Popping Bubbles

Anytime I write about anything remotely related to economics, I feel like I should start with a disclaimer that I am not an economist. But if Alan Greenspan were to write something about economics, would he need a disclaimer also? I mean, he is an economist, and was Chairman of the Federal Reserve, which is nice work if you can get it. It would appear that he’s an expert, no disclaimer needed. On the other hand, in terms of contributing to global economic crashes, thus far I have managed to avoid doing that, while Alan Greenspan has, sadly, not. So by that measure, maybe he’s the one who should have the disclaimer after all.

I mention Alan Greenspan because of a piece at Wonkblog today that looks at the reasons why Obama’s economic team is reluctant to recommend Janet Yellen as the next Fed chair. I feel like I need to offer another disclaimer, because I don’t know much about Janet Yellen, but I do know that I like the sound of this:

Yellen has a perfectly solid relationship with Bernanke, as best as I can tell, but she’s more of her own thinker within the institution. She has spent her time as vice chairwoman urging Bernanke and her other fellow policymakers to shift policy to try to do more to combat unemployment, and thinking through ways to do just that. She even had one economist who functioned for a time as something of a de facto chief of staff, Andrew Levin. And people dealing with her within the Fed have viewed her not so much as Bernanke’s emissary but as her own intellectual force within the organization.

A Fed chair who remembers that the Fed has a dual mandate would be nice, but Obama’s economic advisers have some concerns about her. These include the complaint that she’s “not a team player,” which I’m sure has nothing to do with her being a “her,” and that she’s “too prepared,” because apparently “being prepared” is considered a vice by the Obama economic team. The one that sticks out is this:

Third, the president very clearly frets about the risk of financial bubbles and wants a Fed chief who will be attuned to staving them off. As David J. Lynch of Bloomberg points out, four times in five days Obama recently referred to the importance of returning [if you read the Bloomberg piece, this should actually be “avoiding a return,” not “returning”] to “artificial bubbles” as a means of supporting growth. When New York Times reporters asked the president about his thinking on the Fed choice, he said: “I want a Fed chairman that can step back and look at that objectively and say, let’s make sure that we’re growing the economy, but let’s also keep an eye on inflation. And if it starts heating up, if the markets start frothing up, let’s make sure that we’re not creating new bubbles.”

So Janet Yellen is being preemptively disqualified from the position of Fed chair because we’re assuming that she won’t act to prevent new bubbles from forming. So she’s not the right pick for the job because she may fail to do something that Greenspan failed to do, twice. She’s not qualified for the position that Ben Bernanke currently holds because, under Bernanke, there have been no new bubbles forming. Nope, none. Not a single one. No bubbles at all. You will have to look elsewhere because we have no bubbles here, not on the Bernanke Watch.

Instead of Janet Yellen, who may theoretically not act to prevent the next bubble, the Obama economic team apparently prefers Lawrence Summers, who proactively helped to create the last bubble that almost caused a global depression. Also, Summers is apparently not much of a team player either (although, in Summers’ defense, he is a guy, so that probably gets him some “team” points right there). I guess if you believe in lessons learned, then Summers certainly should’ve learned a few by now, but I’d rather go with the new blood that didn’t help cause the 2008 crash. But I’m no economist.


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