A World Without Bernanke

On Thursday, the U.S. Senate expects to vote on whether to approve Ben Bernanke for a second term as chairman of the Federal Reserve. President Barack Obama strongly backs the Bush appointee, the architect of the Fed’s dramatic trillion-dollar expansion in the wake of the financial crisis. But some members of Congress haven’t been so supportive. A strange-bedfellows coalition of senators — everyone from social democrat Bernie Sanders to archconservative Jim DeMint, with heavyweights Barbara Boxer and John McCain in between — has said no to Ben. At last count, not enough senators had agreed to vote for Bernanke, raising the question: If not him, then who?

With Bernanke’s term rapidly drawing to a close and the U.S. economy still fragile, his supporters warn that failing to re-up the chairman would be a disaster. Treasury Secretary Timothy Geithner predicted Wall Street would "view [the failure to reconfirm] as a very troubling thing to the economy as a whole."

But plausible replacements do exist. Tim Duy, a University of Oregon economist and specialist on Fed policy, notes, "You’re dragging old names out of the hat," predicting the White House would likely choose a familiar and safe candidate to avoid a long nomination battle and placate markets spooked by the Bernanke fracas.

Two economists often mentioned for the top Fed gig are members of the administration: Larry Summers, director of Obama’s National Economic Council, and Christina Romer, chair of the Council of Economic Advisers (CEA). Romer is a scholar of the Great Depression, like Bernanke, and a longtime academic at the University of California, Berkeley. Summers, a former Harvard University president and treasury secretary, has guided the president’s economic recovery plans.

The nomination of either seems remote. Summers, who was famously ousted by Harvard’s faculty after musing that women are inferior at science, took a multimillion-dollar paycheck from the hedge fund D.E. Shaw before joining the administration, making him too tainted by Wall Street to put before a confirmation hearing, particularly with Congress on an anti-bank bent. Plus, many view Romer and Summers as too tied to the politics of the Oval Office at this time.

From the ivory tower, frontrunners include David Romer, the CEA chair’s husband and a fellow Berkeley-ite, and Alan Blinder, a Princeton University academic and former Fed vice chair. Both are lauded economists with experience working in and advising Washington. Romer is a "new Keynesian" who has written extensively on the Fed and its ability to aid the economy — including a paper, co-written with his wife, on how to pick a good Fed chair. (Both Romers say Bernanke was a perfect selection.) Blinder also writes extensively on central banking; Paul Krugman, the Nobel laureate and influential economic commentator for the New York Times, cited him in a recent column as a likely candidate. Romer and Blinder are considered the most probable appointments to the two open seats on the Fed board, and thus to the powerful Federal Open Market Committee, which sets the Fed’s interest-rate policies.

Many also look within the Fed itself for alternatives. Janet Yellen, a former academic and the president of the San Francisco Federal Reserve Bank, is tipped as the most likely to become Fed chair should Bernanke withdraw or fail to win confirmation. Yellen is considered the most dovish of the governors — i.e., more focused on the near-term problem of double-digit unemployment than she is on the longer-term problem of inflation.

Yellen, unlike some other possible candidates, wins plaudits from economic commentators on the left and the right. Dean Baker, who co-directs the influential liberal think tank the Center for Economic and Policy Research, names Yellen as his first choice should Bernanke fail. Kevin Hassett, director of economic policy studies at the conservative American Enterprise Institute and a former Fed economist, also sings her praises. "She’s very popular, very brilliant, and often thought of" as a potential Fed leader, he says.

Another possibility is Donald Kohn, the Fed’s current vice chairman. The Obama administration probably wouldn’t nominate Kohn, who has worked for the Federal Reserve since 1970, for Bernanke’s job. But the Fed veteran is likely to become chair on an ad hoc basis should the confirmation drag on. (The regulations on Fed succession aren’t perfectly clear, but Sen. Christopher Dodd, who chairs the Senate Banking Committee, has said he supports making Kohn acting head.)

And drag on it might: Bernanke might be filibustered tomorrow, Democrats might not be able to scare up enough votes to shut off debate, and the White House might decide against spending any political capital on his nomination, no matter how much Wall Street and market experts might protest. But Fed watchers note that his ouster would be backward-facing, punishment for missing the housing bubble rather than a statement of concern over the Fed policies he has said he will pursue in the next months, including unwinding emergency measures and leaving interest rates near zero. Those are policies all of the candidates mentioned have supported — and policies it seems likely that, after dodging a few more javelins on Capitol Hill, Bernanke will be the man to carry on.