1.27.2005
Picturing Succession at the Federal Reserve (IHT.com)
Paul Krugman
The New York Times
Wednesday, January 26, 2005
PRINCETON, New Jersey Alan Greenspan, the Federal Reserve chairman, is expected to retire next year. The Bush administration, because of its nature, will have a hard time finding a successor.
One Fed chairman famously described his job as being to "take away the punch bowl just when the party gets going." Bond and currency markets want monetary policy in the hands of someone who will say no to politicians. When a country's central banker is suspected of having insufficient spine, the result is higher interest rates and a weaker currency.
Today it's even more crucial than usual that the Fed chairman have the markets' trust. The United States is running record budget and trade deficits, and the foreigners we depend on to cover those deficits are losing faith. According to Monday's Financial Times, central banks around the world have already started shifting into euros. If Greenspan is replaced with someone who looks like a partisan hack, capital will rush to the exits, the dollar will plunge, and interest rates will soar.
Yet George W. Bush, as you may have noticed, only appoints yes-men (or yes-women). This is most obvious on the national security front, but it's equally true with regard to economic policy. The current Treasury secretary has no obvious qualifications other than loyalty. The new head of the National Economic Council apparently got the job because he is a Bush classmate and fund-raiser.
Of course, Greenspan himself has become a Bush yes-man. When Democrats held the White House, the chairman acted as a stern father figure, demanding fiscal rectitude. But he turned into an indulgent uncle when Bush took office. First, he urged Congress to cut taxes in order, he said, to prevent an excessively large budget surplus. Then, when surpluses were replaced by huge deficits, he supported a highly irresponsible second round of tax cuts.
Paul Krugman: Picturing succession at the Federal Reserve ¶ 11:31
The New York Times
Wednesday, January 26, 2005
PRINCETON, New Jersey Alan Greenspan, the Federal Reserve chairman, is expected to retire next year. The Bush administration, because of its nature, will have a hard time finding a successor.
One Fed chairman famously described his job as being to "take away the punch bowl just when the party gets going." Bond and currency markets want monetary policy in the hands of someone who will say no to politicians. When a country's central banker is suspected of having insufficient spine, the result is higher interest rates and a weaker currency.
Today it's even more crucial than usual that the Fed chairman have the markets' trust. The United States is running record budget and trade deficits, and the foreigners we depend on to cover those deficits are losing faith. According to Monday's Financial Times, central banks around the world have already started shifting into euros. If Greenspan is replaced with someone who looks like a partisan hack, capital will rush to the exits, the dollar will plunge, and interest rates will soar.
Yet George W. Bush, as you may have noticed, only appoints yes-men (or yes-women). This is most obvious on the national security front, but it's equally true with regard to economic policy. The current Treasury secretary has no obvious qualifications other than loyalty. The new head of the National Economic Council apparently got the job because he is a Bush classmate and fund-raiser.
Of course, Greenspan himself has become a Bush yes-man. When Democrats held the White House, the chairman acted as a stern father figure, demanding fiscal rectitude. But he turned into an indulgent uncle when Bush took office. First, he urged Congress to cut taxes in order, he said, to prevent an excessively large budget surplus. Then, when surpluses were replaced by huge deficits, he supported a highly irresponsible second round of tax cuts.
Paul Krugman: Picturing succession at the Federal Reserve ¶ 11:31
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This complaint is rich coming from Krugman- one of the worst yes-men in the history of DC and economic policy. He did not get to be house economic genius at the NY Times by being an independent thinker on economics- but rather a tool of the Clintonites.
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