White House Economic Adviser Emerges as a Leading Candidate

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The New York Sun

Ben Bernanke, Ivy League economist and monetary theorist, meet Ben Bernanke, White House economic adviser. You might have some difficulty recognizing each other.


Mr. Bernanke the Harvard undergrad was fascinated by libertarianism; Mr. Bernanke the Princeton professor shunned suits and ties and spoke his mind in papers on subjects from inflation to the Great Depression. Mr. Bernanke, chairman of President Bush’s Council of Economic Advisers, is button-down and buttoned up, the model of quiet teamwork and cautious public statements.


“I can’t freelance,” Mr. Bernanke, who is 51, said in an interview. “It’s not appropriate for me to take it upon myself to go beyond where the administration is at a certain point in time.”


In developing such restraint, Mr. Bernanke isn’t just being a team player. He is doing what fellow economists say he must do if he wants Mr. Bush to pick him to succeed Alan Greenspan as chairman of the Federal Reserve in January – a development that many on Wall Street expect.


Mr. Bernanke is “certainly qualified to be chairman” of the Fed, Milton Friedman, winner of the 1976 Nobel Prize in economics, said in an interview. He calls Mr. Bernanke “a first-rate economist,” especially in monetary economics, who has “done a good deal of original work in the area.”


The CEA chairman acts as a president’s chief economic consultant, and the job can be a steppingstone to the Fed chairmanship, as it was for Mr. Greenspan nearly two decades earlier. It can also be just a brief detour from academia for those given to frank and politically inconvenient musings, such as Harvard’s Greg Mankiw, who ruffled feathers last year by characterizing the loss of American jobs as an inevitable part of globalization.


“Keeping himself out of trouble is a crucial thing because part of his current job description is to defend the economic policies of this administration, which to my mind, in many respects, are indefensible,” a Princeton economist and former Fed vice-chairman, Alan Blinder, says of Mr. Bernanke.


Mr. Bernanke called himself “a mainstream economist” in the interview. “Economists in general have considerable faith in the power of markets to solve economic problems, and view the role of government as to provide a foundation or a backdrop that allows markets to work as effectively as possible,” he says.


“Part of that implies free and open trade among countries. It involves applying cost-benefit analysis to regulations.”


Since he was sworn in June 21, Mr. Bernanke has testified once before Congress and given five speeches on three innocuous subjects. He nonetheless has stayed busy, providing research on such topics as Mr. Bush’s policies on immigration and trade.


“I feel that I’ve been made a full member of the team,” Mr. Bernanke says. One main difference between his CEA job and his past experience, he says, is the “rapid turnaround” he’s asked to provide – sometimes just a day – for economic analysis.


Occupying much of Mr. Bernanke’s time in recent weeks is the economic fallout from two Gulf Coast hurricanes. To arrive at his initial assessment of Katrina’s damage, Mr. Bernanke called in economists from policy-research organizations in early September. His diagnosis: The hurricane would take a bite out of economic growth in the third quarter that largely would be given back early next year as rebuilding accelerates.


“He understands how important it is to speak clearly when clarity is required and elliptically when it’s appropriate to,” a senior fellow in economics at the conservative Heritage Foundation in Washington who attended the CEA’s Katrina meeting, William Beach, said.


Wall Street is betting that Mr. Bernanke is likely to follow Mr. Greenspan’s path from the CEA to the Fed chairmanship. In a survey of investors last month, he ranked no. 1 on the list of likely candidates, getting 38% of 104 votes. The second-closest candidate in the poll by Stone & McCarthy Research Associates, a Skillman, N.J., economics firm, was Harvard professor Martin Feldstein, who got 31%.


Mr. Bush said on October 4 that he is looking for a nominee who would maintain the Fed’s independence from politics, which some analysts viewed as a sign the White House was considering people outside the administration.


A day earlier, however, Mr. Bush nominated White House Counsel Harriett Miers to be a Supreme Court justice. Ms. Miers was the latest in a long line of White House staffers Mr. Bush has sought to elevate to higher-level posts, including Secretary of State Rice and Attorney General Gonzales, and critics immediately branded the Miers nomination as cronyism.


Colleagues say it would be difficult to make a similar charge against Mr. Bernanke, should Mr. Bush name him to head the Fed. “It’s hard to see how anyone could possible identify Ben as a crony,” a Stanford economist, Robert Hall, said. Mr. Hall is a member of the National Bureau of Economic Research, the group that charts economic cycles. “He got to where he is by doing outstanding research and being a great mind.”


In almost three years at the Fed, from August 2002 to June of this year, Mr. Bernanke was willing to challenge Mr. Greenspan on occasion and to address major issues. He re-ignited the debate over setting a numerical inflation goal, a strategy Mr. Greenspan and two Fed, governors Donald Kohn and Roger Ferguson, oppose. The Fed’s Open Market Committee decided at their February meeting to defer the discussion, according to the minutes of the meeting.


Mr. Bernanke supported Mr. Greenspan on not using monetary policy to lance bubbles in stocks or other markets. He also backed steps toward greater transparency, such as releasing minutes three weeks after Fed meetings instead of six and using language in the statements issued after meetings to describe the likely path of interest rates.


The New York Sun

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