So it’s to be more Bernanke — assuming the Senate goes along, as it almost certainly will. That’s one thing economists got right — the consensus was that he had a 70+ percent chance of being reappointed. What does it all mean? For one thing, Larry Summers stays at the White House. Not a bad thing for policy-making. Summers is a formidable intellect, and the president will need all the advice he can get now that the administration has conceded that the budget is out of control, and the deficit is rising and will continue to do so for as far ahead as the eye can see. More important, the markets will avoid the turmoil that inevitably would have followed a change in the leadership of the Fed. That turmoil would have come in part because any other Obama appointee would be seen as a presidential lap dog, and in part because the devil we know… The real question is what the Bernanke reappointment means for policy. The chairman deserves praise for the variety of measures he concocted to fight the current recession, and for his courage in ignoring critics from the right (too much use of the printing press) and left (too sympathetic to big banks). Bernanke’s fame as a student of depression-fighting is well deserved. And perhaps irrelevant. Because in his new term the chairman will have to decide when to convert from depression-avoider, recession-fighter, to inflation-fighter. True, prices are now tame, and the excess capacity in the economy should hold them down for a while. But sooner or later Bernanke will have to decide to pull out some of the cash he has pumped into the economy. Deciding when to do that won’t be easy, especially for a chairman obsessed with the error the Fed made in the 1930s, when it aborted a recovery by tightening too much, too soon. And the chore will be made even more difficult by pressure from the White House to avoid tightening in advance of the president’s re-election bid in 2012. It would be wonderful if the conversation between Bernanke and Summers could be YouTubed or Tweeted or whatever the then-fashionable means of communication turns out to be — the White House chief economist, confident in his ability to help manage an economy with a debt; GDP ratio at historic highs, the Fed Chairman staring at a possible takeoff of inflation. All in all, the reappointment is good news: it avoids upset; it leaves in charge a man who has been bloodied in the recent recession, and is a scholar of past cycles; and it avoids what might have been some horrible alternative dreamed up by Rahm Emanuel and the Chicago mafia.
