Both men’s styles of leadership were influenced, as one might expect, by their previous careers. Before entering into the government, former Chairman Greenspan was the head of a private economic consulting business. Chairman Bernanke was a professor at Princeton. The contrast of a career in private industry versus academia is huge. This contrast in leadership styles has become evident in the short period of time Chairman Bernanke has been in office.
As we have discussed in earlier FYIs, the Federal Open Market Committee (FOMC) meets eight times a year. At each meeting a discussion of the current economy and the desired direction of interest rates are discussed. In accordance with the Federal Reserve Act of 1913, the Federal Reserve is charged with monitoring both inflation and the economy. If we can believe the reports of how these meetings are conducted, the contrast in leadership becomes apparent. Having never had the privilege of actually attending an FOMC meeting, the following is only what I have read. It has been written that after the discussion is over and it comes time to vote, former Chairman Greenspan would go first and express his feelings. Chairman Bernanke is reported to ask the other members to express their concerns and then after he has heard everyone, he gives his opinion.
There it is in a nut shell, the consultant versus the professor. The consultant takes into consideration the research of his staff, but he or she has done their own research and has reached their own conclusion. The professor is more inclined to want to hear what the group has to say in a collegial atmosphere. The one obvious result of this differing style is in the number of times the vote has not been unanimous. As would be expected, it appears to be much more common under Bernanke’s leadership.
Merrill Lynch did a comparison of the make-up of the Federal Reserve and found that “The Bernanke-led Fed is filled with academics; of the 519 years of total work experience of the 17 members, 448 of these years were filled doing time either in academia or in government. That means that 86 % of their experience has come from the ivory tower of the public sector or quasi-public sector life; only a puny 71 years or 14% of experience from the private sector.” Now even if the Greenspan-led Fed had a similar make-up, the bottom line is it goes back to the contrast in leadership of these two very powerful Chairmen. Only time will tell if one style is more preferential over the other.
As Merrill Lynch said at the end of the study, “I’m not sure how you can trade off of this information, but to me it certainly is interesting.”
P.S. As a follow-up to former Chairman Greenspan, it was announced on May 16 that he had signed the first consulting client for his new firm, 15 months after he retired from the Federal Reserve. It is Pacific Management Co. (PIMCO.) PIMCO is the home of the largest fund and also the home to Bill Gross, the rather outspoken Chief Investment Officer.
