Who were the alternatives to Ben Bernanke?

(Evan Vucci - AP) The main point of my New York Review of Books essay on Ron Suskind’s “Confidence Men” and the Obama administration is that any assessment of the last three years in economic policy that restricts its gaze to the White House is going to end up missing enormously consequential decisions in Congress and the Federal Reserve. The White House, after all, can’t make much policy on its own. No matter what intervention you’re thinking of -- infrastructure investment, tax cuts, asset purchases, interest-rate cuts -- it usually requires either the Congress or the Fed.

But there were, of course, times when the Obama administration made enormously consequential decisions about congressional strategy or the composition of the Federal Reserve. One of those times was the decision to reappoint Ben Bernanke as chairman. In my piece, I imply that this might have been a mistake. But I didn’t have time to ask the next question: A mistake compared to what? Here’s Kevin Drum:

I was opposed to the reappointment of Bernanke from the start, but even so, I really have to ask how likely it is that Obama could have seriously affected Fed policy if he’d only tried harder. A more activist chairman certainly would have helped, and a couple of additional activist board members would have helped too. But even assuming that the Senate would have approved those hypothetically activist Fed members, that’s still only three out of 12 members of the FOMC, the committee that sets monetary policy. What’s more, the three board members Obama has appointed (and gotten confirmed) haven’t exactly been champing at the bit to launch money-laden helicopters over the heartland.

In other words, it strikes me that there were several problems here. The first really is Obama himself: he just isn’t inclined to nominate outspoken expansionists to the Fed board. The second is the reality of the applicant pool: there’s a limited supply of the kind of person who can plausibly serve on the Fed, and most of them tend to fall within a fairly narrow band of mainstream economic thinking from center left to center right. Third, Congress is still a bottleneck. The Senate will approve moderately liberal folks like Janet Yellen and Daniel Tarullo, but not anyone much further to the left. And fourth, even if Obama had miraculously managed to stack the board with more activist lefties, you still have the five regional bank presidents on the FOMC to contend with. And they tend to be pretty conservative on average.

At the time, reappointing Bernanke was not particularly controversial. The more activist voices on the president’s economic policy team favored it. As one told me later, “Bernanke had been magnificent during the crisis.” The more activist voices outside the White House also favored it. “I’m pleased,” Paul Krugman wrote when the news was announced. “Bernanke has done a good job in the crisis — he’s been far more aggressive and creative than almost anyone else would have been in his place.”

But Bernanke was less aggressive and creative in supporting the recovery than he was in combating the crisis. In retrospect, his reappointment looks less obvious. “Nobody was stopping them from replacing Ben Bernanke with someone more committed to full employment,” wrote Matt Yglesias.

But Drum is right: the likeliest alternative probably would not have pursued a dramatically different course than Bernanke did. Larry Summers had essentially been promised the job if Bernanke wasn’t reappointed, and in later interviews with me, he’s been skeptical of policies to goose inflation by committing the Federal Reserve to any particular growth path. Summers would likely have sought a larger round of quantitative easing, but there’s some question as to whether he could have achieved even that.

Perhaps the more interesting counterfactual is Christina Romer. Again, for internal political reasons, it’s unlikely she would have gotten the gig given the commitments made to Summers. But her subsequent speeches and op-eds -- here she is embracing NGDP targeting, for instance -- have shown her to be unusually committed to the “full employment” side of the Fed’s dual mandate. Perhaps if she was chairing the Fed, it would all be different.

Or perhaps not. As Yglesias and others often point out, Bernanke seemed much more committed to pursuing full employment and experimenting with activist Fed policy to fight sustained slumps before he became chairman. But one thing we don’t know -- or at least I don’t know -- is how much of the difference between the Bernanke we got and the Bernanke that many of us would prefer is due to the institutional realities of the Federal Reserve.

The Federal Reserve, like any other organization, has its own internal politics. There’s a board of 12 that makes the final decisions and an internal staff that exerts significant influence. There are political threats from Congress and the uncertain expectations of the market. Just as presidential candidates are bolder than presidents and candidates for the Senate are bolder than senators, Fed chairmen find themselves wielding less power and facing institutional impediments than they had initially expected.

If that’s really what’s holding Bernanke back, then the Obama administration could have replaced Bernanke with someone who swore to be more aggressive and experimental only to see the new chairman or chairwoman follow much the same path that Bernanke has.