What seemed a foregone conclusion - the reappointment of Federal Reserve Chairman Ben Bernanke for another four-year term - has turned into a matter of contention. For this we have to thank Massachusetts voters. Their rebellion that took the unfortunate form of electing a right-wing Republican to fill the Senate seat of the late Edward Kennedy has recalibrated nearly everything in politics, including and not least, the reappointment of Bernanke. No one was expecting his coronation, but nearly no one expected anything but token resistance to his reappointment by President Obama.
Until now the most vocal critic of Bernanke has been Vermont senator and socialist Bernie Sanders. But now Sanders has some new allies in the Senate. Whether it is enough to derail the president's appointment is doubtful at this point, but it is a fight worth making. Two good reasons come to my mind.
For one thing, Bernanke - and before him the so-called oracle at the Fed, Alan Greenspan - were two of the main engineers of our protracted economic slump. When some economists were issuing warnings about the speculative bubble in the housing market and the grave consequences if it burst in the years prior to the meltdown in 2008, Fed czar Bernanke was making speeches about the "Great Moderation." According to him, sudden and sharp contractions of the economy were a thing of past. Hello! Talk about being asleep at the switch!
For another thing, since the bubble burst Bernanke has shown little if any desire to use monetary tools to address the long-term unemployment crisis. His actions suggest that he is content with how the economy is performing, even though many economists argue that jobless rates are going to remain high for a long time unless special measures are taken.
Paul Krugman, the Noble prize winner in economics and New York Times columnist, writes in a recent column, "Mr. Bernanke has offered no hint that he feels the need to adopt polices that might bring unemployment down."
Still, Krugman gives his former colleague and economics department chair at Princeton "a less than ringing endorsement" (his words) for reappointment, although in "damning Bernanke with faint praise," (my words) he provides the rest of us with ammunition to block Bernanke's reappointment.
It is said the administration feels that "another defeat (in the wake of the Massachusetts elections and the limbo status of health care) would be worse than association with Bernanke" (as Robert Kuttner put it), but is sticking with Bernanke a gamble worth making since he is a symbol of Wall Street-Washington collusion that tens of millions of people deeply resent?
There are a whole stable of economists who are technically qualified, ready to enforce tough regulations on Wall Street and its speculative excesses, and sympathetic to working people. Nominating one of these individuals, if well explained, could show the American people that the president has "their back."
Which leads me to a larger question that the past decade and a half of Fed mismanagement of the economy raises: should the Federal Reserve be democratized? Should its policy committee that sets interest rates and credit conditions include people's representatives? Who's going to regulate the regulators?
Currently, the Fed and its governing bodies conduct their business without any public oversight. Decisions that impact on the lives of hundreds of millions are reached behind closed doors. And its members are appointed from a narrow pool of bankers for the most part (the independence of the Fed is laughable as far as finance capital is concerned; it has enjoyed a long marriage to the financial moneybags and banksters.)
I suppose these present arrangements could be justified if the performance of Bernanke and his Board of Governors were exemplary. But, as I indicated above, that isn't the case. The Fed as currently constituted and managed is part of the problem, not part of the solution.
A democratically constituted and transparent Fed won't solve the economic crisis by itself, but it could be an important tool to reinflate and restructure the economy to the advantage of working people - employed and unemployed. It could also signify a new departure on the part of the White House to forcefully address the anger and desperation that people are feeling.
Until then, let's send Bernanke, along with his soul-mates in the White House, Larry Summers and Timothy Geithner, on a well-deserved vacation.