Throw Helicopter Ben under the bus

The President has reached his decision on Afghanistan, and given his speech. There’s nothing much that can be done about this military escalation issue right now. It may make you feel better to gripe, kvetch, and moan on the tubez about the Afghanistan policy, but there are two big events coming up in the next 48 hours that perhaps we can still impact. President Obama’s jobs summit, in honor of which I've blogged an infrastructure repair and building program of oh, around 19 million new jobs.

And the confirmation hearing to re-appoint Ben Bernanke as chairman of the Federal Reserve System, before the Senate Banking Committee.

Do you want to try and make a difference? Then NOW is the time to raise a mighty shout across the land.

On Bernanke, it is obvious to any person who has had to work for a living and answer to a boss that the man should be fired. He screwed up, and the economy has crashed. That would be enough to get any person shown the door.

But to make matters worse, Bernanke has absolutely refused to answer repeated requests from Congress and from the Congressional Oversight Panel for details on which financial institutions are getting how much and what kind of assistance, and what they are giving their top executives in pay and bonuses. Given this obstructionism, it was a huge mistake for the President to re-appoint Bernanke, and now there is a chance to correct that mistake.

There are a number of people who could do a better job than Helicopter Ben. And if you want to send as clear and unmistakable a signal as possible that we are no longer going to tolerate business as usual in lower Manhattan and the City of London, then someone from outside the New York money center should be appointed. Any one of the presidents of the other eleven Federal Reserve banks is a good place to look for a new Fed chairman – the New York Fed president should be automatically out of consideration, just for being too close to Wall Street. The same is true for any of the top Wall Street executives, like James Dimon of J.P. Morgan Chase, who has recently been mentioned as a possible Fed chairman. As Lambert wrote when that news broke, “Please, just shoot me now.”

I would also be leery of Charles Evans, president of the Chicago Fed, just because Chicago, with its futures markets, is as big and insane a financial center as New York. Remember that Hank Paulson started with Goldman Sachs in its Chicago office.

One good choice would be Janet Yellen, president of the San Francisco Fed. Wall Street harbors a dislike and distrust of Yellen, because she thinks unemployment should receive as much attention from the Fed as the possibility of inflation does. And, she is married to George Akerloff, who shared the 2001 Nobel Prize in Economics with Joseph Stiglitz, for Akerloff’s work in identifying how markets can be distorted and damaged by asymmetrical information. One of the major problems with President Obama’s economics team is that there is no one with a background that suggests an awareness that markets have limits and problems, though of course, by now, this fact is so obvious that no one in the administration dares speak openly about efficient market theory anymore.

Another good choice would be Thomas Hoening, president of the Kansas City Fed, who made a splash with a speech in March 2009, Too Big Has Failed.

Hoening was a senior banking supervisor during the banking crisis of the 1980s, so he has hands-on knowledge of how to deal with banksters.

Other good choices would be Stiglitz or Akerloff, or Jimmy Galbraith, or Thomas Palley, former Assistant Director of Public Policy at the AFL-CIO, and founder of the Economics for Democratic & Open Societies project. As far back as 2000, Palley wrote Plenty of Nothing: The Downsizing of the American Dream and the Case for Structural Keynesianism, in which he argued that “the interests of working families have gradually been sacrificed to those of corporations.”

What about the new “common wisdom” (choose one: Bernanke, Obama, the financial bailout, the TARP, the stimulus) has saved us from a depression? Here’s what Galbraith said a few days ago:

Why didn’t we . . . move directly into [another] Great Depression? The answer is, government. The fall of private spending was offset and in large part automatically by an increase in government spending.
. . .

What saved us therefore were institutions that were created in the Great Depression, in the New Deal, by Roosevelt: unemployment insurance and social security and disability forms of relief, and in the Great Society by Lyndon Johnson, particularly Medicare.

That’s the main reason the deficit shot up. The stimulus package added to that and is adding to that particularly now, six months after it was enacted. It was, I think, too small, weakened by political compromise, but it was still a constructive step. You add those two things together, you get the deficit, and the deficit is indeed the one thing which has prevented a catastrophic decline, so far, in economic activity.

The point is, it’s time for a change, and change is what Obama campaigned on. So, anyone but Bernanke. And certainly not a Wall Street denizen like Dimon. One of Franklin Roosevelt’s most startling appointments was his Fed chairman, Marriner Eccles, a Mormon banker from Utah who, before his appointment, was giving speeches explaining how Wall Street speculation and a growing inequality of wealth and income had caused the crash and depression of 1929. Other bankers around the country were whispering behind his back that “poor Eccles has lost his mind. The strain of managing his bank in these tough times has gotten to him.” Imagine how their shock became indignation when Eccles was appointed Fed chairman, and they were forced to realize that Roosevelt was serious about changing the rules of the game.