Economists' Take on Bernanke

Top names such as Milton Friedman and Paul Samuelson praise Bush's choice for new Fed chief and give mostly solid grades to Greenspan

By Peter Coy and William C. Symonds

Academic economists across many parts of the spectrum are pleased to see one of their own -- Princeton University monetary economist Ben Bernanke (see "Answers About Ben Bernanke") -- nominated by President Bush to succeed Alan Greenspan as Federal Reserve chairman. Most express great admiration for the departing Greenspan as well -- sometimes with caveats (see "Greenspan's Signature Achievement").

Following are edited comments from such esteemed names as Milton Friedman and Paul Samuelson:

Milton Friedman, Hoover Institution

On Bernanke: "It's a very good choice. I think he's an able man who has the right view about monetary policy. The key question is: What is the chief objective of monetary policy? The answer is, or should be, price stability. Everything else is secondary."

On Greenspan: "It's clear that Greenspan has been the most effective chairman of the Fed since its inception. He has been that because he, from the beginning, viewed the chief objective of the Fed as promoting price stability."

On the Fed: "I would prefer not to have a Fed at all, of course.... If you're going to have a Fed, you have to settle for something like price targeting."

Paul Samuelson, Massachusetts Institute of Technology

On Bernanke: "He's the best choice of the many names that were mentioned. I'm kind of surprised they chose him. Generally speaking, they haven't had perfect pitch in their appointments."

On Greenspan: "Alan Greenspan always remembered: You always have to focus on the real performance of the economy." One criticism: He allowed the stock market bubble of the late 1990s. "He should have shot something across the bow of the bubbly crowd."

On the Fed: "I'm for inflation targeting, but I'm not for only it."

Frederic Mishkin, Columbia University

On Bernanke: "A spectacular appointment. You're talking about one of the deepest thinkers on monetary economics."

On Greenspan: "Greenspan was a very strong consensus builder inside the Fed. He listened to people."

On the Fed: "Depersonalization of monetary policy [would be] a good thing. The Fed would not have its hand in as many different things. When you narrow your focus, you usually do better. And there really is a danger that if a central bank has its hand in too many pies, people will be concerned that it's too powerful and will want to cut it down to size."

Stephen Cecchetti, Brandeis University

On Bernanke: "He's one of the best monetary economists of his generation. He's also very effective politically. That combination is just fabulous."

On Greenspan: "He should not have allowed the stock market bubble of the 1990s to form. You should respond somewhat more aggressively when prices seem to be moving by a lot. [Bubbles] tend to create large booms and busts in the economy that are basically destabilizing to everybody and everything."

Laurence Ball, Johns Hopkins University

On Bernanke: "He's pragmatic and nonideological. People who know him know he has some very conservative political views, but you couldn't necessarily tell that from his research and his writings."

On Greenspan: "He's a genius in that he has talked very tough about inflation, and no one doubts his commitment to keeping inflation low -- yet he has been able to be flexible and pay attention to output and unemployment as well."

On the Fed: Inflation targeting, which Bernanke favors, could hurt economic growth. "The fact that you have a publicly announced inflation target, you're going to be a little bit embarrassed if you miss it. That's at some level going to put pressure on policymakers to put a little too much emphasis on reducing inflation."

Robert Reich, Brandeis University

On Bernanke: "This is the economic equivalent of nominating John Roberts to the Supreme Court. He has a distinguished record and unassailable credentials.... After Harriet Miers, some worried that Bush would pick an ideologue. But Bernanke is not an ideologue."

On Greenspan: "I give him an A for his performance in the 1990s. He understood that the so-called natural rate of unemployment was outmoded. In other words, you could get the unemployment rate way below 6% without igniting inflation. He deserves credit for this. But over the past five years, I'd give him a C-minus. His failure to oppose the Bush tax cuts -- indeed, his endorsement of these cuts -- was completely inappropriate. And it backfired, since they have contributed mightily to our present mess."

[The following comments, from Martin Feldstein and N. Gregory Mankiw, both of Harvard, came via e-mail.]

Martin Feldstein, Harvard University

On Bernanke: "Ben Bernanke is a first-rate monetary economist with a personal commitment to low inflation."

N. Gregory Mankiw, Harvard University

On Bernanke: "Ben Bernanke is a superb choice to follow Alan Greenspan. His credentials are impeccable: His academic work is first-rate, his judgment is rock-solid, and he is experienced as a monetary policymaker. President Bush could not have picked a better person for this important job."

Coy is BusinessWeek's Economics Editor, and Symonds is BusinessWeek's Boston bureau chief

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