Only time will tell whether President Bush eventually will regard Ben Bernanke as a traitor. But if history is a guide, the next Fed chairman will disappoint the president in a significant way.
Some pundits worry that Bernanke is too beholden to Bush. Despite his previous service heading Bush’s Council of Economic Advisers, Bernanke is not likely to do any favors for the president that conflict with what he sees as good for the nation. But he’s not likely to actively criticize administration or congressional policy positions, either.
Presidential disenchantment with Federal Reserve Board appointees is common. William McChesney Martin, Harry Truman’s appointee to the Fed, so angered Truman that he called Martin a “traitor.”
In 1979, Jimmy Carter appointed Paul Volcker as Fed chairman. Volcker promptly led a constriction of money growth to curb inflation that helped cost Carter the 1980 election.
George H.W. Bush grudgingly named Alan Greenspan to a full 14-year term after he finished an unexpired term. He was not enthusiastic about Greenspan, preferring someone more malleable. Greenspan presided over interest rate rises that hurt Bush’s 1992 re-election effort. As Bush famously put it, “I appointed him and he disappointed me.”
Presidents Eisenhower, Kennedy, Johnson, Ford and Clinton never could feel “betrayed” by a Fed chair because the position never came open during their terms. All but Clinton, however, were angered at one time or another by Fed decisions.
Reagan, who had to live with Carter-appointee Volcker for all but one year of his eight in office, was not happy with the Fed chairman’s courageous independence. He appointed other Fed governors with the specific aim of thwarting Volcker’s leadership. Only Nixon, who appointed the highly qualified Arthur Burns, had no visible beefs with Fed policy. Ironically, Burns presided over the greatest peacetime acceleration of inflation in the history of the country. He stood by silently as Nixon stoked the economy with pre-election deficit spending while cynically keeping the lid on measured inflation with wage and price controls.
What will this mean for the next Fed chairman? Bernanke is likely to follow precedents of independence set by Martin and Volcker. He is a good scholar with little history of overt political partisanship.
Don’t expect him to rock the boat with early, visible changes in Fed policy. Don’t think he will pull any punches out of consideration for the Bush administration or Republican congressional candidates in 2006. Now that he is back at the Fed, don’t expect him to endorse large budget deficits or come-what-may tax cuts.
But don’t expect him to use his chair as a bully pulpit to criticize such policies either. If Alan Greenspan had any fault, it was his willingness, particularly late in his tenure, to opine on matters ranging from natural gas policy to tax cuts that fall outside the purview of monetary policy. Bernanke is prudent and not likely to repeat that mistake.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.