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Home Publications Blogs Beat the Press The Battle of Fed Succession, 1994 Edition

The Battle of Fed Succession, 1994 Edition

Friday, 26 July 2013 09:42

The current efforts by Larry Summers' acolytes to have him replace Ben Bernanke as Fed Chair reminded me of a past battle. Back in the first term of the Clinton administration it was not assumed that Alan Greenspan had a lifetime position as Fed chair. Some folks thought that the Democratic president might want to take the opportunity to appoint a Democrat as Fed chair. The Vice-Chair at the time, Alan Blinder, was an obvious choice. Blinder had been a highly respected Princeton professor before joining President Clinton's Council of Economic Advisers and then moving over to the Fed at the start of 1994.

Anyhow, Alan Greenspan wanted to head off this possibility. Towards this end, he managed to get a major piece in the NYT over a Blinder scandal. At a speech at the annual meeting of central bankers in Jackson Hole, Blinder suggested that central banks, instead of focusing exclusively on inflation, might actually worry a bit about unemployment (the horrors). Anyhow, the resulting outcry sent Blinder back to Princeton and left Greenspan in charge of the Fed for another decade.

Ah, the good old days!


Addendum: I had originally linked to the wrong article. The correct piece is from August 29, 1994.

Comments (10)Add Comment
written by medgeek, July 26, 2013 10:14
So, Blinder was sent packing for daring to suggest that the Fed pay attention to both items (not just one) of their dual legal mandate to control both inflation and unemployment?
written by Kat, July 26, 2013 12:26
Was that the NYT piece you meant to link to? It appears pretty sympathetic to Blinder and seems to take some potshots at inflation obsessed central bankers. There is always the possibility that I missed something in my reading, however. I can't count this out.
written by Ryan, July 26, 2013 12:27
So, so happy to learn this (I was a teenager and didn't see the relevance of monetary policy to my life). Yet another thing I have to remember to thank Greenspan for if I ever get to meet him.
written by Kat, July 26, 2013 12:34
Never mind. Read it as Greenspan getting an article written to discredit Blinder.
Not that it matters.
written by JDM, July 26, 2013 3:06
Look, you might think that our fears of inflation are overblown, but I'm old enough to remember those duck and cover drills in grade school when we'd practice hiding under our desks to keep the economy from falling on our heads after inflation hit the ceiling and blew up. It's nothing to joke about!
Heeding Blinder's Advice
written by nassim sabba, July 26, 2013 3:09
What do you know? Greenspan actually did heed Blinder's suggestion to consider unemployment more seriously, his own.
written by Kat, July 26, 2013 3:57
Representative Neal has introduced a bill, supported by Mr. Greenspan, that would replace this language with a requirement that the Fed pursue zero inflation. Because of opposition from other Democrats, the bill has never emerged from the House Banking Committee, which oversees monetary policy, and is unlikely to do so soon.

As it turns out, they did not need to pass that bill. Kind of quaint that they tried that avenue, though.
written by LSTB, July 26, 2013 6:03
Mr. Blinder's comments appeared to anger some colleagues, who discussed his speech at a barbecue Saturday night at the end of the conference. One senior Fed official who insisted on anonymity called Mr. Blinder an "outlier" -- an economics term for a point on a graph that is far removed from the other points.

Wait, a central bankers' barbecue? That either sounds really awkward or like comedy gold.

"Here's a hot dog for you Alan."
"It looks deflated."
"Well maybe if you didn't have such a hawkish temperature rate policy-

Okay, that's enough.
another Clinton fail
written by Peter K., July 27, 2013 10:56
"Mr. Greenspan told a Congressional panel on Aug. 10 that he favored legislation to set zero inflation as the Federal Reserve's sole goal. But Mr. Blinder said this afternoon that the Federal Reserve should pursue the multiple goals set forth in current legislation, which include low inflation and maximum employment."

It's too bad Greenspan didn't get us to zero inflation.

But seriously I appreciate Mr. Baker's point about mild Japanese deflation versus runaway-1930s deflation, but there are political considerations.

One, deflation increase government debt, which is everyone's number one concern for some reason.

Two, the Fed has to resort to unconventional means once it hits the zero bound. Yellen convinced Greenspan to leave some wiggle room. Turns out they didn't leave enough given the Republicans' love of austerity.
The Stakes are High to be Governor of the Federal Reserve
written by Lauren Taylor, July 27, 2013 3:07
The Fed employs thousands of economists. Contenders will use several means to achieve their objectives of being names Governor of the Federal Reserve. Currently, Lawrence Summers has been mentioned in the press. However, Janet Yellen also has a strong argument for obtaining the post. It is my belief that Bernanke would prefer to yield the post to Yellen than Summers. I think there is much more professional competition with Summers than with Yellen for the "Most Respected and Well-Known Economist in America" that is hard to ignore. Let us see how the global economy and the US stock markets react when the new Governor is appointed.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.