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Alum Ben Bernanke Is Selected by Bush As Chair of Reserve

By Kelley Rivoire

President Bush named Ben S. Bernanke PhD ’79, head of the Council of Economic Advisers, to replace Alan Greenspan as Chairman of the Federal Reserve yesterday. The selection could leave Bush’s economic legacy in the hands of the MIT alumnus if Bernanke is approved by the Senate.

Faculty in the Economics Department praised the nomination of Bernanke, a star student while at MIT who was twice a visiting professor here during the 1980s. Bernanke would likely lead a shift in the Fed’s monetary policy, they said.

“Of the people who might conceivably have been appointed by the Bush administration, Ben is far and away the best,” said Robert M. Solow, professor emeritus and Nobel Laureate. “I think he will be independent and apolitical,” Solow said.

“Greenspan was an individualist with an eclectic, adaptive approach to monetary policy,” said Bengt Holmstrom, head of the Economics Department, in an e-mail. “Unlike Greenspan, Bernanke believes in setting inflation targets and sticking to them.”

Under a policy of inflation targeting, the Federal Reserve would set an explicit target inflation rate, “state it publicly, and then live by it,” Solow said. The Fed would then take action “primarily or exclusively to attain that target,” said Solow, who said he would personally favor a policy with “a little more flexibility.”

“Before the Federal Reserve adopts a … philosophy of inflation targeting, there’s going to have to be a lot of discussion,” Solow said. “My guess is that over time, it might take two years, Bernanke will bring them around.”

In brief words after Bush’s announcement, Bernanke stressed that his term would initally be marked by continuity with the current policies.

“If I am confirmed by the Senate, I will do everything in my power, in collaboration with my Fed colleagues, to help to ensure the continued prosperity and stability of the American economy,” he said. If confirmed, Bernanke would succeed Greenspan when his term finishes at the end of January.

Bernanke spent much of his career in research as a professor at Stanford and at Princeton, where he served as department chair; he has also served as a governor of the Federal Reserve. His university experience will bring a more research-driven approach to the Fed, Solow said.

“His natural response to any complicated issue is going to be, what does the research say.” He “would be inclined more than Greenspan was to consult what the Beavers say.”

As an MIT doctoral student, Bernanke excelled. He was “one of best students in his class. He took three courses from me and was always at or near the top of his class,” said Economics Professor Jerry A. Hausman in an e-mail.

“My guess is that he never got less than an A during his time at MIT,” Solow said. Bernanke “was hard-working, he was quiet, not someone you would notice because he was putting himself forward in seminars or group meetings, but he was a stickler for detail.”

“It tells of course a great deal about our graduate program that so many of our alumni have held important jobs in this and past administrations.” Holmstrom said.

The Chairman of the Federal Reserve is the “most important economic job in the world,” Hausman wrote, and it is “good that Bush appointed such an outstanding person.”

The appointment reflects well on the department, faculty said. “I hope his selection will rebound well on MIT. It is good to have distinguished alumni,” said Economics Professor Peter Temin ’64 in an e-mail.

“In last two administrations MIT graduates have been Secretary of Treasury (Larry Summers) and now chairman of Fed,” Hausman wrote. “We have been rated the number one economics department for past 35 years — mainly because of our outstanding graduates.”

Solow said that while he doubted MIT would reap direct benefits from the nomination, “it is a kind of certification that we get awful bright graduate students, and we don’t ruin them.”