Now that Herman Cain has withdrawn from consideration for a post as a governor of the Federal Reserve, the question arises: Who will President Donald Trump nominate next? There are a lot of names being bandied about, but I thought it might be more useful to return to first principles and think through the requirements for the job.
First, we should not forget that the Federal Reserve system is actually a private corporation of sorts, albeit one with a unique government-backed charter. So if you are on the board of the Fed, you are not just a figurehead — you are responsible for parts of the company. You could be in charge of the Fed’s pension and benefit plans, for instance, or its payments system.
To be sure, running monetary policy for the entire nation, and to some extent the entire world, is more important than the smooth internal workings of the Fed. Still, those managerial responsibilities will impinge on a board member on a regular basis. If he or she screws them up, it will be harder to have high status within the Fed, and harder to keep one’s confidence and emotional equilibrium. Alternatively, a governor might become completely dependent on aides to perform those internal practical functions. That is not conducive toward broader autonomy on monetary policy front, either.
The bottom line is this: A good candidate for the Fed should have at least some practical managerial experience. You don’t have to be the next Bill Gates or Steve Jobs, but you should be just competent enough to forestall internal crises of bad management and to avoid losing face. For a lot of potential candidates, that is actually a pretty tall order, especially if they come from academia or have unorthodox backgrounds unrelated to finance.
Second, a Fed governor will have to meet regularly with peers from central banks of other nations. Even if you feel those meetings are bureaucratic and largely ceremonial, you need to appreciate that people who rise to positions of high status in any bureaucracy are usually those who can serve basic practical functions with at least a modicum of competence. In this case, that means a good Fed pick should be a reasonable diplomat and have some measure of gravitas.
In addition, the candidate should have high credibility with other Fed board members, most of all the chair. Otherwise, it is hard to have much influence over monetary or regulatory policy.
Keep in mind that there is a strong strategic element to Federal Reserve voting. As in many small group settings, you don’t always just vote what you think. You may avoid expressing a dissent that, at least in the moment, has no chance of winning, because to lose a vote is also to lose status. So you might bide your time, hoping over the longer run to build more credibility and to persuade others to come around to your point of view. That again requires political, diplomatic and practical skills.
A board member also may be asked to speak to the media or deal with Congress, usually with the goal of maintaining or boosting the Fed’s credibility and independence. This is another task that requires strong political skills, and the personal and institutional costs of an error can be pretty high.
Of course the next board member will also be expected to have well-informed views, however you might define them, on monetary policy and regulation. But it would be a mistake to start with a set of agreeable or required views, and then use it to build a short list of advocates. It bears repeating: For a board member to be effective, political and bureaucratic skills are paramount. Without them, a board member may well end up as counterproductive, even when correct.
Finally, a good choice for the Fed should probably be considered a little boring. He or she should not provoke too much discussion or trend too often on Twitter. An essential requirement for the job is knowing how to work well behind the scenes, and when not to grab the spotlight.
I am genuinely uncertain which direction Trump will take with his next pick for the Fed. But if, after the announcement, I am not exactly sure how happy I am — well, then perhaps I should feel very happy indeed. It would be a sign that the candidate has mastered some of the necessary arts of ambiguity, exactly as the job requires.