Where in the World is Christy Romer?
In standard fashion, the Economist quips, Ben. And Then. It turns out, the rest of the article must be sarcastic as well:
This is, inadvertently, a Rorschach test. You should be – regardless of your persuasions – squirming that Christina Romer is excluded from this little elite list of potential chiefs of the world’s most important bank. You should wonder when competence and “Obama connection” are the factors of inclusion why the only administration don to actually get everything right is excluded from the list.
The list is constituted of very respectable names. Janet Yellen knows that that the Fed has a dual-mandate. Larry Summers has shown a growing desire to reform mainstream economics. We can be sure he’d consider fresh ideas like a nominal output target. Jeremy Stein provides one of the only coherent arguments against easy money. (I don’t agree with him, I think market expectations of a heating economy would take care of any insanely-risky behavior, but he’s about as brilliant a chance the monetary hawks have – and he probably does not even agree with them). Stan Fischer seems to have done wonders in Israel.
But it’s bordering on madness to exclude Romer from any serious list of potential candidates. Take this 2011 op-ed in the New York Times:
Mr. Bernanke needs to steal a page from the Volcker playbook. To forcefully tackle the unemployment problem, he needs to set a new policy framework — in this case, to begin targeting the path of nominal gross domestic product.
Nominal G.D.P. is just a technical term for the dollar value of everything we produce. It is total output (real G.D.P.) times the current prices we pay. Adopting this target would mean that the Fed is making a commitment to keep nominal G.D.P. on a sensible path.
More specifically, normal output growth for our economy is about 2 1/2 percent a year, and the Fed believes that 2 percent inflation is appropriate. So a reasonable target for nominal G.D.P. growth is around 4 1/2 percent.
Economic research showed years ago that targeting nominal G.D.P. has important advantages. But in the 1990s, many central banks adopted inflation targeting, a simpler alternative. As distress over the dismal state of the economy has grown, however, many economists have returned to the logic of targeting nominal G.D.P […]
Because it directly reflects the Fed’s two central concerns — price stability and real economic performance — nominal G.D.P. is a simple and sensible target for long after the economy recovers. This is very different from Mr. Volcker’s money target, which was abandoned after only a few years because of instability in the relationship between money growth and the Fed’s ultimate objectives.
Desperate times call for bold measures. Paul Volcker understood this in 1979. Franklin D. Roosevelt understood it in 1933. This is Ben Bernanke’s moment. He needs to seize it.
Infamous memos to Larry Summers during the depths of the Lesser Depression, as Brad DeLong now calls it, prove that Romer had a brilliant grip on America’s fiscal woes (read: she’s a Keynesian). That she acknowledges that the Fed has a dual-mandate (remember when Bernanke bragged about his fantastic inflation record) and is open to new thinking suggest she’s equally competent (that is to say, mind-blowingly brilliant) on monetary issues.
Most of the candidates the Economist outlined deserve to be on that list, but it looses its value without Christina Romer.