[UPDATED] Krugman on Bernanke: Meh! (Could Blinder Be Next Fed Chair?)

[UPDATED 1/28/10: SEE BELOW]When President Obama reappointed Federal Reserve Chairman Ben Bernanke in August (who was a Princeton economics professor and department chair before his 2005 appointment), his second term seemed almost assured and his Senate confirmation appeared to be smooth sailing--until, of course, this month.Public anger over bank bailouts and bonuses has made Senators nervous, and Bernanke has been on the receiving end of the resulting political backlash. With Bernanke's Senate vote suddenly put in doubt, the market has plummeted in recent days in the face of uncertainty.Princeton professor and New York Times columnist Paul Krugman has weighed in on the issue this week: he supports Bernanke's reappointment...barely.

Where do I stand? I deeply admire Mr. Bernanke, both as an economist and for his response to the financial crisis. (Full disclosure: before going to the Fed he headed Princeton’s economics department, and hired me for my current position there.) Yet his critics have a strong case. In the end, I favor his reappointment, but only because rejecting him could make the Fed’s policies worse, not better.

Bernanke, according to Krugman, has been too complacent on financial reform and unemployment, and too prone to seeing the world "through bankers' eyes."According to the Wall Street Journal and Foreign Policy magazine, several names have been thrown around as possible Bernanke replacements, with Princeton professor (and Press Club alumnus) Alan Blinder '67 as a top contender. Krugman, too, mentions Blinder (who was Vice Chair of the Fed during the Clinton administration) as a good candidate for Bernanke's job.Still, Krugman offers his lukewarm support for Bernanke because he believes appointing someone else would create unneeded political turmoil. Krugman says the country would also risk getting someone who lacks the influence and sway to prevent the other members of the Fed (who, he says, are worse) from ignoring unemployment and financial reform.UPDATE 1/28/10:Who said Princetonians don't look after one another? First it was Krugman (albeit half-heartedly), and now it's Blinder. Two Democrats supporting a Republican? So post-partisan!Blinder's thoughts after the jump!:Blinder, in an op-ed piece in today's NYT, has come out with a strong endorsement for Bernanke's renomination. As we noted above, Blinder has been mentioned as a possible nominee for the Fed Chairmanship should the Senate reject Bernanke's reappointment. Blinder's endorsement seems to indicate that he isn't gunning for Bernanke's job, despite the media chatter. He writes:

The case for Ben Bernanke starts with his keen intellect. But perhaps more important in these trying times, he has demonstrated great creativity. He has also displayed the courage to put his head on the chopping block for policies he thinks right. And he is now battle-tested. (Disclosure: I am a long-time friend and former academic colleague of Mr. Bernanke.)

Although Blinder concedes that the Fed had erred early on during the recession, he says Bernanke's performance since late 2008 has been "superlative" (no grade deflation here, apparently):

The plain truth is that, as bad as the recession was, it turned out to be less horrific than expected, and Ben Bernanke is one of the reasons.

Blinder also points out that the job of the Federal Reserve Chair isn't political, and it would be a huge mistake to make it so:

No nominee for Fed chairman has ever been rejected by the Senate. Even no votes are relatively rare. In fact, the nominee who received the most negative votes in history was Paul Volcker, who won re-confirmation in 1983 by an 84-16 margin. Yet, in the eyes of many, Mr. Volcker was the greatest Fed chairman ever. Those 16 senators look pretty foolish in the eyes of history. There may be a lesson there.

Of course, Volcker is also a Princetonian--a member of the class of 1949 and former senior fellow at the Woodrow Wilson School. No matter what happens at the end of this political brouhaha, at least we know that there's a lot of love among Princeton's economics professors, politics be damned.(image credits: Denise Applewhite, Brian Wilson; sources: princeton.edu)