Political Memo: Fed Chairman Change Casts New Light on Bush Era

Although President Obama has been Mr. Bernanke’s partner in an effort to steer the economy through a financial crisis, deep recession and recovery, so was the man who put Mr. Bernanke in the job in the first place: Mr. Bush.

“Ben Bernanke, along with George Bush and Barack Obama, saved us from another Great Depression,” said Senator Charles E. Schumer, Democrat of New York, echoing the views of others in his party. “Twenty years from now, that’s what history will say about all three of them.”

That’s the same Mr. Schumer who in 2008 ripped Mr. Bush’s “disastrous course.”

It is a reminder that the administrations of all presidents, sometimes unpredictably, have tails that extend long past their terms in office. And it provides some encouragement for Mr. Obama as he seeks to leave a mark on the 21st century economic debate — even if he cannot fulfill his agenda before leaving office.

The catalog of Mr. Bush’s economic sins has long been an article of faith among Democrats: tax cuts for the rich that turned budget surpluses into deficits, widening income inequality, slow wage growth, a hands-off approach to regulation that ended with the crash of the housing market and Wall Street. And not just among Democrats: Mr. Bush limped out of office with only about one-third of Americans approving of his performance.

But the momentary snapshot that political rhetoric encapsulates is only part of any president’s story. Because of the Fed’s vast influence over the economy — rivaling or exceeding that of presidents — selecting a chairman may be the single most consequential economic decision a chief executive can make.

On the day in 2005 that he appointed Mr. Bernanke, an academic expert on the Depression, Mr. Bush noted the Fed chairman’s responsibility “for containing the risk that can arise in financial markets.”

Today, few question Mr. Bernanke’s success in helping contain the risks he confronted.

“On economic issues, Bush was not an ideologue,” said Mr. Schumer, who in 2006 led Senate Democrats to recapture the majority and roadblock the Republican president’s domestic agenda. “On his most important economic appointment, he showed who he was.”

Henry Paulson, Mr. Bush’s last Treasury secretary, praised Mr. Bernanke — reappointed by Mr. Obama in 2009 — for helping produce the “enormous accomplishment” of slow but steady economic growth for the last few years even as American consumers were “de-levering” themselves of debt. As the country nears the fifth anniversary of the financial crisis, Mr. Paulson said that Mr. Bush’s critics ignored the reality that the underlying causes of the crisis were decades in the making. He said that Mr. Bush deserved more credit than he has received for Mr. Bernanke and for resisting the partisan and ideological polarization of Washington when the two stared into the economic abyss.

“It’s a big part of his legacy,” Mr. Paulson said.

Over conservative resistance, Mr. Bush backed the bailout mechanisms for Wall Street and the auto industry that Mr. Obama later would put into effect. “He put the political considerations aside and approved taking actions that he knew would be very unpopular with his base,” Mr. Paulson said.

Still, there is no guarantee that Mr. Bush’s appointment of Mr. Bernanke will burnish the former president’s historical reputation, as veterans of President Jimmy Carter’s administration can ruefully attest. The former domestic policy adviser Stuart E. Eizenstat recalls that Mr. Carter appointed Paul Volcker as chairman of the Fed in 1979, knowing full well that the interest rate increases he planned to tame inflation would harm Mr. Carter’s re-election bid.

Article source: http://www.nytimes.com/2013/07/27/us/politics/fed-chairman-change-casts-new-light-on-bush-era.html?partner=rss&emc=rss