Bernanke’s Reappointment: What’s Good, What’s Not

It looks like the President will reappoint Ben Bernanke to the chairmanship of the Federal Reserve.  (One story here.)

If it were up to me, I would not have reappointed Chairman Bernanke.  Reasons:

• he went overboard in his fear that we'd have another great depression on his watch
• contributed to the sense of panic
• participated in the inconsistent policy that aggravated the problem (after having neglected the vagueness of "too big to fail" before the crisis)
• and overstepped his constitutional and legal authority (albeit with the encouragement of two administrations).

Here's what's good about his reappointment:  he is now (or at least, once the Senate confirms him) free to tighten monetary policy when he and his Fed colleagues see fit.  This would have been decidedly awkward if in December Bernanke decided that it was time to start snugging monetary policy, but the White House had not yet announced a decision.  The chairman's term as chair ends January 31.  I'm not sure exactly when the Fed should start tightening; I think it's too early now, but sometime early next year will probably be the right time.  When that time comes, the Fed will need to act promptly and decisively.  I'm worried that Dr. Bernanke will be too cautious, too fearful of a recession.  That would throw us right back into the cyclical 70s.