As alan greenspan leaves office, what will life under the incoming chairman be like?
I don't envy Ben Bernanke having to step into Alan Greenspan's shoes. Why, I don't even know what kind of shoes the outgoing Federal Reserve chairman wears.
Rather than speculate, I emailed a Fed press officer with my question. "Our practice has been to decline to answer personal questions such as the one you pose," he replied.
Hey, this isn't his Swiss bank account I'm after. Greenspan's shoes are not a state secret.
Bernanke is much more open. He indulged my footwear fetish a while back, admitting he hates to shop and buys "the first pair of black-laced shoes that fit and cost under $100".
For Bernanke, transparency is a guiding principle. While Greenspan talks transparency, he never reveals too much.
The Fed has become more transparent in the last decade in spite of Greenspan, not because of him.
It was Bernanke who pushed for greater transparency, including earlier release of the minutes, when he was a Fed governor from 2002 to 2005. The Fed had countered calls for more timely release, claiming it took a full six weeks to edit and distribute the minutes to policy makers for approval.
The minutes are now released three weeks after each meeting and there have been no stories of Fed staffers having to work late to meet the accelerated deadline.
So what will the Fed be like under Bernanke? While everyone heard his promise of continuity with the policies of the Greenspan Fed at his 15 November Senate confirmation hearing, it would be a mistake to assume it will be business as usual with Bernanke at the helm.
He represents a departure from Greenspan in three key areas: in the importance he places on transparency; in his perception of the role of Fed chairman; and in his expected response to financial market crises.
Bernanke is certain to push for the adoption of a formal inflation target. He devoted a good deal of academic research to the benefits of a target, wrote a book on it and, much to Greenspan's chagrin, advocated one every chance he got when he was a Fed governor.
The transparency playbook starts with a stated numerical rate or range for inflation. It features numerical forecasts in place of boilerplate language. And it precludes leaks to select reporters from unnamed Fed officials, one of the more unseemly characteristics of Greenspan's tenure that often left markets wondering which newspaper had the story right.
The second difference between them is in how they view their job descriptions. Unlike Greenspan, who cultivated the image of an uber adviser to Congress on all issues economic (and many non-economic), Bernanke will stick to his knitting. He has already committed himself to the practice of not commenting on specific tax and spending policies.
Greenspan made a deal with the first President Bush, dangling the promise of a rate cut if the president and Congress cobbled together a credible deficit-reduction package.
They did and Greenspan delivered in October 1990. He was a maestro at maintaining his credibility in the face of some highly politicised acts.
Bernanke will confine his comments to the subject of monetary policy and the economy. They will leave little room for guesswork or interpretation.
The third area where I expect Bernanke to differ from Greenspan is in their response to financial crises. Greenspan has been accused of creating a moral hazard, of encouraging risky behaviour by putting a floor under the stock market.
The Greenspan "put" may retire with the chairman. Bernanke will be less of an interventionist in the case of a financial market crisis; if a big hedge fund got into trouble, for example.
On the other hand, the self-described Great Depression buff would be more aggressive in the case of banking crisis. His research into what was perhaps the Fed's biggest policy failure convinced him that the credit squeeze converted a severe but not unprecedented economic decline in 1929-30 into a protracted depression.
If a burst housing bubble impaired banks' ability to lend, Bernanke would respond more quickly and aggressively than Greenspan did in the early 1990s.John M. Berry
Three key differences between Bernanke and Greenspan
1. Attitude to transparency
2. Perception of the Fed chairman's role
3. Response to any financial market crises
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress