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5 Ways The New Fed Chairman Will Be Different

7 minute read
Daniel Kadlec

Ben Bernanke knows he’s filling big shoes. So when President Bush chose the White House’s relatively new top economic adviser to succeed Alan Greenspan as chairman of the Federal Reserve, Bernanke professed alignment with the Maestro. The “top priority,” he said, will be to “maintain continuity” with Greenspan’s way of doing things.

Bernanke, 51, seems suited to that task in ways big and small. Both men are independent thinkers who tilt gently to the political right. Greenspan is a consensus builder who rarely convenes a meeting without knowing every vote. Bernanke built a similar reputation running the economics department at Princeton from 1996 to 2002. “When he took over the chair, there was a lot of infighting and bickering,” recalls Gene Grossman, a colleague at Princeton. “He made it one of his objectives to get more consensus on decisions.” Greenspan and Bernanke play the saxophone and possess a wry sense of humor. Chided by the President for wearing tan socks with a dark suit, Bernanke bought more pairs and persuaded the Vice President and others to wear them.

Greenspan navigated the economy through the stock-market crash of 1987, two recessions, a global financial crisis in 1998 and the burst Internet bubble in 2000. Assuming (as most do) that the Senate will confirm him for the most powerful economic post in the world, the era of Bernankenomics will begin Feb. 1, under gathering storm clouds. U.S. deficits are at all-time highs, the housing market may be in a bubble of Greenspan’s making, and we have the first real whiffs of inflation in years. How will Bernanke steer the ship? For a clue, here are five ways that Ben Shalom Bernanke is not Alan Greenspan:

1. A Science Rather than an Art

Bernanke , who was named Chairman of the President’s Council of Economic Advisers after serving on the Fed’s board of governors for three years, believes in a predictable approach to fighting inflation. Greenspan, in contrast, is a connoisseur of esoteric statistics and counts on the freedom to weigh them however he deems wise at the moment.

In Bernanke’s view, to lessen the possibility of a surprise that could create panic, it is paramount that financial markets understand what the Fed is doing. Although he believes in balancing formulas and judgment calls, Bernanke has argued for picking a target rate for inflation and making clear that the Fed would cut interest rates when inflation fell below the target and raise them when it pushed above. Bernanke’s presumed target: about 3% for the Consumer Price Index.

Greenspan believed targets would box him in. For example: if inflation markers were in place now, the Fed might be raising rates more quickly since hurricane damage on the Gulf Coast caused fuel prices to spike. Greenspan’s approach allows him to factor in how long oil production may be curbed and what will happen when prices recede.

2. A Softer Line on Inflation

The Fed has two main responsibilities: fighting inflation and fostering orderly growth. The two are sometimes at odds, and every Fed chairman must choose which way to lean. Greenspan, like Paul Volcker before him, is a proven inflation fighter. But Bernanke shows signs of tolerating rising prices. When the economy was threatened with deflation (generally falling prices) a few years ago, “he among all the Fed governors was most vocal about the need to generate inflation,” says Alan Wild, a global fixed-income manager for Barings Bank. In November 2002, Bernanke publicly spoke of options, citing Milton Friedman’s famous “helicopter drop” of money into the pockets of consumers via tax rebates to stimulate spending, which was radical stuff from a central banker. Some are now worried that Bernanke would overcorrect his reputation, raising rates too far to prove his credibility on the inflation-fighting front.

3. Plain Talk, Not Greenspam

The Bernanke era promises to be toughest on Fed watchers who have made a living interpreting Greenspan. “Ben is crystal clear in both his writings and his speaking,” says Frederic Mishkin, a friend and Columbia University economist. In Bernanke’s experience, being direct works. As an 11-year-old, he won the South Carolina state spelling bee–but only after contesting a judge’s ruling that he had misspelled a word. “He walked off, then came back and said, ‘Excuse me, sir, but I spelled that word correctly,'” recalls his mother Edna. Sure enough, a tape recording proved him right. Bernanke’s push for clarity influenced Greenspan to speed up the release of the minutes of Fed meetings.

Contrast that with the tortured, Delphic utterances that have become legend with Greenspan. His wife, NBC correspondent Andrea Mitchell, has joked that he proposed twice before she understood what he was saying. After tongue-twisting comments by Greenspan to the Economic Club in New York City in 1995, headlines reflected the confusion he had sown. GREENSPAN HINTS FED MAY CUT INTEREST RATES, read the Washington Post. DOUBTS VOICED BY GREENSPAN ON A RATE CUT, said the New York Times. But the Maestro was clear about one thing: “Since becoming a central banker I have learned to mumble with great incoherence,” he said in 1987. “If I seem unduly clear to you, you must have misunderstood what I said.”

4. In Style, a Family Man

Greenspan, a dapper dresser, dated Barbara Walters before marrying Mitchell. He has been known to hit two or more functions in a night, comfortably mingling with politicians, journalists and celebrities. Nathaniel Brandon, a Beverly Hills, Calif., psychologist who with Greenspan had been in author Ayn Rand’s inner circle, told TIME several years ago that while Rand liked and respected Greenspan, she also referred to him as a “social climber.”

Bernanke seems to want no part of that life. When he was appointed a Fed governor in Washington, the college professor “didn’t have a suit to his name,” says his father Philip. Bernanke realized he had to go shopping and “picked up four suits–all the same color.” Before moving to Washington, he commuted from Princeton and told colleagues how he spent hours on the New Jersey Turnpike when he should have been with his wife Anna and two children, now college age. Says New York University economist Mark Gertler, who collaborated with Bernanke on several studies: “He would get home for dinner, and the subject changed. It wasn’t economics anymore.”

5. Astronomy vs. Philosophy

Even Central bankers charged with steering the global economy are permitted their pastimes. Greenspan loves to roam well beyond the facts for intellectual stimulation. He was deeply influenced by Rand’s classic Atlas Shrugged, which helped shape his view that individuals acting in self-interest make for fair and honest markets. Although Bernanke wrote an unpublished novel in his younger days, his reading list swings to the pragmatic. He spent a recent vacation with a book about astronomy and has read volumes about Milton Friedman, whom he regards as the 20th century’s greatest economist for his arguments on the power of free markets.

In the end, however, one key affinity may indicate that the two economists are more alike than different. Both are passionate about baseball, crediting the game with fostering their love of statistics. Bernanke, who as a youth developed a dice-based baseball game, loves the work of Bill James, the baseball statistician known for focusing on obscure data to evaluate talent. Both have adopted the Washington Nationals. But their deep loyalties reach beyond the Beltway–to two teams with frustrating histories. Greenspan is a New York Mets fan; Bernanke pulls for the Boston Red Sox. No doubt, more frustrations await Bernanke as he learns to mold the economy. But if he sticks to his numbers, he should do fine.

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