The End of the World...

...or, why Obama shouldn't have reappointed Bernanke.

Now there are many things about a hyper-polarized media and political environment that are probably harmful to the achievement of desirable public policy. But, given that right now expectations of future high inflation would be a net positive, inducing people and companies to invest in the present, it would have been nice to use the hyperactive bombast that already characterizes so much of our political and policy debates to good use.

In short, we should have dumped Bernanke. It might not have been the End of the World, in the way that going off the gold standard signaled the collapse of Western civilization, but surely in this media environment it would have led to (greater circulation among influential voices of) claims that Obama is interfering in the Fed, undermining its independence, and trying to loosen up monetary policy with reckless disregard for the future costs of inflation. We might not had CNBC or Bloomberg making comparison with Zimbabwe or Wiemar, but I'd bet a pretty penny that they'd be raising the possibility of Venezuela or Argentina (they would couch it in "such an action could potentially lead to high inflation, which Argentina and Venezuela are currently experiencing" language.)

My reading of Obama's keeping on Bernanke was that he wanted (and wanted to stress) continuity in the economic management of the crisis. This seemed, in part, an effort to assuage markets and conservatives, similar to his keeping on Gates at Defense in order to not be accused of undermining the American war effort. This seems to me to have been politically disastrous, but I'm increasingly convinced that assuaging the markets was also a bad policy move. Whether a non-Bernanke Fed Chair would actually have been able to get the Fed to pursue more expansionary monetary policy sooner is unclear; but I expect that replacing a Republican with a Democrat (hell, even a centrist Democrat) would have led to expectations of more expansionary monetary policy. It is unlikely that this would have had a similar impact as going off the gold standard, but with 24 hour news needing to fill time with ratings-grabbing bombast, it probably would have been portrayed as a huge regime change, the expectations of which would have been for higher future inflation. And that in itself would likely have been helpful.