The King of the Wonks comes to his throne: nothing can go wrong. Can it?

Three distinct breeds of people inhabit the corridor that stretches between Washington, New York and Boston: pols, geeks and wonks. The pols are the professional politicians, who live by polls and votes. The geeks are the professional academics, whose cerebral lives are untainted by considerations of popularity or practicability. Only the wonks try to straddle both worlds, with one foot in the beltway and the other in the campus. They are the professors who do policy. And they are taking over the world.

Last week an arch-wonk, Ben Bernanke, was nominated by President Bush to be the next Chairman of the Federal Reserve, in succession to Alan Greenspan. The Fed Chairman is generally regarded, at least by those who earn their crusts in financial markets, as the most powerful man in the world. He is the man the masters of the universe call "master". For he has the magical power to set American interest rates. An unexpected move up or down by the Fed can ruin or enrich a bold trader in a matter of seconds. The rest of us may be affected less dramatically. But we are affected just the same.

Bear in mind that US interest rate movements have an impact not just on the mortgage payments Americans have to make. Because of the strong links between the US and UK economies, they affect British households too. (For example: If the Fed hikes and the Bank of England doesn't, sterling is likely to weaken as capital chases the higher rates on the other side of the Atlantic. That can push up British import prices and hence inflation, forcing the Bank ultimately to follow the Fed's lead.)

Small wonder the Fed chairman's every utterance is scrutinised as if he were the oracle at Delphi. To some, indeed, he is more than an oracle. I have it on good authority that during the heady years of the late 1990s, bond traders at one leading London financial institution used to chant: "The Fed is God."

Well, with effect from next year, God will be a bearded ex-Prince-ton professor. And judging by the financial markets' unfazed reaction to his nomination, the faithful are content with the President's choice - in marked contrast to his recent ill-judged and ill-fated nomination of Harriet Miers to the Supreme Court.

The markets have good reason to be happy. With his straight-As at high school, his BA from Harvard (summa cum laude, of course), his PhD from the Massachusetts Institute of Technology and his string of stellar publications, Ben Bernanke is no ordinary wonk. He is an ?ber-wonk.

As a confirmed geek, I can assure you that Bernanke's recent papers (Monetary Policy in a Data-Rich Environment, Monetary Policy and Asset Price Volatility and Inflation Targeting: A New Framework for Monetary Policy?) are the real deal. No one has thought more deeply about modern monetary policy-making than this guy.

No one, that is, except our own Mervyn King, the Governor of the Bank of England, who used to be Professor of Economics at the London School of Economics. King was at Cambridge and did his PhD at Harvard. (Given that he is five years Bernanke's senior, he may even have taught him.) Their counterparts at the European Central Bank and the Bank of Japan must feel a little intimidated at central banking get-togethers. So far as I know, neither made it to Harvard, much less to a tenured chair.

In many ways it is a good thing that the monetary policies of two of the world's most important economies should be in the hands of such eminently well-qualified men.

Compare the central bankers with their counterparts at the world's finance ministries, who are generally hardened pols or, worse, the cronies of hardened pols. To become Chancellor of the Exchequer, Gordon Brown did not have to sit any examinations in public finance. He had to slog his way up through the ranks of the Labour Party, from student politics to a seat in the House of Commons, to a junior shadow post, to the front bench and finally to the big time.

When, not long after his appointment as Chancellor, Mr Brown tried to pontificate about "endogenous growth theory", everyone hooted with laughter. It was obvious the line had been inserted in his speech by his pet wonk, Ed Balls. Chancellors are not supposed to know about such stuff themselves. Their business in drawing up a budget is to strike the right balance between bribing the electorate and conciliating the financial markets. It is a dark art, not a science.

So would it not be better if our finance ministers were also wonks, like our central bankers? Perhaps. If you think Mr Brown was right to restore the "operational independence" of the Bank of England in 1997, why should he not make HM Treasury independent too? If the setting of interest rates and levels of bank reserves is too important to be left to pols and their cronies, isn't the same true of the setting of tax rates and levels of expenditure?

On that basis, of course, you could end up handing everything over to the wonks. The result might be an ideal Platonic form of government - rule by an enlightened, omniscient elite. On the other hand, it would be a technocracy, not a democracy. In any case, are we absolutely sure the wonks know what they're doing?

This is not the first era in modern history when monetary policy has been entrusted to unelected technocrats. In the 1920s, the world's principal central banks were run by a group of wise men, some of whom made no secret of their impatience with democratic institutions. Montagu Norman at the Bank of England, Hjalmar Schacht at the German Reichsbank, and Benjamin Strong at the Federal Reserve managed the international monetary system in a state of blissful independence from political constraints.

Yet what happened? Disastrous blunders (admittedly after Strong's death and Schacht's resignation) turned a US recession into the global Great Depression. As one economy after another fell off a cliff, central bankers almost without exception urged that interest rates be raised rather than lowered. Only a handful of wonks - John Maynard Keynes among them - understood that the gold standard was a "barbarous relic" and that floating currencies were the only way to counter deflation. Alas, Keynes was a geek at the time. As a rule, he only wonked in wartime.

Happily, Ben Bernanke is an expert on the subject of what went wrong in the Great Depression, having co-written at least two learned articles on the subject. Back in 2002 he argued that the Fed should be prepared to do everything in its power to prevent a recurrence of deflation - if necessary dropping banknotes out of helicopters to encourage people to spend.

Deflation now seems less of a threat than a recurrence of inflation, with US consumer prices rising last month at an alarming annual rate of 4.7 per cent. The last acts of Greenspan's chairmanship are therefore likely to be further rate increases. But no one - not even brainy Ben - knows how high will be enough.

Ordinary American households have never been more highly geared. And each tiny movement upwards in interest rates exerts a serious squeeze on their disposable incomes, as their mortgage and credit card payments leap higher. It would be very, very easy for the Fed to overshoot, just as it undershot in the late Nineties.

So we should be cautiously grateful that President Bush has nominated Ben Bernanke as Alan Greenspan's successor. When it comes to monetary policy, a wonk is generally preferable to a pol - and always preferable to a crony. After the Harriet Miers fiasco, I was fully expecting Bush to propose the manager of his local bank in Crawford, if not his favourite horse.

But let us not forget that wonks are fallible too. Theories that seem persuasive in the classroom may turn out to be disastrous in practice.

If his nomination is confirmed, Mr Bernanke will soon have the chance to put his own theories to the test. It is a test like no other. The laboratory is the world economy. And we, the people - not the wonks, nor pols, nor geeks - are the guinea pigs. Let's hope those theories of his work as well as they read.
 

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