Hoover Daily Report

Whoever Wins, Ben Bernanke Is a Loser

via Wall Street Journal
Monday, August 25, 2008

WSJ.com Political Diary

August 25, 2008

In today's Political Diary

  • Who's Next at the Fed?


    Whoever Wins, Ben Bernanke Is a Loser

    While all the speculation this week is on whom John McCain will choose as his running mate, a potentially more significant appointment is the frontrunner for Fed chairman if Mr. McCain wins. Campaign insiders whisper to me that Mr. McCain is privately increasingly displeased with Ben Bernanke's performance as the nation's chief central banker. "McCain is a strong dollar guy, he's committed to that," says economic advisor Douglas Holtz-Eakin.

    So who would get the nod? Two economists, both in Mr. McCain's inner circle, appear to be butting heads on the position. One is Martin Feldstein, who has long sought the job and played nice with the Bush Administration for several years in the hopes of succeeding Alan Greenspan. Mr. Feldstein now consults with John McCain regularly, but he has also been a fan of the weak dollar Fed policy and a defender of Fed Chief Bernanke, so he may not be a good fit for Mr. McCain and his strong dollar inclinations.

    The other economist making a play for the spot is John Taylor, formerly of the Bush Treasury Department and now a Hoover Institution senior fellow. Since former Texas Senator Phil Gramm's departure from the McCain campaign earlier this summer, Mr. Taylor has taken on a more prominent role. Mr. Taylor was once thought to be the frontrunner to succeed Mr. Greenspan, and was even said to be the Fed chief-in-waiting while at Treasury during President Bush's first term. But one Bush White House insider tells me Washington's worst kept secret: "Taylor failed the audition and fell into disfavor."

    One other possibility is Phil Gramm himself. While he's publicly in the doghouse now, his alienation from Mr. McCain is mostly for show after his comments about the public "whining" about the economy. Mr. McCain still considers Mr. Gramm a first-rate economist and a confidante.

    Barack Obama, for his part, would be the first Democrat to choose his own Fed chairman since Jimmy Carter appointed Paul Volcker. Bill Clinton won the White House in 1992 and soon after he smartly and very publicly announced his intention of keeping on Alan Greenspan, which helped calm financial market jitters. Former Treasury Secretary Robert Rubin is the frontrunner -- and he would be a solid choice as he was a strong advocate of the Clinton strong dollar policy. A political handicap, though, might be his prominent role at Citigroup, a major player in the subprime debacle.

    What seems near certain is that whoever wins the election, Ben Bernanke may only stay at the helm of the Fed for another year or so. That's why there's infighting already in the McCain campaign to be next in line to take over as the most important central banker on the globe.

    -- Stephen Moore