Posted by: Jeff | January 22, 2010

Thank You, Now Goodbye

While it’s not clear that anything will ultimately come of this, opposition to a second term for Fed Chariman Ben Bernanke appears to be growing in D.C.

A blogger I read on climate change issues had a great aside a while back about Bernanke, Tim Geithner, Larry Summers, and the rest of Obama’s economic team. To paraphrase, we should pin medals on all of them, give them our most sincere thanks, and then fire the lot. The reason being that there are two distinct issues to consider here, and we should remember not to confuse them.

The first was preventing the economic collapse of 2008 from turning into the next Great Depression. In that regard, the economic establishment performed quite well. However angry ordinary voters are over the unfairness of the bailout, the simple fact is the bailout worked, and it’s not at all obvious there were any other equally feasible options. We’ve got a long, hard road out of recession ahead of us, but we avoided the abyss. Hence the medals.

Unfortunately, Obama’s economic team (which to a large extent was also Bush’s economic team) was able to avoid Great Depression 2.0 precisely because doing so required working within the current paradigm. It required rebalancing and recalibrating the current system and working with the current financial power structures. But now that we’ve avoided catastrophe, the next question to answer is: How do we act responsibly to prevent this from happening again? And it’s increasingly clear that the only answer to that question will involve scrapping the current system. In contrast to avoiding this depression, preventing the next one will require working against, and to a large extent dismantling, the current financial power structures.

As a country, we’re going to have to step outside the established paradigm and come up with entirely new ways to run financial markets and banking, and to structure the relationship between government and the economy. And that step seems to be one the reigning economic establishment – Bernanke, Geithner, Summers, et al – is loathe to take.

The New York Times piece suggests that the populist anger revealed by Scott Brown’s victory in Massachusetts is behind a lot of the increasing opposition to Bernanke’s reappointment. That anger may also have already inspired Obama to step up pressure on the banks. So some good may yet come from Brown’s win.

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