Yesterday, Paul Krugman took another step on his journey from esteemed academic to banal journalist. In the New York Times, he produced a short and nasty piece on the departure of two highly respected central bankers, Axel Weber of the Bundesbank and Kevin Warsh, of the Federal Reserve.
Here is what Krugman had to say:
I have to say that Axel Weber has bowed out of the race for ECB head gracefully; but this isn’t really about the person, it’s about the views. And I am therefore glad to hear both that he won’t be taking the job, and that the reason he bowed out was that euro-area leaders didn’t share his hard-money views. Tightening in Europe in the face of continuing very high unemployment and low core inflation is a very bad idea.
In a somewhat similar vein, I wish Kevin Warsh all the best in his future career — and I’m glad to see someone who believes that both monetary and fiscal policy should tighten to head off fears the market doesn’t even have off the Fed board.
Not a bad few days for future policy prospects.
The departure of Weber is real loss. If he had been appointed as head of the ECB, there was a strong chance he would have remodelled the bank on the lines of the old Bundesbank. The focus would have been on price stability and not on the current ECB fiscal obsession of bailing out weak peripheral members of the Eurozone. When Trichet leaves the ECB later this year, eurozone members will have a hard time finding a replacement that could have matched Weber.
Likewise, Warsh didn't buy into Bernanke's policy of quantitative easing and purchasing crappy mortgage assets from US banks. He believed that these actions would do little to resolve the growing economic difficulties of the US economy.
Still, Krugman seems happy. There are now fewer cautious voices within monetary policy circles, both in Europe and the States.