What Do the Bushies Want in a Fed Chair?

The New York Times editorial board finally starts to get how bad a thing it is that George W. Bush is president:

The Next Alan Greenspan - New York Times : The job of chairman of the Federal Reserve Board is one of the biggest and most important in Washington, and given President Bush's record of appointing his pals to fill every position from Supreme Court justice to director of the Federal Emergency Management Agency, it's small wonder there is a lot of fretting about who will be tapped to succeed Alan Greenspan.... [T]his is... the same man who... believes that Harriet Miers, his onetime personal lawyer and present White House counsel, who has never been a judge, is the most qualified of all the people in the United States to be a Supreme Court justice. The president's aides have made it clear that he wants someone at the Fed with whom he can have a rapport. That should be the last thing on the president's mind for this job, but we know from bitter experience that Mr. Bush often places feeling comfortable with an appointee above actual competence. It's just that kind of thinking that landed America with Michael Brown at FEMA and John Snow at the Treasury Department.

Mr. Snow's lackluster tenure at the Treasury, in particular, says a lot about Mr. Bush's detachment from economic policy. The hapless Mr. Snow, who thankfully is on no one's list for Fed chairman, remains completely removed from any real policy making within the administration. His biggest role at the Treasury has been as cheerleader for Mr. Bush's tax cuts and salesman for his misbegotten plan to privatize Social Security.

The four names circulating around Washington are Martin Feldstein, a Bush adviser on Social Security and an economics professor at Harvard; Glenn Hubbard, Mr. Bush's former chairman of the Council of Economic Advisers and now dean of Columbia University Business School; Lawrence Lindsey, the former director of the White House National Economic Council; and Ben Bernanke, chairman of the Council of Economic Advisers.

Two of them - Mr. Bernanke and Mr. Feldstein - come with some independent credentials. Mr. Bernanke is deeply conservative, economists say, but respected for independent thinking and not inclined to wear that conservatism on his sleeve. Mr. Feldstein has pushed for Social Security privatization, but in the past criticized deficits run up by Ronald Reagan, for whom he was working at the time, to the everlasting ire of many Republicans. That hardly makes him a shoo-in for the job, but those are exactly the independent traits that Mr. Bush should be looking for if he is indeed serious about appointing a Fed chairman who isn't politically beholden to the White House....

But there are strange whispers coming out of the White House: that the White House wants a Fed Chair who not only has a "rapport" with Bush but also is a non-academic who "knows the markets"--like, they say, Greenspan does.

I have a bad feeling about this. Experience teaches that the Bush administration is worse than we imagine--even after taking account of the fact that the Bush adminisntration is worse than we imagine.

Comments

[Winslow R.]

So Brad if you were chosen as chairman or put on Hillary's CEA would you support tanking the economy through interest rate hikes to save the U.S. dollar from inflation?

[Barkley Rosser]

I have no idea what Bush will do, although there was a statemnt by him publicly a few days ago about how he needed to get someone who would not scare the financial markets. This is not like the supreme court where there is an advantage in having stealth nominees so you can avoid a showdown over abortion. Nobody is itching to have a showdown over inflation targeting versus the Taylor rule versus monetarism. They want someone unscary. This might actually help a bit.

Offhand, would it not be better to have someone with some experience in monetary and financial economics? That would say Bernanke over either Feldstein or Hubbard, and might put Lindsey ahead of either of those two also, although he seems to support more generally flaky positions. Some scuttlebutt says he has strong supporters in the WH, and once was close to Bush, although he annoyed him by accurately predicting that the Iraq war was going to cost a lot of money.

BTW, does anybody know what John Taylor did to piss off the administration? His name was once low on the list but seems to be completely off. By some lights he is more qualified than any of these, although clearly Greenspan has never been a fan of the Taylor rule.

[thecoach]

Who is Bush's personal accountant or stock broker?

I was under the impression that Bush thought Larry Lindsey was too out of shape for this kind of postion.

Bernanke has so far been dissapointing, but perhaps less so than anything else that has gotten close to the Bush administration.

Following up on Winslow's question, have your thoughts on Hillary! changed at all -- has she learned anything since Hillarycare?

