With all the bad things going on, it’s refreshing to come across a news report that makes you spontaneously laugh. That happened to me Thursday when Reuters quoted a White House spokeswoman saying President Bush “has a great deal of confidence” in Fed chairman Alan Greenspan.
For those who didn’t hear, Greenspan in congressional testimony earlier in the week criticized Bush’s tax cut proposals and expressed concern about mounting budget deficits. The Reuters story cited unnamed Bush supporters asserting that Greenspan’s “stance may have jeopardized his shot at a new term in 2004.” The president’s press rep added a touch of surrealism by declining to say whether the president would reappoint Greenspan.
I doubt Greenspan worries much about whether Bush has confidence in him. In a few weeks, Greenspan will celebrate his 79th birthday, and in August he’ll complete 16 years as Fed chair. That’s more than twice as long as the great Paul Volcker held the post and within striking distance of the record 18 years of William McChesney Martin.
Greenspan’s place in history won’t depend on what Bush says or does. Rather, Bush needs Greenspan’s approval much more than Greenspan needs his.
Presidents appoint chairs of the Federal Reserve Board just as they do cabinet secretaries. Do Fed chairs thus owe presidents anything?
Clearly not. The Fed chairmanship is more like a judgeship than a cabinet post. Presidents appoint judges, but once they’re in, judges must serve the nation honestly. If a federal judge tailored a ruling to please the president, citizens would and should be outraged. The same is true for the Fed chair and all the Fed governors. This principle is clear in the Federal Reserve Act and the oath that governors take.
Some presidents apparently do not understand it very well. Ronald Reagan expected Fed governors to toe his administration’s line. In “The Confidence Game,” author Steve Solomon relates how Reagan administration officials were infuriated when Volcker refused to follow them. In the end, Volcker effectively stepped down when he refused to kowtow to the Reagan bunch to secure reappointment. The ensuing 15 years have only burnished Volcker’s record while Reagan officials Don Regan and James Baker still look petty.
The first President Bush complained about Greenspan after losing to Bill Clinton in 1992. “I appointed him and he disappointed me,” Bush said of Greenspan. Whatever one thinks of Greenspan’s policies, he doesn’t owe any of the presidents he served — Reagan, Bush, Clinton and Bush — more than he owes you or me.
In an ironic turn, George W. Bush now finds himself in the same quandary with Greenspan that his father was. The first Bush didn’t want to reappoint Greenspan in 1992, preferring someone more pliable. His lieutenants leaked numerous comments that someone else was under consideration.
Wall Street and corporate leaders made it clear that appointing someone else would undermine confidence in U.S. economic policy, raise interest rates, weaken the dollar and slow the economy. The first Bush was thus forced to reappoint Greenspan and looked foolish for considering others.
Now his son is in the same position. Support for this Bush is slipping on Wall Street and in corporate boardrooms. Defense Secretary Donald Rumsfeld’s adolescent truculence may play well in the far right wing of the Republican party, but most major U.S. corporations depend on good relations in Europe and Asia.
The feckless way the Bush administration squandered relations with important allies and trading partners around the 9/11 attacks is costing it support with corporate leaders.
Nor does the administration’s naive disregard for budget deficits go over well in corporate boardrooms. Paul O’Neill and John Snow were CEOs with reputations as outspoken deficit hawks before agreeing to serve as Treasury chiefs in this Bush administration. Their anti-deficit views represent the stance of corporate CEOs more than the ones they had to parrot in the Bush cabinet.
Greenspan’s term ends next year, a few months before Bush faces re-election. Like his father, he may be forced to reappoint Greenspan because not doing so would rile the markets.
Even if Greenspan retires, Bush will be in a tough spot. Unless economic and foreign policy miracles occur before then, he’ll be naming a Fed chair in mid-campaign, while the economy is still troubled and relations with other industrialized countries are tense.
Naming someone like former Fed governor Wayne Angell, a hero to the economic flat-earth crowd that has the ear of presidential adviser Karl Rove, will throw the bond and stock markets into a tizzy. Bush’s only option will be to find someone like Greenspan. Maybe he should talk to those Raelians about human cloning.
Yes, the wealthy class generally welcomes lower taxes. But it is becoming clear to many CEOs and investment bankers that Bush is a lightweight in foreign policy and maladroit on the economy. They see that as bad for their firms.
Leaders on Wall Street and in large corporations are almost all internationalists in the mold of Dean Acheson, Averill Harriman, Douglas Dillon and Paul Warburg.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.