When he was 11, Ben Bernanke, the spelling champ from South Carolina, was within a whisker of appearing on The Ed Sullivan Show. Back in 1965, this was a big deal. But Bernanke couldn’t remember how many ”i”s there were in edelweiss and missed the televised national final by one mark.
For Bernanke, it proved a minor setback on the road from boy prodigy to chairperson of the Federal Reserve (the Fed), the world’s most powerful central bank. The progression through academia to economic policy supremo has been seamless and trouble-free. Until now.
In the person of Alan Greenspan, the chairperson of the Federal Reserve was the second most powerful man in the world. But after an accident-prone start and with markets tumbling, whispers have started on Wall Street: Is Bernanke up to it?
Bernanke can call on the experience of friends in high places. Mervyn King, the governor of the Bank of England, was a colleague when they were both professors at Massachusetts Institute of Technology (MIT) in the 1980s and has some advice for his old friend: ”Think deeply and don’t get carried away with the latest statistic.”
Like King, Bernanke comes from the new breed of academics-turned-central bank governor. Indeed, his résumé is a roll-call of blue ribbon United States campuses — Harvard, Stanford, Princeton, MIT. King, though, had been battle-hardened as the bank’s chief economist during the Black Wednesday fiasco of 1992 when the United Kingdom dropped out of the European exchange rate system; Bernanke had run a school board in New Jersey and the Princeton economics department before he moved into the hot seat.
His dilemma is serious. Should he keep putting up interest rates to tame inflation, or heed the warnings of those who say the US is already teetering on the brink of recession and that dearer money will push it over the edge?
Bernanke, the son of a pharmacist, was raised in the hamlet of Dillon, South Carolina. Harvard beckoned, where he graduated with the highest honours. A PhD followed at MIT, where he was diverted from research into the Great Depression by another story of ill-fortune: the ability of his team, the Boston Red Sox, to snatch defeat from the jaws of victory.
The Red Sox finally broke an 86-year curse when they won the World Series in 2004, just as Bernanke was being lined up to replace Greenspan.
As a non-ideological Republican he will also find it easy to switch sides should there be a Democrat in the White House. Even so, his reputation as an economist meant he was the first choice for Fed chairperson when Greenspan stepped down and he had been able to play himself into the policy role — first as a governor of the Fed and then as chairperson of President George Bush’s Council of Economic Advisers.
Bernanke recently said the hardest part of moving to the Fed was having to wear a suit: ”My proposal that Fed governors should signal their commitment to public service by wearing Hawaiian shirts and Bermuda shorts has so far gone unheeded.” That, though, was before the events of the past few weeks.
Greenspan’s musings on the economy were notoriously opaque. Bernanke has said he wants the Fed’s decisions to be more transparent.
Unfortunately, Wall Street has been left confused by his openness. He has sent out mixed messages, sometimes appearing to be relaxed about inflation then correcting himself.
Mark Weisbrot, of the Centre for Economic and Policy Research in Washington, says. ”My main take on him is that he is getting a bad rap because Greenspan left him with a mess. Bernanke is getting the blame for what Greenspan did.”
But that won’t matter should the economy tank. Rightly or wrongly, he will be blamed. The best speller the Fed has had knows now there’s only one ”i” in edelweiss. And none in scapegoat. — Â