[brad setser]

John Taylor had his chance to impress as Under Secretary for International Affairs over at the Treasury ... he might have been better served if he had opted for the CEA job that went to Hubbard. Int. Affairs is in some ways a minefield for a relatively conservative Republican -- one of Int. affaris "core" functions is deciding whether or not to bail out emerging economies. That really was a no win situation for someone like Taylor. He never really embraced the successes (Brazil, Turkey) in part because he personally was probably uncomfortable with the means (large IMF loans) that brought them about. And then there was Argentina.

Dr. Delong. Any ideas who might "know" the market, have a rapport with Bush and share Cheney's economic philosophy, since Cheney seems in charge of the process?

[kharris]

When Bush says "rapport with" it may very well mean "doesn't make me feel stupid". That certainly seems to be the distinction in the move from O'Neill to Snow. The CIA is also now in the hands of someone who, no matter how much native intelligence he may have, doesn't seem all that interested in putting it to use.

Meirs may be a different case, though I'd wager she has "rapport with" Bush. Speculation is bubbling up that Bush may need a vote on the Court in favor of executive privilege soon. Straight quid pro quo.

[Matthew Saroff]

Hmmm...A toady and sycophant above any competence.

Two words:

BEN STEIN.

That is all.

[wkwillis]

To repeat Winslow's question (sort of), would you formally default on the dollar, make overseas investments in Treasury instruments taxable for an informal default by inducing them to sell out now, or what?
I really don't see a way out. I want to know if you do. I'm an inventor, not an economist, so I do not assume that I am right on the inevitability of a default. I have read Keyne's "On The Economic Consequences Of The Peace" and remember his question on what the Germans were supposed to export to pay off their reparations.

[elliottg]

I would guess that Bernanke must hate his job, his boss, and himself. If he doesn't get the brass ring, what does he do?

[jon livesey]

I assume that the next Fed Chairman has to manage the unwinding of the Balance of Payments Deficit and an orderly decline in the value of the Dollar. As someone who lived through the decline of Sterling from the end of WWII to the beginning of the recovery under Maggie, I'd say that most of the moves are actually dictated by your creditors, who obviously don't want you to default, at least, not until they have sold off their holdings. So I'm not sure it matters all that much who succeeds AG. His job will be to fly around asking China, Japan and Saudi Arabia what he can do and when.

And we should not be too dismayed by the "reparations" history. In 1870 the Germans imposed reparations on the French equal to over one year of income from their Empire, and the French managed to pay it. Then in the twenties the Germans managed to combine defaulting on WWI reparations - Kindleberger estimates that they only ever paid one fouteenth of the total - with a period of strong export-led expansion that only came adrift with the Depression.

The US can screw its creditors, quick or slow, and still be a very attractive export economy at a lower Dollar level. The middle classes won't like what that does to their savings, of course. Er, what savings?

jon.

[Paul Olivetti]

Of course Bush doesn't have the faintest idea what the Federal Reserve does.

But he knows it has something to do with money.

So the obvious choice is his age old family friend, who knows "real good" how to make a lot of money, Ken Lay.

[Rob]

Hmm, lets see who could fit the bill... Well he would have to at least have some credentials though nothing overly huge, would need to be from Texas of course, and someone who believes in permament Republican majority. So lets all welcome Bush's next nominee, Dick Armey!

And again this is very important for the Republican Permament Majority project. The debt needs to be taken care of but raising actual taxes can't happen. So inflation must happen.

[Barkley Rosser]

elliottg,

Bernanke can always retreat to Princeton where he was Dept. Chair and make gobs of money on his successful Principles text with Bob Frank, although not as much as Mankiw who has no coauthors to split the royalties with.

jon livesey,
Unwinding these deficits is really more the province of the Treasury Secretary/President/Congress, although clearly the Fed plays a role. As Brad Setser has noted, and I tend to agree, the pretty capable John Taylor already got burned trying to deal with that mess.
In a functional environment, the Fed Chairman coordinates with the Treasury Secretary and the Under Sercretary of the Treasury for International Affairs. The model for that is the famous "Committee to Save the World" from the 90s when Greenspan, Rubin, and Summers used to meet for lunch on Thursdays, or whenever. One of the reasons O'Neill was picked was because he supposedly had good relations with Greenspan dating back to the Gerald Ford era, when Rummy and Cheney were also fiddling around. It is unclear what kind of communications Greenspan has with either Snow or Adams, with the latter appearing to be singularly incompetent. I also continue to suspect that Taylor has been partly axed by Greenspan, who never liked being told to follow a rule.
Needless to say, this is not a functional environment.

