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Jewish World Review Nov. 1, 2005 / 29 Tishrei, 5766 Triumph of an über-wonk By Niall Ferguson
http://www.JewishWorldReview.com |
Three distinct breeds of people inhabit the corridor between Washington, New York and Boston: pols, geeks and wonks. The pols are the professional politicians, who live by polls and votes. The geeks are the professional academics, whose cerebral lives are untainted by considerations of popularity or practicability. Only the wonks try to straddle both worlds, with one foot in the Beltway and the other in the campus. They are the professors who do policy. And they are taking over the world.
Last week an arch-wonk, Ben Bernanke, was nominated by President Bush to be the next chairman of the Federal Reserve, succeeding Alan Greenspan. The Fed chairman is generally regarded, at least by those who earn their crusts in financial markets, as the most powerful man in the world. He is the man the masters of the universe call "master," because he has the magical power to set U.S. interest rates. An unexpected move up or down by the Fed can ruin or enrich a bold trader in a matter of seconds. The rest of us may be affected less dramatically, through our credit card bills or adjustable mortgages.
Small wonder the Fed chairman's every utterance is scrutinized as if he were the oracle at Delphi.
Well, if he's confirmed by the Senate, the oracle will be a bearded ex-Princeton professor. And judging by the financial markets' unfazed reaction to his nomination, the faithful are content with the president's choice.
The markets have good reason to be happy. With his B.A. from Harvard (summa cum laude, of course), his PhD from the Massachusetts Institute of Technology and his string of stellar publications, Bernanke is no ordinary wonk. He is an über-wonk. As a confirmed geek, I can assure you that Bernanke's recent papers are the real deal. No one has thought more deeply about modern monetary policymaking than this guy.
No one, that is, except Mervyn King, the governor of the Bank of England, who used to be a professor of economics at the London School of Economics. King was an undergraduate at Cambridge and earned his PhD at Harvard. (Given that he is five years Bernanke's senior, he may even have taught him.)
In many ways it is a good thing that the monetary policies of two of the world's most important economies should be in the hands of such eminently well-qualified men. But this is not the first era in modern history when monetary policy has been entrusted to unelected technocrats. In the 1920s, the world's principal central banks were run by a group of wise men, some of whom made no secret of their impatience with democratic institutions. Montagu Norman at the Bank of England, Hjalmar Schacht at the German Reichsbank and Benjamin Strong at the Federal Reserve managed the international monetary system in a state of blissful independence from political constraints.
Yet what happened? Disastrous blunders (admittedly after Strong's death and Schacht's resignation) turned a U.S. recession into the global Great Depression. As one economy after another fell off a cliff, central bankers almost without exception wrongly urged that interest rates be raised rather than lowered.
Happily, Bernanke is an expert on the subject of what went wrong in the Depression, having co-written at least two learned articles on the subject. In 2002, he argued that the Fed should be prepared to do everything in its power to prevent a recurrence of deflation — if necessary, dropping money out of helicopters to encourage people to spend.
Deflation — a downward spiral of prices and wages — now seems less of a threat than a recurrence of inflation, with U.S. consumer prices rising last month at an alarming annual rate of 4.7%. The last acts of Greenspan's chairmanship are therefore likely to be further rate increases. But no one — not even brainy Ben — knows how high will be enough. Ordinary American households have never been more in debt. And each tiny movement upward in interest rates exerts a serious squeeze on their disposable incomes. It would be very, very easy for the Fed to overshoot, just as it undershot in the late 1990s.
So we should be cautiously grateful that President Bush has nominated Bernanke as Greenspan's successor. When it comes to monetary policy, a wonk is generally preferable to a pol and always preferable to a crony. After the Harriet E. Miers fiasco, I was fully expecting Bush to propose the manager of his local bank in Crawford, if not his favorite horse.
But let us not forget that wonks are fallible too. Theories that seem persuasive in the classroom may turn out to be disastrous in practice. The laboratory is the world economy. And the guinea pigs — who are neither wonks, nor pols, nor geeks — are we, the people. Let's hope those theories of his work as well as they read.
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Niall Ferguson is a professor of history at Harvard University. He is the author of "Empire" (Basic Books, 2003) and "Colossus" (Penguin, 2004). Comment by clicking here. © 2005, Los Angeles Times Distributed by Los Angeles Times Syndicate |
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