Read Paul Krugman and then read this:

I just read Paul Krugman’s NYT article on the Fed.  It’s a good article and I’ll have lots to say about it when I can free up some time.  If you want to suffer from a severe case of mental whiplash, read Krugman first and then read the following article by Eijffinger and Mujagic from Foreign Affairs:

Regardless of who wins the 2012 U.S. presidential election, President Barack Obama will end his first term having decisively shaped U.S. monetary policy for at least the next two decades. Thanks to a stroke of lucky timing — the Federal Reserve Board happened to have an unusually high number of vacancies during the president’s first term — Obama will have either appointed or reappointed every single one of the seven members of the Federal Reserve’s Board of Governors, including its chairman, Ben Bernanke, by the end of 2012. With the governors each set to serve a 14-year term, they will ensure Obama’s long-term impact on the U.S. economy.

Bernanke was originally appointed board chair by President George W. Bush in 2006. In 2010, Obama reappointed him until 2014. Even if Obama or his successor stripped him of that role, he will continue to sit on the board until 2020. Janet Yellen, the economist and vice chairman of the Fed board, whom Obama appointed in April 2010, is set to serve until 2024. Daniel Tarullo, a professor of law at Georgetown University whom Obama appointed to the Fed board in January 2009, is not scheduled to step down until 2022.

Two of the other governors, Elizabeth Duke and Sarah Bloom Raskin, who are not Obama appointees, will serve until 2012 and 2016, respectively. That means Obama will certainly be able to reappoint or replace Duke and might be able to do the same with Raskin, locking in his picks until 2030. Finally, the two last seats on the board are currently vacant because Obama’s nominations have been held up in the Senate. If those two are appointed this year, they will stay at the Fed until 2026.

BTW, I read this quotation three times, and I still don’t have a clue as to what they are trying to say.  Did Obama appoint Raskin, or didn’t he?

Because of grading I may be very slow to respond to comments.



27 Responses to “Read Paul Krugman and then read this:”

  1. Gravatar of Bonjour mon cherie Bonjour mon cherie
    24. April 2012 at 14:54

    Who has time for all that?

    Make yer point.


  2. Gravatar of Benjamin Cole Benjamin Cole
    24. April 2012 at 15:56

    “President Barack Obama will end his first term having decisively shaped U.S. monetary policy for at least the next two decades.”


    I get the impression that Obama, advised by Summers, was deeply uninterested in monetary policy and maybe still is.

    He reappointed Bernanke, and Bernanke is doing what Bernanke does. It is a deeply conservative (small “c”) board, unwilling to try “unconventional” policies, seeking consensus and avoiding controversy. If Obama ever gave a speech calling for a more-aggressive Fed, I never heard it.

    The Reaganauts, btw, were vocal in their criticism of Volcker, who they denounced as “too tight” back in the early 1980s. When inflation sank to 5 percent, basically the talking point was that Volcker had overdone it and needed to relax.

    The Obama Administration seems utterly adrift when it come to monetary policy.

  3. Gravatar of dwb dwb
    24. April 2012 at 16:09

    yep, good article, i am glad he is back on the Fed (hes gotta no theres no hope for fiscal stimulus till next year).

    also, speaking of fiscal policy, its gotta mean something that gee, we’ve had two quarters of lower federal/state expenditures yet growth is ~4.5%. hmm.

    and, i dont know whether to laugh or cry that we are stuck with these igits for that long.

  4. Gravatar of JimP JimP
    24. April 2012 at 17:25

    I still say its down to Obama. No central banker will explicitly call for higher inflation without clear political support from the head of government. In the 1930’s it was Roosevelt himself who did the calling – and – as Scott has said many times – Roosevelt had to fire or ignore many government economists to make this call. It is Obama who lacks the political backbone here.

    Or – put it differently. Obama demands more aggressive action by the Fed. The Republication deflationists have a public heart attack. Obama debates them. And Obama wins the next election. It is still there to be done. But Obama is apparently just not interested.

  5. Gravatar of Benjamin Cole Benjamin Cole
    24. April 2012 at 17:43

    Here’s one that will blow the pants off of Scott Sumner:,3052061

    In this article, Treasury Secretary Don Regan (during the Reagan Administration) called Volcker “penurious” and said he was looking for ways to “restrict” the Fed’s independence. Flat out Jack, they want Volcker to print more money. Inflation was running at five percent. They are not shy about beating up on Volcker.