Paul Olivetti,
Rumor has had it that Ken Lay was actually considered for the Treasury Secretary job in 2000.

Rob,
Armey might not be completely out of the picture, although I would suspect that Lindsey would be more likely. Heck, Armey is not a whole lot trimmer than Lindsey!

BTW, for fans of Feldstein, as near as I can tell he has spent the most important parts of his research career being the ultimate flack for social security privatization. Bah!

By a lot of accounts, Hubbbard has very good standing with Rove and Bush, left on a voluntary and friendly note after putting forward the capital gains tax cut proposal, which of course they loved. Like Feldstein he has zero experience with the Fed or monetary economics. But, hey, he looks better than some of the names being thrown around here!

[MacMan]

I go for the hapless guy who is on nobody's list: John Snow. So out of his element that he makes W look engaged. And, he's already been approved once by the Senate.

[Aaron]

If Harriet Miers is confirmed easily, Bush should feel confident enough to nominate his first choice for the job. Jenna.

[GWB]

I'm pleased to announce that I'm putting my wife "Pickles" in charge of the Fed. She's real gud with money and all.

[Hedley Lamarr]

Larry Lindsey is too fat for aWol. How about that guy on CNBC who screams and rants about the set?

[Dan Ryan]

James Glassman (the one at tech central station)..

[Captain Button]

"Experience teaches that the Bush administration is worse than we imagine--even after taking account of the fact that the Bush adminisntration is worse than we imagine."

I think we need to consider that the Bush administration may be worse than we *can* imagine.

(Apologies to the ghost of JBS Haldane)

[still working it out]

In case you missed it Billmon has the best take on this I've seen from anyone yet.

http://billmon.org/archives/002224.html

Something Bush does in the remainder of his term is going to trigger a crisis. Taking into account DeLong's maxim:

"The Bush administration is worse than we imagine--even after taking account of the fact that the Bush adminisntration is worse than we imagine."

that something could well be who he appoints as Fed chair.

[rea]

"Any ideas who might "know" the market, have a rapport with Bush and share Cheney's economic philosophy, since Cheney seems in charge of the process?"

Cheney's in charge of the process? In this adminstration, that suggests that the surprise pick for the job will be . . . Cheney.

[clayton]

Matthew Lesko.

Think about it. Bush isn't much of a reader, so that eliminates just about anyone qualified. He takes frequent catnaps so chances are good he's seen his late night info-commercials on the superstation. He wears a brightly colored riddleresqe suit, something any 5 year old or adult who things like a 5 year old would be drawn to. Seems to know his way around washington, or at least running through the reflecting pool in the National Mall. He knows Bush's fiscal policy well, and could reinforce it with an accomodating monetary policy.
"The government's giving away free money!"

[No von Mises]

Dubya's thought process....

Who's the CEO of Halliburton?

How about Lee Raymond, he's stepping down at Exxon?

David O'Reilly at Chevron?

If Wolfy can move from DoD to the World Bank, can't Rummy make a switch to the Fed? How about former Joint Chiefs Chairman Myers?

Call up dem Lockheed, Northrup boys too. And remember to scratch that guy's name off who was indicted in the DeLay case.

[CB3]

Okay, Well as much as I think it would be fun if Bush nominated someone absurd like Ben Stien it's clear to me that whoever is nominated won't be ridiculous - it'll be someone at least fairly respectable who has at credible qualifications (Econ PhD or masters, Academic or financial market experience, macro policy experience, etc.).

I don't see this being like a Harriet Miers deal where someone completely unqualified is nominated. The reason is that, to this administration at least, the Fed Chairman is a far more important position then a Supreme Court Justice because if someone bad is sent the SC the consequences won't be seen right away. However with the Fed, if Bush sends someone rediculous whose obviously an unqualified toady and the financial markets don't trust him the negative consequences will quickly become apparent as the financial markets freak out. A poor appointment here, I believe, could completely doom the Bush Administration - so I don't think they'll take this lightly. I bet Rove or Cheney will be the guys who actually do the selecting - can't leave something like this up to Bush.

