October 25, 2005
Fed
Chief No Job For an Ideologue
By E.
J. Dionne Jr.
WASHINGTON
-- You would like to hope that the new chairman of the Federal
Reserve Board would learn not only from Alan Greenspan's successes
but also from his failures. There is reason to worry that having
a Fed chairman so close to President Bush's policymaking apparatus
will give us something other than the best of these two worlds.
In picking
Ben Bernanke, the chairman of his Council of Economic Advisers,
to replace Greenspan, Bush has not chosen a classic crony. Bernanke
has ample academic and policy credentials and served on the Fed's
board of governors for nearly three years before taking his White
House post in June.
But a Fed
chairman is supposed to serve the whole economy and transcend
the interests and policy predispositions of a particular administration.
The Senate will need to press Bernanke hard to find out how he
will manage this.
When former
President Clinton renominated Greenspan in 1996 and again in 2000,
Clinton knew he was sticking with a libertarian conservative whose
political views were often at odds with the administration's own.
Clinton stuck with Greenspan because of the chairman's practical
side. The economy boomed in the 1990s, and Clinton wanted to stick
with success.
There was
also this about Greenspan: When it came to managing interest rates,
he was largely an empiricist paying attention to facts even more
than he was an ideologue peddling theories. He could admit that
the new economy could be something of a mystery to him, and he
could learn from mistakes.
In the early
1990s, he put the brakes on the economy too hard, fearing inflation
and speeding a downturn. Greenspan came to see that inflation
was far less of a threat in the new economy than did many of his
fellow conservatives -- and some of his European central banking
brethren. He let the economy grow faster, and inflation was kept
at bay.
That was
the side of Greenspan that won him comparisons with the Almighty.
In fact, he didn't get everything as right as we now remember.
In retrospect, he could have done more to ease the negative effects
of the stock market bubble he was warning against. We may come
to wonder about the housing bubble as well. Still, we have pretty
fond memories of the Clinton-Greenspan-Robert Rubin economy.
But Greenspan
never lost his ideological side. When Bush took office, Greenspan,
in an act that will always mar his tenure, suggested that there
was ample room for the tax cuts Bush favored, that there might
be terrible problems from paying off the debt too quickly. Greenspan
became the great enabler of Bush tax policies that have now produced
massive deficits -- which Greenspan now dutifully condemns. When
the great mechanic gave way to the flawed policymaker, the results
were less than pleasing.
And that
is why Bernanke gives us all reason for concern. Just last Thursday,
there he was, telling Congress' Joint Economic Committee that
the initial Bush tax cuts had ``increased disposable income for
all taxpayers, supporting consumer confidence and spending while
increasing incentives for work and entrepreneurship.'' Later tax
cuts, he said, ``provided incentives for businesses to expand
their capital investments and reduced the cost of capital by lowering
tax rates on dividends and capital gains.''
Well, a
Bush appointee would say that, wouldn't he? But this is a terribly
rosy view of reality. Consumer confidence has actually been going
down. Disposable income is not going up for everyone (just ask
General Motors employees and retirees). And Bernanke is a fan
of explicit inflation targets, which Greenspan rejected in favor
of a more pragmatic approach. Would inflation targets unduly hamper
growth?
When Bush
announced his appointment on Monday, Bernanke was careful to emphasize
his desire to ``maintain continuity'' with Greenspan's policies.
He also implied he would be independent by stressing he would
play his role in the economy in cooperation with his Federal Reserve
colleagues -- pointedly not mentioning the White House.
He is thus
aware of the main line of questioning he will -- and should --
face from the Senate: What does he see as the best parts of the
Greenspan legacy, and is he in the thrall of the same economic
ideology that has animated the president who appointed him?
This nomination
ought to spur a broad debate on the future of the economy and
globalization that pays attention not just to what ``the markets''
are thinking but also to what is happening to Americans who do
not find themselves at the top of the heap. A Fed chairman who
beats inflation at the cost of middle-income living standards
will not be regarded as a success.
©
2005, Washington Post Writers Group
