Fed Nominee's First Feat: Bridging the Partisan Divide
Ben Shalom Bernanke's name means "son of peace" in Hebrew -- and peace is what he brought yesterday to the often fractious bunch of senators who will soon confirm him to be chairman of the Federal Reserve.
At a time when President Bush's nominees to the Supreme Court bring apocalyptic cries from one side or the other, members of the Senate Banking Committee lined up to celebrate Bernanke's nomination before he even uttered a word.
"The best possible candidate," announced Chairman Richard C. Shelby (R-Ala.), "may well be the finest monetary economist of his generation." Bernanke looked down modestly.
Sen. Christopher J. Dodd (Conn.), the first Democrat to speak, was no less gushing. "The president, in my view, has made a superb decision in nominating you," he said. "Your academic credentials . . . are tremendously impressive, if not unsurpassed." Bernanke gave a shy, appreciative smile.
One by one, the others -- Republicans and Democrats alike -- heaped the praise higher: "most qualified," "finest," "exemplary," "enthusiastically support."
The nominee, with a serene smile and droopy eyelids, leaned forward in his chair and clasped his fingers as the praise washed over him. Finally invited to speak, he declined Shelby's invitation to introduce his family, then delivered a pitch-perfect message promising independence from the administration he has served as an economic adviser.
"I will be strictly independent of all political influences and will be guided solely by the Federal Reserve's mandate from Congress and by the public interest," he vowed.
The only hint of dissent in the room came from an errant cell phone, which rang with a "cuckoo" sound as Bernanke spoke.
The political scene has grown ever more divided and bitter in recent years, but the dismal science offers a happy exception. Ideological wars once wracked the profession, pitting Keynesians against Milton Friedman's followers and turning the Fed into a football. Then-Fed Chairman Arthur Burns set off ruinous inflation when he eased the money supply in 1972 to boost President Richard M. Nixon's reelection, while tight money was blamed for the recession in the 1980s and President George H.W. Bush's defeat in 1992.
But the ideologues have been replaced by a new generation of economists who eschew grand theories for technical expertise in microeconomics and finance. "It used to be the whole field divided along liberal and conservative party lines," says Austan Goolsbee, an economics professor at the University of Chicago's business school. Now, "it's hard to tell them apart."
Deprived of political red meat, Sen. Paul S. Sarbanes (D-Md.) went after the nominee on the arcane. "On Basel II . . . it seems to me you're being much too sanguine," he said. "Do you think that prompt corrective action in the leverage capital requirements could be maintained if risk-based capital levels fell significantly below the leverage ratio?"
Bernanke replied: "I guess the good news about QIS 4 is that it led the regulators to stop, take stock, to try to understand the results."
It's doubtful one in 100,000 Americans would know Basel II from sweet basil or QIS 4 from the QEII. But, as a rule, confirmation is assured when the argument is about corrective action in the leverage capital requirements.
Bernanke defanged the senators -- and the hearing lost its bite. There were only enough people to fill two of the 12 rows in the public galleries, and the press tables were quiet. A Republican aide yawned. Sen. Thomas R. Carper (D-Del.) rubbed his eyes. Questioner after questioner probed the technical issue of inflation targeting. Mentioning Bernanke's voluminous scholarly writings, Dodd noted that if this were a Supreme Court nominee "we'd spend a year examining his written credentials."
Several Democrats, noting the boost Greenspan's kind words gave Bush's tax cut in 2001, wondered if Bernanke would do the same. The scholarly witness, with a trim beard, vowed to discontinue the meddling.
When Dodd tried to get him to say that a budget deficit could outweigh a tax cut's benefit, the nominee replied that while it's "possible" in theory, "I'm going to begin now, I think, a practice of not making recommendations on specific tax or spending proposals." Conversely, when Sen. Robert F. Bennett (R-Utah) tried to get him to say that taxes should held below 20 percent, he replied, "No, I would not be inclined to pick a specific number."
Bernanke made another adjustment to the Greenspan way: He spoke in plain English. "I subscribe entirely and wholeheartedly. . . . I disagree with it entirely. . . . The current account deficit needs to come down. . . . There are real problems in the energy sector."
Sen. Evan Bayh (D-Ind.) asked if Bernanke would "sacrifice his plain speaking" after his certain confirmation. "I will try to speak clearly on all occasions," the nominee said. It was the most revolutionary thought spoken all day.