Monday, November 24, 2008

Fed Up?

President-elect Obama has publicly confirmed his intention to appoint Larry Summers to be director of the National Economic Council.

But reports such as this one in Forbes, suggest that Summers will be merely throwing warm-up pitches in the NEC bullpen, while waiting to be called in to relieve Ben Bernanke as chair of the Federal Reserve Board ("the Fed").

An appointment to chair the Fed is for a fixed four-year term. Unlike Cabinet appointments, an incoming president must wait until the current chair's term ends, before putting his personal stamp on the Fed.

The fixed term is designed to give the Fed a degree of independence from day-to-day political control, as it directs monetary policy. Other central banks, such as the European Central Bank and the Bank of England, are also somewhat insulated from the politicians.

Bernanke was appointed to his current post by President Bush in 2006. Therefore, Obama will not make an appointment to that position until 2010.

Bernanke's two predecessors both received bipartisan endorsement. Paul Volcker, who was originally appointed by Jimmy Carter in 1979, had his appointment renewed by Ronald Reagan in 1983. Then, after Reagan appointed Alan Greenspan in 1987, Reagan's three successors, the Bushes and Bill Clinton, all reappointed Greenspan to successive terms, until he left the Fed in 2006.

Obama is not required to follow those precedents. Nothing would prevent him from appointing a Democrat such as Summers to replace Bernanke.

There is much talk about bipartisanship these days. Some degree of bipartisanship is appropriate at any time, especially in a time of perceived national crisis, such as now. But I think that idea can be overdone. There is something to be said for giving one party the opportunity to govern, and then holding it accountable at the next election.

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