    Now, has anyone in the Obama Administration called on Bernanke to print more money? Who?

    And what is inflation? And are we emerging (if we are) from the deepest recession since the 1930s?

  6. Gravatar of Benjamin Cole Benjamin Cole
    24. April 2012 at 17:58

    Just for fun, I dredged this one up from Time magazine:

    “Last week they were started anew by White House Press Spokesman Larry Speakes. Immediately after the banks raised the prime rate, he told reporters, “We have been asking the Federal Reserve Board to allow sufficient monetary expansion to assure noninflationary growth. Although the economy has been growing at a healthy pace and inflation remains at a low level, it appears that the money supply is not accommodating real economic growth.”
    The following day the attack was picked up by Treasury Secretary Regan. In a speech to Massachusetts businessmen and community leaders, he warned that the Federal Reserve’s stringent credit policies could begin to hurt. Said he: “If the Fed continues on its tight path now, it will have an effect on November and December. Does that have us worried? You bet your life it has us worried.”
    President Reagan entered the interest-rate controversy later in the week, although he was careful not to blame the Federal Reserve. Appearing before the National Association of Realtors, he took credit for the earlier recovery in housing. But then he added: “Let me assure you we are not pleased with the recent increases in interest rates, and frankly there is no satisfactory reason for them.”

    And where is Obama? Mincing around and having state dinners with the Ambassador of Finland? Talking sternly to billionaires? Has Obama ever talked about the Fed?

  7. Gravatar of Don Don
    24. April 2012 at 18:30

    I don,t get the silence from Democrats. Their jobs are on the line and yet they are silent. Seems the blue-hairs have them by the short-hairs. As for Bernanke, someone must have compromising photos or have threatened his family.

  8. Gravatar of Philo Philo
    24. April 2012 at 20:49

    The quoted article says that Obama did not appoint Raskin, but that if he is re-elected he will have the opportunity to *re-appoint or replace* her.

  9. Gravatar of MDrew MDrew
    25. April 2012 at 01:01

    It’s fine and good that Roosevelt took that initiative. But is that the model we want to endorse? That the central bank should be led into correct policy by way of cover from the political branches? That that is the way it should be; that that is the model of central bank decision making we should seek?

  10. Gravatar of MP MP
    25. April 2012 at 03:25

    Philo, the quoted article also says “Obama will have either appointed or reappointed every single one of the seven members of the Federal Reserve’s Board of Governors… by the end of 2012.” Poor editing / fact-checking.

    Fortunately, we have Google and Wikipedia. Raskin was appointed by Obama at the same time as Yellin and Diamond. It cites this article in the Journal.

    Bigger picture, the Krugman piece was good. Though he couldn’t resist a bit of a poke at “right-wing bullying”, it was good to see him being more professorial than polemical. I’ve said it before, but the most disappointing thing about what he’s become is knowing how much better he’s capable of being.

  11. Gravatar of Saturos Saturos
    25. April 2012 at 04:26

    MP, Amen.

    You’ll notice they’ve amended the article though.

  12. Gravatar of Wimivo Wimivo
    25. April 2012 at 04:40

    Uh, so why was a professor of law appointed to the Fed board?

  13. Gravatar of Rien Huizer Rien Huizer
    25. April 2012 at 04:47


    One can never be cynical enough about politics (or rather politicians) , especially the democratic (small d) kind. A benevolent dictator would have said long ago that the current problem is lack of AD and then asked his engioneers to come up with a solution.

    But that is not how the real world works. I always will remember being woken up one morning by my TV and confronted by Lee Kuan Yew (apparently on an election rally) answering an inaudible question from the public by: “What do you want? Democracy or good government?”

    I guess for most of us that would not be such an easy choice, if it existed. But in the end one hopes that the public will look for the most robust controls and accept ordinary government in exchange for at least some elements of self-government. It is like cars: the median buyer of a Rolls is probably…someone who would prefer good government as well, or claims to provide it.

    What on earth caused Foreign Affairs to publish this piece. Maybe the fact that one of the authors is a minor celebrity in Holland. And apparently an expert on the significance of “provenance” of Fed appointees for Fed policy.

  14. Gravatar of ssumner ssumner
    25. April 2012 at 05:23

    Rien, The article in Foreign Affairs is a complete embarrassment on so many levels. Starting with its being obviously factually incorrect. But I can’t accept your claims:

    1. Democracy provides far better governance than dictatorships, indeed it’s not even close.

    2. I’ve dealt many times with the claim that the Fed is screwing up the economy on purpose. The Fed does what a consensus of economists wnat them to do. Most economists don’t want the Fed to do more. And yet more than twice as many economists are Democrats than Republicans.

