The Washington Post’s Ezra Klein reviews Ron Suskind’s book Confidence Men in an essay in the New York Review of Books, but takes issue with the argument that Obama’s staffing choices (Larry Summers, Tim Geithner) prevented him from leading an effective recovery effort.
After Congress closed the door to a bigger stimulus, Klein argues Obama should have used the Fed to accomplish his goals.
“[T]he Fed is arguably more powerful than Congress when it comes to setting economic policy, and it is certainly more powerful than the president,” he writes — saying Obama should have fought harder to fill the two open seats on the Board of Governors.
“Those seats matter because the Federal Reserve is a cautious institution that is more comfortable fighting inflation than pursuing full employment, and if you want it to act with more vigor, you need to bring that energy in from the outside.”
But Klein says the more significant misstep was not replacing Fed Chairman Bernanke in 2010:
Of course, the most straightforward path to energizing the Fed isn’t adding two new members to its Board of Governors, but replacing its chairman. And the White House had an opportunity to do so in 2010, when Ben Bernanke’s term expired. Instead, Obama chose to renominate Bernanke. The thinking was that Bernanke had pursued an extraordinary set of activist policies during the worst of the crisis—he probably deserves more credit than any single person for preventing a second Great Depression—and he was respected in the institution and by the markets. Reappointing him would thus help with confidence and ensure that the White House had an able partner if the economy turned south again.
But Bernanke has been much more cautious in accelerating the recovery than he was in combating the initial crisis. When the financial markets were collapsing, he went far beyond the traditional limits of the Fed to support the financial markets, purchase depressed assets, and inject liquidity directly into the banking system. But he has not been nearly as aggressive in his efforts to support the recovery. The second round of quantitative easing could have been much bigger. The Fed’s commitment to employment—even at the cost of modest inflation—could have been communicated directly to the markets. Unorthodox policies, such as targeting a specific level of nominal GDP growth, have been left untried.
If Obama couldn’t get the Senate to confirm his picks for the two open seats, it’s unlikely he would have been able to get a replacement for Bernanke approved. But the argument that Obama — not his staff — is to blame for his administration’s failures is certainly an argument that we’ll be hearing from Republicans, and it’s interesting to see it coming from the Left as well.
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