Tuesday, June 25, 2013

After Ben

Ben Bernanke’s current term as a governor of the Federal Reserve expires in January 2014. Currently he is in his second term as Chairman, having been appointed by President Bush in 2006 and reappointed by President Obama in 2010. However, his term as governor is for 14 years and does not expire until 2020. Consequently, he could serve out that term even if he did not want another four year term as chairman. However, Bernanke probably thinks that he has given enough service to the government and will return to his teaching position. One salient reason is that as chairman of the Fed he earns only $199,700 while the other governors earn $179,000. At Princeton, Bernanke would probably earn in excess of $450,00. Also he has textbook royalties of around $300,000. Add to that opportunities to join Fortune 500 boards and speaking fees, Bernanke stands to earn several million dollars a year. But what about the Fed after Ben? Rumor has it that Janet Yellen, the vice chair is the most likely candidate to succeed Bernanke. That makes sense since she left her high paying economics position at Berkeley to join the Fed then left to be president of the San Francisco Fed. Then she was appointed to be vice chair of the Fed at half the San Francisco salary. Now why would she rationally do that? –I would much rather be a Fed President than be on the Board of Governors (except for being chairman. The only reason must be that she was promised the next chairmanship. Other names prominently mentioned for the job are Larry Summers and the current chairman of the Council of Economic Advisors, Alan Krueger. What is interesting is that none of the three has an expertise in monetary economics – although Yellen lists it as an area of interest. Yellen and Krueger are primarily labor economists. Yellen does have some co-authored publications in macroeconomics but these do not constitute the bulk of her writings. Larry Summers has some academic pieces in marcroeconomics and monetary economics but mainly he too concentrates in labor markets with some dabbling in financial markets. Thus, what is interesting is that Obama will likely turn the reins of the Fed over to someone who is not a monetary economics expert. All three are likely to eschew Fed independence and like Bernanke and Greenspan before him, be an adjunct of the office of the President continuing the current policy of monetary accommodation.