[bakho]

How about Neil Bush? He has banking experience with Siverado. He would probably be a good crony.

I thought Larry Lindsay was on the "Do not call" list.

[still working it out]

I'm not sure that the consequences of a bad appointment would hold Bush back from making a bad choice. He seems to have a strong need to be in control. Hence he consider's someone's loyalty before their capabilities when making appointments.

The Fed chairman choice is much more important to get right, but the Fed chairmant will probably be the most powerful person Bush ever appoints. Bush will have a greater need to feel this person is personally loyal to him.

[Barkley Rosser]

If it is loyalty uber alles within the constraint of not completely freaking out the financial markets, then it will be Hubbard. Kohn does not have a chance, despite Greenspan's favoring him. However, Bernanke is more qualified than Hubbard.

[CB3]

I completely agree Hubbard is by far the most likely candidate. Hubbard also has a recognizable name and academic qualifications so, as I said, the appointment won't be ridiculous. Obviously the new Chairman is going to be someone who is likely to publically support the administration but I'm 99% certain we're not going to see another outrageous, purely cronyist appointment. This is going to be a real test of Bush's ability to keep the business end of the Republicans on side. If he fails world financial markets will panic and the administration will enter a very rapid downward spiral - a bad outcome will be very visiable very quickly and I think Bush's decision will very much guided by Rove/Cheney.

Now on the other hand I'd love nothing more then for Bush to put forward another crony with no qualification except some business school training and a job as a Republican fundraiser - if only it didn't have real longterm consequences on the real world.

[Pancho Villa]

"Kindleberger estimates that they only ever paid one fouteenth of the total"

Thought it was one eigth of the total

[a]

Hasn't Bernanke been brought into the Administration precisely to see if he can pass the comfort test? If he passes, then he gets the job...

[Ken Houghton]

I can't believe you've all overlooked the obvious choice: Jack Welch.

Lacking that, whoever is doing the search--probably Andrew Card.

[brad setser]

I also tend to think it will go to Hubbard -- he impressed "deficits do not matter" Cheney with a deficits do not matter plan to cut taxes on investment income ... and he left on good terms with rove, etc. Either that or a major Wall Street banker friendly with Cheney.

Barkley. Read Paul Blustein's account of Argentina. Title is something like "And the money kept rolling in (and out)." Taylor had a very difficult job -- since in theory he was the one who had to come up with a plan for argentina, and any realistic plan (in my view) required getting argentina off the peg, some kind of restructuring and a big imf loan. All three components of that plan meant taking on parts of republican orthodoxy -- the first the WSJ pro dollarization oped page, the second the IIF (institute for international finance) "the US should never encourage default" argument and the third the moral hazard hawks "no bailouts ever" crowd. it was a difficult job, and one that Taylor's academic work (on monetary policy rules) did not help him work through.

Adams is not an academic economist, and is a VERY political animal. But his pre "W" work running the g7 daily does mean that he knows a lot about some of these issues, and some of his early internal appointments at the treasury give me hope.

One of Taylor's problems was that he was not all that close to the White House, and that, along with differences in policy between o'neil and taylor, and o'neill and the white house, allowed policy making to move to the white house. the Rubin/ Summers strong treasury model hinged on a close working relationship with the WH. It also hinged on a WH that got it --starting at the top. that won't be replicated, but i think treasury may be a bit stronger in the second w term than in the first.

[liberal]

Brad DeLong wrote, "The New York Times editorial board finally starts to get how bad a thing it is that George W. Bush is president..."

I think, in terms of its *editorials*, that the NYT ed board has been _relatively_ hard on Bush. We have to give them one for opposing the invasion of Iraq, even on its eve, for example. (As opposed to the _Wash Post_, a bunch of sick suckups who had the temerity to suggest that in the interest of bipartisanship the Senate should confirm Roberts unanimously. Not to mention their idiotic attitudes on the war.)

The problem with the _Times_ is the news pages...