A New Money Man; Ben Bernanke Has a Tough Act to Follow as Fed Chairman

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Byline: Daniel McGinn and Richard Wolffe (With Holly Bailey)

When Ben Bernanke left his post at the Federal Reserve last spring to become President George W. Bush's top economic adviser, his work pals didn't give him much of a send-off. Only a month ago did his Fed colleagues get around to throwing him a lunchtime goodbye party. In keeping with Fed tradition, Bernanke's favorite food--Necco candy wafers--was served, and the going-away gifts included a Steuben crystal eagle, a framed set of dollar bills and the chair Bernanke sat in during Fed meetings. This winter, however, Bernanke will need to deliver that chair back to the Fed--and perhaps return the going-away presents, too. After months of oddsmaking from Washington to Wall Street about who would succeed Federal Reserve chairman Alan Greenspan, 79, when his term expires in January, last week Greenspan and Bernanke strode into the Oval Office for the announcement. After 18 years leading the Fed, the man known as the Maestro will finally turn over his baton.

Economists applauded the choice, the stock market rose, and even in partisan Washington, it was hard to find anyone who disapproved. That's partly because of Bernanke's stellar credentials, which drew immediate comparisons to the choice of John Roberts for the Supreme Court. In academic circles, Bernanke is regarded as a superstar; at the White House, he won favor by not talking down to the president, as economists sometimes do. Bernanke's other advantages: he's been confirmed by the Senate for three prior jobs, and he's so moderate politically (or discreet) that close colleagues claimed to have no idea whether he's a Democrat or, as it turned out, a Republican.

The chairman-designate was raised in rural South Carolina. As a teenager he worked briefly as a waiter at the South of the Border tourist trap on Interstate 95. Early on, says his father, Philip, the town's pharmacist, it was clear "he was destined for something greater than a small-town drugstore." At Harvard he discovered economics and spent hours at a mainframe computer, tinkering with natural-gas pricing models for his senior thesis. His adviser, Harvard economist Dale Jorgenson, notes the irony: when Jorgenson visited the Fed last month, natural-gas pricing was again a hot topic. As a doctoral student at MIT in the late 1970s, Bernanke became focused on the causes of the Great Depression. After earning his Ph.D., he continued that research for a decade. "I guess I am a Great Depression buff, the way some people are Civil War buffs," he later wrote. "To understand the Great Depression is the Holy Grail of macroeconomics."

It's also great preparation for running a central bank. That's partly why, after long stints as a professor at Stanford and Princeton, he was tapped in 2002 by the Bush administration to serve as one of seven Federal Reserve governors. There, as Greenspan & Co. furiously cut interest rates in the wake of the dot-com crash, Bernanke began speaking out about a different concern: deflation. As the Fed moved short-term rates toward 1 percent--a historic low--Bernanke worried that if the economy slowed and prices began falling, the United States might encounter the stagnation faced by Japan in the 1990s. …