PRESIDENT BUSH knew exactly what he wanted when he picked a successor to Alan Greenspan as chairman of the Federal Reserve Board. He sought a nominee as risk-free as possible, someone with little chance of either encountering a bitter confirmation fight or, once in office, of opposing his economic policy. So Ben Bernanke, now the chairman of the Council of Economic Advisers (CEA) at the White House, was the logical choice.
In fact, the president had settled on Bernanke, 51, by late last week, though the actual nomination was not to be announced until later this month or early November. In the meantime, Bernanke was to begin a series of pre-nomination meetings on Wall Street to chat with financial leaders. But the meetings were postponed and the announcement of his selection was speeded up–at the urging of Republican Sen. Richard Shelby of Alabama, chairman of the Senate Banking Committee–to assure confirmation by Christmas.
From the time the White House began searching months ago for a replacement for Greenspan, Bernanke was the favorite. But there were other serious candidates, including two current Fed members recommended by Greenspan himself and three economists who had advised President Bush in the past. The selection process was run by Dick Cheney.
Greenspan’s scheduled departure on January 31 after 18 years as Fed chief touched off a vigorous behind-the-scenes campaign, with no public appearances by the candidates and with expressions of support or opposition conveyed to the White House in private interviews with presidential aides or in memos. Alone among the candidates, Bernanke had no detractors.
That was only one of his strengths. He is an expert on monetary policy and that, of course, is what the Fed sets. President Bush, introducing Bernanke, said he’d “done path-breaking work” in monetary policy. The job requires intellectual skill as well. The Fed is like an academic community where the chairman must have the ability to present his position persuasively and build a consensus: Bernanke has that ability. “Bernanke reminds me of Greenspan 18 years ago, a little quiet and hardly the life of the party, but like Greenspan, once he becomes chairman, he’ll be bigger than life,” said Washington consultant David Smick.
Just as significant in his nomination was his close and friendly relationship with Al Hubbard, the head of the National Economic Council (NEC) at the White House. Hubbard, President Bush’s classmate at Harvard Business School, worked with Cheney on the Fed selection. Bernanke became CEA head last summer after three years as a Fed governor. His White House stint amounted to one of the longest job interviews in history.
Though the president and Fed chief don’t often meet, the former wanted someone with whom he feels personally comfortable. Bernanke met that criterion. “He doesn’t make you feel uncomfortable the way some professors do,” said Kevin Hassett, an economist at the American Enterprise Institute. (Bernanke was chairman of the economics department at Princeton before joining the Fed in 2002.)
President Bush had another major concern: protecting his economic policy. He wanted a Fed chairman who wouldn’t differ sharply with his emphasis on tax cuts and tolerance of large budget deficits. The White House concluded that Bernanke would be likely to accommodate the president. In a speech to the National Economists Club on October 11, Bernanke credited “multiple rounds of tax cuts proposed and passed under the Bush administration” as a major factor in the “vigorous” rebound from the weak economy of 2001 and 2002. This is the Bush view exactly.
Confirmation, a final Bush concern, should be easy. Bernanke is not a Bush crony like Harriet Miers. Nor is he a political partisan. In the October speech, he praised Presidents Carter and Clinton, both Democrats, for taking free market steps that improved the economy. With Jimmy Carter, it was deregulation, with Bill Clinton free trade.
It was President Bush’s fear of a Fed chair hostile to his policy that doomed Greenspan’s candidates–Fed vice chairman Roger Ferguson, 54, and Donald Kohn, 62. Once Greenspan’s advice became public, they were criticized as likely to create an awkward situation for President Bush, since both are skeptical of his tax cut policy. Even at the risk of slowing the economy, the White House was told, they would continue raising interest rates so long as the president refused to raise taxes and seriously address the deficit. President Bush, like President Reagan two decades ago, feels economic growth is more important than deficit reduction.
Both had other drawbacks. Ferguson is a Democrat and protégé of President Clinton’s two Treasury secretaries, Robert Rubin and Larry Summers. Kohn was appointed to the Fed board by President Bush at Greenspan’s urging. He had spent his entire career as a Fed economist and was the candidate of the Fed bureaucracy. Since the White House views the Fed staff as unfriendly to President Bush’s fiscal policy, that ruled out Kohn. He also is an environmentalist who rides a bike to work, thus not a Bush type of guy.
Bernanke’s chief rival was Martin Feldstein, 66, a Harvard professor and CEO of the National Bureau of Economic Research. Far more than Bernanke, he’s an economic star. And he’s close to the president, too, having traveled to Austin in the late 1990s to advise Bush, then Texas governor, on taxes and Social Security reform. In President Bush’s first term, Feldstein frequently appeared at the White House and pushed for deep tax cuts.
Feldstein’s appointment as Fed chair was supported by the president’s father, former President George H.W. Bush. But he had many critics, notably James A. Baker II, who was White House chief of staff in the early 1980s when Feldstein was CEA chairman. They clashed when Feldstein spoke negatively, on and off the record, about Reagan’s tax cuts. Baker thought Feldstein was disloyal and warned the current White House not to nominate him.
The other two candidates, Glenn Hubbard, 47, and Larry Lindsey, 51, worked for President Bush in his first term. Hubbard, now dean of Columbia Business School, was CEA chief. He favored the Bush policies of tax cuts and partial privatization of Social Security, but the president felt Hubbard sometimes talked down to him. Lindsey, having been removed in 2003 as NEC head, was always a long shot, at best.
The question now facing President Bush is whether Bernanke will indeed look sympathetically at his economic policy. I recently asked a strong candidate for the Fed job–you’ll have to guess which one–if a Fed chairman owes any obligation to the president who appoints him, perhaps adapting monetary policy to the president’s liking. The answer was No. So, Mr. President, don’t set your hopes too high.
Fred Barnes is executive editor of The Weekly Standard and author of a book on President Bush, Rebel-in-Chief, to be published by Crown Forum in January. This piece originally appeared in the Wall Street Journal.
