Fed's Bernanke picked for CEA

President Bush will nominate Federal Reserve Governor and University economics professor Ben Bernanke to a position on the President's Council of Economic Advisers (CEA), the White House announced Friday. Once Bernanke is confirmed by the Senate, Bush said he intends to designate him chairman of the Council.

"There are many exciting issues on the table," Bernanke said in an interview with The Daily Princetonian Sunday evening. "And I'm looking forward to playing a role with the administration on these issues."

The announcement comes just over a month after Bush designated another University professor chairman of the CEA. The Feb. 23 announcement that economics professor Harvey Rosen, a current member of the three-member Council, would succeed Gregory Mankiw '80 as chairman surprised most observers, including some faculty members on campus.

At that time, however, an informed White House official told the 'Prince' that Bernanke remained "one of the top candidates" for the open seat on the CEA. Rosen has said he intends to serve only six months as chairman and return to Princeton in the fall, bolstering speculation that Bernanke would eventually be named chairman.

The three-member CEA was created in 1946 to provide the president with objective economic analysis and advice on the development and implementation of domestic and international economic policy issues.

Observers have speculated that Bernanke would be named to a position on the CEA — most likely chairman — to provide an opportunity for the administration to evaluate his suitability for a higher-level position in the future.

In February, New York Times columnist Paul Krugman, also a professor in the economics department, noted that experience in the Bush White House would make Bernanke a better candidate to replace current Federal Reserve chairman Alan Greenspan, who will retire at the end of this year.

Others are less confident that Bernanke will be named chairman of the Fed, given that a nomination from the president is expected in the fall and Bernanke, if he's confirmed, will have served less than a year in the White House by that time.

"You start squeezing the time when [Bernanke] could develop that loyalty, familiarity with the Bush crowd," Alan Blinder, a former Fed vice-chairman and current University economics professor, said in an interview Sunday. "How that works out remains to be seen. What's changed since February is that there are two months less during the time when [he] can develop that relationship."

A registered Republican, Bernanke has also developed a reputation as an independent thinker who is not afraid to speak his mind. Some observers have noted that, if he's confirmed, Bernanke will join an administration that expects top officials to toe the party line.

In the run-up to last year's presidential election, Mankiw, the CEA chairman before Rosen, drew fire from Republicans and Democrats when he said the outsourcing of American jobs to other countries was "probably a plus for the economy in the long run."

"He's going to have to adapt," Blinder said of Bernanke. "It's not an easy transition that he's about to make, and he will not have the kind of freedom of speech that he had at the Federal Reserve."

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"When you're on the Federal Reserve you've got to watch what you say, you need discretion, because you can rattle markets. But this is an entirely different thing because the administration has a party line that — in my view, not Ben Bernanke's view — is sometimes barely believable," Blinder, a Democrat, added.

Bernanke declined to comment beyond saying he looks forward to working with the administration.

Speaking to the 'Prince' after his resignation in February, Mankiw, who has since returned to his professorship at Harvard University, recalled the outsourcing comment and the controversy it caused, but cautioned against politicizing economic questions.

"Economists disagree about a lot of things . . . but I don't think we disagree about the theory of international trade," Mankiw said. "Much of the world hasn't studied economics and hasn't been convinced of the theory. That's why I think teaching the theory of comparative advantage is so important. That's why voters need to be educated."