… the first thing that Ben should do is to make a stand on a technical-but-vital issue where the CEA should have made its stand: get the Bush administration to reduce the clawback real interest rate on its proposed private accounts from 3% plus inflation to a floating rate equal to the U.S. Treasury’s borrowing rate (or the borrowing rate minus a small margin). That would keep Bush’s private accounts from being a bad deal for the non-rich who opt for them.
He probably should. But one has to ask, how likely is it that that’s going to happen? Bernanke certainly seems like a good guy, but the Bush Administration has a way of making sure that the good guys knuckle under. I see three ways this might happen. First, a pre-emptive effort to get him to publicly articulate the Apostolic Creed of the administration. (“I believe in one authority, the Executive almighty …") Second, a straightforward smack on the wrist (or blow to the back of the head) as soon as Bernanke tries to assert a bit of intellectual independence. Third, a temptation on Bernanke’s part to make a Devil’s bargain: something like, “If I hold back for now, I’ll be in a much stronger position to do the right thing when they appoint me Chairman of the Fed.” That way madness lies.