Binyamin Applebaum discusses who Mitt Romney would likely tap to replace Ben Bernanke at the Federal Reserve and says we’d likely get either Greg Mankiw or Glenn Hubbard whose views seem similar to Bernanke’s or else we’d get John Taylor who seems like more of a hawk. Neil Irwin offered a longer list of contenders at the beginning of the month, but I think also has those three as his leaders.
From my viewpoint, one thing I think we’ve learned over the past five years is two modes of inference that don’t hold up. One is “the president is sure to appoint someone who’ll deliver strong nominal growth to ensure his re-election” and the other is “new Fed Chairman X is sure to do Y because Y is what he said we should do in his academic work.” Unfortunately that leaves the situation inherently murky.
So rather than focus on individuals, lets look at what’s promising and what’s not promising about a Romney influence on monetary policy.
The promising element is that when Rick Perry, Ron Paul, Herman Cain, and others were leading the GOP down the path of hard money mania, Romney was clearly reluctant to follow. He did notably little Bernanke-bashing and even appeared to defend him at times. So Romney has a foot in the camp of good sense and also perhaps has a grasp of the importance of this issue, making a topic he didn’t want to immediately flip-flop on when opportune.
The nonpromising element is that we’re in the era of the “partisan presidency.” A Democratic White House is staffed by Democratic Party bigshots and a GOP White House is staffed by GOP bigshots. And there’s no doubt that the prevailing winds in the GOP are toward hard money. Paul Ryan is passionate about monetary policy and is committed to hard money views he learned from Atlas Shrugged. The new conservative think tank E21 is a bastion of hard money thinking and Sen. Robert Corker and other Republican members of congress have rallied to urge the Federal Reserve to care even less about unemployment and real output. What’s more, if you look at Romney’s personal milieu of finance it seems to me that it’s a sector in which hard money views generally prevail based in part on the myth that monetary expansion punishes savers and more broadly on a political economy that prioritizes a strong dollar and inflows of investment capital over full employment.
Last, but by no means least, if you’re Greg Mankiw and your understanding of how you became Fed chair is that Ben Bernanke got fired because his unorthodox monetary policies were too unpopular, that’s going to push you into the camp of orthodoxy and continued stagnation when what we need is regime change.