President Obama has used the Congressional recess to appoint Paul Krugman as Vice Chairman of the Federal Reserve system.
Obama spent the first year in office wooing centrists like Olympia Snowe. That strategy slowed down his reform agenda and did not pay off. The President had to rely on old hardball Chicago politics to pass healthcare reform. He has realized his hope of appealing to the center of the political spectrum is futile. And in any case, it’s the diehard party faithful that decide midterm elections. What better way to energize the base than by appointing their hero, the self-styled conscience of liberalism and economics Nobel Prize winner, Paul Krugman, to the Federal Reserve?
Krugman stands no chance of getting the 60 votes required to survive the usual Senate confirmation process. As his appointment has no direct impact on the budget, the arcane procedure known as “reconciliation”, that requires only a simple majority, cannot be used to give him an up and down confirmation vote. Ironically, Krugman will have a huge impact on the budget as he favors expansionary monetary and fiscal policy in recessions. A perpetually gloomy forecaster, Krugman almost always believes a recession is round the corner and for all practical purposes favors large budget deficits all the time. Even if reconciliation could be used, with moderate Democrats against him, it is not clear that Krugman could draw 50 votes. So, a recess appointment was the only possible strategy for Obama.
This is obviously a dangerous move for the President. He is used to hiding his liberal agenda behind the fig-leaf of bipartisanship. With the leaf removed, he feels naked and vulnerable. Obama has gambled that the extreme left must be brought out to retain the Democrats’ hold on Congress. With the Krugman appointment as a flashpoint, Obama risks losing moderates and perversely provoking the extreme right to turn out and vote.
The benefits and risks for Obama are clear but what’s in it for Krugman? He has long wanted to get his hands on the levers of economic policy. But at what cost? He will have to step down from his sinecure as a Times’ columnist. He will have to mothball his textbook, as Ben Bernanke did before him. Most of all, he may regret the demise of the speaking engagements that have helped to bankroll his many houses and apartments in America and beyond. A favorite of the Hollywood glitterati – Ben Affleck is a close friend – Krugman will now have to give up the organic-chicken-and-chardonnay circuit and attend regular Fed meetings in Washington D.C. A dream for a regular economist but perhaps a letdown for a media star like Krugman. Of course as a recess appointee, Krugman can only serve until the next Congress is seated – maybe that is just the right amount of time for him to substitute Ben Bernanke for Ben Affleck in his speed dial.
All in all, an intriguing appointment for all parties concerned.