On Bernanke and Citadel

Two weeks ago, I told the Washington Examiner that we don't need to worry about Ben Bernanke's blogging turning him into a "shadow chair." I must confess that I was taken aback this morning to learn that Bernanke will also become a senior adviser to Citadel, a large hedge fund. Let me explain how this announcement modifies some, but not all, of what I wrote in my last post about Bernanke's post-chairmanship role.

I wrote, "We want our top thinkers going into public service at the Fed and other government agencies. These top thinkers place a high value on having a public voice, and the blogosphere is increasingly the forum for that." I still agree with this at gut level. I think Bernanke is an intellectual with the public interest at heart and that he really intends the blog as a public service  Now I also know more about the personal financial interests he has at stake, which I will keep in mind when reading his blogging. (Which we really all should do with whatever we are reading.) I think most people are capable of acting against their best financial interests to maintain ideals and standards, but even the most upright are subject to subconscious suasion.

I also wrote that I hoped Bernanke's blog would increase Fed accountability and transparency. Maybe, but only very indirectly. I don't think Bernanke is personally violating any bounds either by blogging or by joining Citadel, but that his joining Citadel is symptomatic of larger boundary violations in the governance structure of the Fed system and its ties to Wall Street. Bernanke told the New York Times that he was "sensitive to the public's anxieties about the 'revolving door' between Wall Street and Washington and chose to go to Citadel, in part, because it 'is not regulated by the Federal Reserve and I won’t be doing lobbying of any sort.' He added that he had been recruited by banks but declined their offers. 'I wanted to avoid the appearance of a conflict of interest,' he said. 'I ruled out any firm that was regulated by the Federal Reserve.'"

I take him at his word while at the same time expecting and hoping that the public's anxieties about the revolving door will not be calmed by Bernanke's choice of which particular Wall Street firm to join. The public doesn't draw a clear line, nor should they, between Wall Street institutions regulated by the Fed and not regulated by the Fed, or between "lobbying of any sort" and "very public figure saying things to policymakers." Maybe he ruled out conflict of interest to some degree, but certainly not appearance of conflict of interest. So if this looks a little unseemly, I hope that is enough to catalyze change in Fed governance. Even if Bernanke's link to Wall Street is not inherently problematic, the overall role of Wall Street insiders in Fed governance is too large.

Do Not Fear the Shadow Chair

I was recently interviewed for an article in the Washington Examiner, "Bernanke is Back and Blogging." The author, Joseph Lawler, asked what I thought about a former Federal Reserve chair taking becoming an active blogger, and in particular whether I thought there was a risk of Bernanke becoming a "shadow chairman." Lawler also interviewed Peter Conti-Brown, who said that this was "absolutely" a risk.

I don't share the concern. My response to Lawler was too long for him to include in its entirety, so I'll post it here.

I don't think we need to worry about Ben Bernanke becoming a "shadow chairman." The blog is not as unprecedented as it might seem. Alan Greenspan and Paul Volcker both remain active public figures who not only comment on the economy, but also advocate particular policies. Greenspan has published several books since he was chairman, and Volcker has a think tank, the Volcker Alliance. Neither of them has become a shadow chair. We want our top thinkers going into public service at the Fed and other government agencies. These top thinkers place a high value on having a public voice, and the blogosphere is increasingly the forum for that. If serving precludes them from later participating in the public forum, we will have trouble attracting the best people to these roles in the future. 

I think it is good to have a former Fed chair participating in a forum like a blog, which is freely available to the public and fosters debate. It is also a good thing if this blog brings more attention to the Fed and how it pursues its mandate. Since Fed officials are not elected, the Fed needs to be accountable to the public in other ways, and accountability requires that people are aware of the Fed and really thinking about and challenging its actions. In my dissertation I show that this is not currently the case-- people don't understand the Fed enough to be able to hold it accountable. I argue that the Fed needs a strong new media strategy as part of their communication strategy. If former Fed officials make their opinions public, the public will likely put more pressure on current officials to respond and explain their own views and any differences of opinion. This increases accountability. The Fed also claims to place high value on transparency, which is a change from the central banking philosophy several decades ago, so they should be glad that people formerly at the Fed are trying to explain their thinking in a clear way that helps people understand. 

As a blogger myself, I think it will be very fun to have Bernanke in the blogosphere and to follow him on Twitter. He will bring such an interesting perspective about which topics are really important to think more about. The topics that interest him enough to prompt him to blog will certainly be topics of great interest to the rest of us bloggers. It will be fun to think through and react to what he writes.

Wishing you a very happy Easter!