    I have one big issue with Krugman’s article. Right now 80% of the Board members are Obama picks. And yet the only person at the Fed loudly calling for more stimulus is Chicago Fed President Evans. I’d say that’s a huge oversight on Krugman’s part—the problem goes much deeper than FedBorg, or a few critics on the far right. The mainstream of macroeconomics in America is completely broken. Pointing to special interest politics doesn’t address that deeper problem at all. We have a bunch of benevolent dictators at the Fed, and they have completely screwed up policy.

    MP, Thanks for that info.

    Ben, Good example of how 4% inflation used to be considered tight money when it was under Volcker and Reagan.

    JimP, This information certainly supports your argument.

    Wimivo, Very good question.

  15. Gravatar of Saturos Saturos
    25. April 2012 at 06:19

    Wimivo, in Australia most of the OMC is made up of business executives. Oh yes, and the Treasury Secretary sits on it too.

  16. Gravatar of Saturos Saturos
    25. April 2012 at 06:22

    Scott, about Evans – could it be because he was trained at Chicago and Virginia? And Wikipedia says he was influenced by Bennett McCallum.

  17. Gravatar of Saturos Saturos
    25. April 2012 at 06:27

    JimP, remember what Obama was quoted as saying in 09′ about the Fed’s, ah, “dysfunction”. Christy Romer tried to disabuse him of the notion, but I think he still believes it, along with his Luddism.

    In fact I don’t think Obama will see the importance unless Krugman writes him a personal letter.

  18. Gravatar of Tommy Dorsett Tommy Dorsett
    25. April 2012 at 12:16

    Trichet was a disaster with two major blunders on his watch: July 2008 and April/July 2011. Euro-area NGDP went negative in both cases, with predictable and devastating consequences. Draghi has been better but his efforts are being sabotaged by hawkish German sabre rattling, which is likely depressing base velocity and short circuiting the path to stronger NGDP. Berlin could screw up a wet dream.

  19. Gravatar of Tommy Dorsett Tommy Dorsett
    25. April 2012 at 12:17

    This was meant for the ECB thread…..

  20. Gravatar of CA CA
    25. April 2012 at 12:42

    Bernanke has responded to Krugman. (and Sumner?)

  21. Gravatar of dwb dwb
    25. April 2012 at 13:11

    Bernanke press conference and response to Krugman:

    what a load of horse manure. enough to fertilize 600 acres.

  22. Gravatar of Becky Hargrove Becky Hargrove
    25. April 2012 at 15:14

    Bernanke: I’m not sure what stands out more – the length of his nose or the flaming pants…

  23. Gravatar of Jason Odegaard Jason Odegaard
    25. April 2012 at 15:38

    They are just mentioning that Obama could “reappoint or replace” Raskin.

    Also, it seems crazy how many FOMC members are pining for a hike in 2015!

  24. Gravatar of MDrew MDrew
    25. April 2012 at 22:02

    What is the correct way for presidents to approach appointing Fed Governors? Specifically, how should Obama’s process and/or considerations leading to his appointments have been different? What is wrong per se with the people he did appoint?

  25. Gravatar of Rien Huizer Rien Huizer
    26. April 2012 at 07:20


    My apologies. Of course I am not in favor of dictatorships! And I was referring to the BENEVOLENT kind: an economics invention..(and of course one from the Asian Values copybook, but that is not quite the same).

    Incidentally, law professors make great directors. The Commander in Chief (and face it the kid has done pretty well, though not as well as the previous democrat) was a minor law professor. Ypou would not expect all of the Board members to be experts, that would be bad governments. The experts should be at the staff level.

  26. Gravatar of Rien Huizer Rien Huizer
    26. April 2012 at 07:22


    Very bad typing. Still moved by an amazing performance of the St Lawrence String quartet. “bad governments” should of course be “bad governance”.

  27. Gravatar of ssumner ssumner
    27. April 2012 at 11:44

    Saturos, Thanks for that info about Evans.

    Tommy, I agree.

    CA, dwb and Becky. I have a new post on that.

    Mdrew, He should have appointed people who would have tried to boost AD. That’s what Obama wants, isn’t it?

    Rien, Pretty well?? Perhaps on foreign policy, but certainly not on the economy.

Leave a Reply