WASHINGTON, DC – President Barack Obama’s nomination of Ben Bernanke to a second term as Chairman of the United States Federal Reserve represents a sensible and pragmatic decision, but it is nothing to celebrate. Instead, it should be an occasion for reflection on the role of ideological groupthink among economists, including Bernanke, in contributing to the global economic and financial crisis.
The decision to nominate Bernanke is sensible on two counts. First, the US and global economies remain mired in recession. Though the crisis may be over in the sense that outright collapse has been avoided, the economy remains vulnerable. As such, it makes sense not to risk a shock to confidence that could trigger a renewed downturn.
Second, Bernanke is the best among his peers. He did eventually come to understand the nature and severity of the crisis, and then took decisive steps that contributed to halting the economic freefall. That record, combined with doubts that any of his peers would have done better, means replacing him with another mainstream candidate makes little sense.
These two factors justify Bernanke’s reappointment, but the faintness of praise is indicative of the deeper problems that his leadership has exposed. Those problems concern the state of economics and economic policy advice.