have a lot of respect for Federal Reserve Chairman Ben Bernanke. When the financial crisis hit in late 2008, he took some important steps to prevent what many economists believe could have been an even greater economic catastrophe,” said Boxer.
“However, it is time for a change — it is time for Main Street to have a champion at the Fed. Dr. Bernanke played a lead role in crafting the Bush administration’s economic policies, which led to the current economic crisis. Our next Federal Reserve Chairman must represent a clean break from the failed policies of the past.”
No, Senator, it is not the job of the Federal Reserve to be a champion for Main Street, Wall Street, or anyone else. The Federal Reserve is an independent institution, a feature that Congress chose wisely almost a century ago.
First, central bank independence has been shown to be essential for controlling inflation. Sooner or later, the Fed will have to scale back its current unprecedented monetary accommodation. When the Federal Reserve judges it time to begin tightening monetary conditions, it must be allowed to do so without interference. Second, lender of last resort decisions should not be politicized.
Finally, calls to alter the structure or personnel selection of the Federal Reserve System easily could backfire by raising inflation expectations and borrowing costs and dimming prospects for recovery. The democratic legitimacy of the Federal Reserve System is well established by its legal mandate and by the existing appointments process. Frequent communication with the public and testimony before Congress ensure Fed accountability.
The Fed, as Robert Samuelson points out, has had officials testify before Congress 32 times. Its actions are not a secret, and attempts to find out who got direct loans from the Fed are more meant to intimidate than illuminate. The assault on its independence has helped push down stock prices and could set off a currency crisis in a G-7 currency, which is extraordinary. At a time where financial crisis still looms large in the rear view mirror, it is highly irresponsible to engage in scapegoating.
Greg Mankiw notes Bernanke’s InTrade contract has fallen from 0.95 to 0.7 and adds “This uncertainty cannot be good for financial markets.” Indeed. And if that’s in trouble, what happens to the debt ceiling vote?