Which is more important, education or experience? This question arose this week in the Senate grilling of John Roberts, the president’s nominee to replace the late Chief Justice William Rehnquist. Did Roberts’ lack of experience with Congress, for example, make him less sensitive to that branch’s legitimate prerogatives?
Such issues may arise again soon when the Senate must confirm a new chair of the Federal Reserve’s Board of Governors. What is more important to formulating successful monetary policies, profound study of economics or years of experience in business or finance? What about experience working in the executive branch versus writing scholarly articles?
These are important questions. In the long run, who chairs the Federal Reserve may affect U.S. families more profoundly than who sits on the Supreme Court. Unfortunately, history gives no clear insights on the relative importance of education, experience and research for success as a Fed chair.
One can find individuals all along the scale. A business owner, Marriner Eccles, was the first person to chair the Fed board in its current incarnation. As a member of Congress from Utah, Eccles recognized the Fed had failed badly in the Great Depression. He helped impel the 1935 restructuring that created the institution we know today.
Eccles was bright and successful in business. He did not have a college degree or any formal education in economics. But his insights on how the Fed had failed came closer to the mark than did most professors or Wall Street financiers. Eccles’ role in restructuring the Fed constituted a profound service to the nation, but his record as chair was mixed at best. Bitter infighting late in his tenure drowned out earlier accomplishments.
In contrast to Eccles, William McChesney Martin, the longest-serving Fed chair, had a Yale B.A. But while he took some econ courses, his major was English. In 1938, after a few years at a brokerage firm, Martin was chosen to head — and clean up — the New York Stock Exchange. He moved to posts at the U.S. Treasury and heading the Export-Import Bank before Harry Truman nominated him to chair the Fed at age 44.
Martin was not trained as an economist and never wrote academic books or scholarly journal articles. But in many ways he was the most important chair the Fed ever had, establishing the central bank’s operational independence over the administrations of five presidents.
His successor was Arthur Burns, the most accomplished economist ever to head the Fed and the one who oversaw its greatest failure. Burns was a professor at Columbia, an early mentor to Milton Friedman, the head of the National Bureau of Economic Research and a president of the American Economic Association. A pre-eminent scholar of money and banking, he also headed President Eisenhower’s Council of Economic Advisors for three years.
During Burns’ eight years at the Fed, inflation averaged nearly seven percent per year. There is not much else to say. Any time a nation’s prices triple in 15 years, its central bank has failed, pure and simple.
However, Burns can share blame with the most successful business executive to chair the Board. With a law degree from Berkeley, G. William Miller rose to chairman and CEO of Textron, Inc. Laboring under the misconception that his job simply was to obey Jimmy Carter, the president who appointed him, Miller’s 17 months as chair stands as the shortest and most inept term in Fed history. Ironically, the outbreak of inflation under his leadership contributed to his boss losing the 1980 election.
Paul Volcker and Alan Greenspan both studied economics, with Greenspan completing a Ph.D. in his 50s. Both had executive branch experience, Volcker at Treasury and Greenspan as head of the Council of Economic Advisors for Gerald Ford.
Volcker served for years in the Fed system, rising to president of the New York Fed before Jimmy Carter named him chair in 1979. Greenspan established a successful business as a Wall Street consultant. Neither enjoyed any particular reputation among academic economists.
Volcker cleaned up the mess that Burns and Miller had created. The full verdict on Greenspan won’t be in for a few years, but the U.S. economy clearly performed better during his 18-year tenure than in the preceding two decades.
Martin Feldstein, Ben Bernanke and Glenn Hubbard are the names that appear most often on lists of possible nominees to replace Greenspan. All are career academics, with Feldstein the most distinguished. All have some executive branch experience. None have worked extensively in industry or on Wall Street. How the eventual nominee will succeed is anyone’s guess.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.