- The Washington Times - Monday, October 24, 2005

President Bush made an outstanding choice by naming chief White House economist Ben Bernanke to replace Alan Greenspan as chairman of the Federal Reserve Board. This appointment will be by far the most important economic-policy position Mr. Bush will fill during his two-term presidency, and his selection of Mr. Bernanke deserves to be strongly endorsed in a bipartisan fashion.

The October announcement should give the Senate more than enough time to review Mr. Bernanke’s excellent qualifications and hold a confirmation vote before the end of January, when Mr. Greenspan’s term expires. Mr. Bernanke’s appointment as a Fed governor will be for the customary 14-year term, but his term as Fed chairman will be four years.

A former Fed governor who left the central bank earlier this year to become chairman of the White House Council of Economic Advisers (CEA), Mr. Bernanke truly does have the “impeccable credentials” that the president said he possessed. As a former chairman of the Princeton economics department who received his doctorate from MIT, Mr. Bernanke is a first-rate economist who is so deeply schooled in the highly technical field of monetary economics that he was a founding editor of the International Journal of Central Banking.

“It’s important that whomever I pick is viewed as an independent person from politics,” Mr. Bush remarked earlier this month. Notwithstanding his brief role as CEA chairman, Mr. Bernanke, by all indications, meets this crucial test. As a junior governor at the Fed earlier this decade, for example, Mr. Bernanke was so independent that he engaged Mr. Greenspan in a public debate over the issue of inflation targeting. Mr. Bernanke embraces this strategy, which would require the Fed to announce publicly a specific target for inflation — say, 2 percent a year — and to conduct monetary policy toward achieving that goal. Preferring the greater flexibility inherent in the absence of a specific inflation target, Mr. Greenspan opposes the strategy.

Given Mr. Greenspan’s outstanding accomplishments, the benefits of policy flexibility are clear. During his 18 years as Fed chairman, for example, the economy has experienced only two relatively mild and brief recessions (1990-91, 2001) despite encountering two domestic stock-market collapses (1987, 2000-02), two international financial crises (Mexico, 1994-95; East Asia and Russia, 1997-98), the implosion of the Long Term Capital Management hedge fund, the September 11 terrorist attacks, a corporate-governance scandal and ongoing energy demand-and-supply shocks. On the other hand, as a review of Mr. Bernanke’s highly informative speeches would confirm, his advocacy of “constrained discretion” makes clear that his inflation-targeting regime would not become a policy straightjacket.

Princeton economist Alan Blinder, who served as vice chairman of the Fed during the 1990s, has described Mr. Bernanke as a “libertarian-leaning Republican.” That sounds like a perfect description of Mr. Greenspan, making Mr. Bernanke the right man to build on Mr. Greenspan’s record.

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