Bill Clinton calls it “outrageous.” Because of Republican opposition, Felix Rohatyn asked that his name be withdrawn from consideration for the post of vice chairman of the Federal Reserve Board. Press secretary Mike McCurry told reporters that attacks on Rohatyn are “based mostly . . . on politics, rather than a serious review and judgment of his credentials, his experience, his background, and his views.” Rohatyn, who had lobbied relentlessly for the job, added that he too was troubled, not by his failure to get it, but by the inability “to have a rational dialogue about hugely important economic issues. ”
Wrong. Senate Republicans had the best of reasons for shooting down Rohatyn’s prospective nomination: They disagree sharply with his views on economic issues and were sent to Washington by their constituents to use their power to “advise and consent” so as to deny positions to candidates with whom they disagree. No personality clash; no scandal mongering; no Borking; no mere partisanship. Only sharp differences on important policy questions, differences of the sort that should be given weight when reviewing presidential nominations.
Start with a detail. Rohatyn was to be appointed to represent the Kansas City Federal Reserve district. Must be some mistake, you say. Isn’t Rohatyn that New York investment banker who helped pilot Lazard Freres to the top rank of investment banking firms from his Rockefeller Center office? Isn’t he the same guy frequently seen in New York’s trendier restaurants and at its charity balls, and on the pages of the New York Times and the New York Review of Books? In short, isn’t Rohatyn as New York as Woody Allen and Ed Koch?
Well, yes. But it seems that there is already one New Yorker on the Fed board, and the law requires geographic diversification. Since Rohatyn is building a house in Wyoming, Clinton sought to overcome the inconvenient geographic disability by designating Rohatyn the Fed member from Marlboro country. Nothing particularly illegal about this, apparently; just another example of the Clintons’ disrespect for the spirit, if not the letter, of the law, in this case one designed to see that agricultural as well as financial interests are represented at the Fed.
Clinton faces a bit of a problem. If he had his way, he would not reappoint Fed chairman Alan Greenspan when his term expires in April. And not only because Greenspan is a Republican; the chairman is an inflation hawk, disinclined to risk a round of inflation to stimulate growth in an economy already at full or almost-full employment, and unlikely to push interest rates down merely to please a president with his eye focused on the November elections. But the markets won’t tolerate the canning of Greenspan.
So the president came up with Rohatyn, described by the New York Times as a “shrewd counterweight to the chairman’s instinctual conservatism.” But Republicans on the Senate Finance Committee weren’t so sure that a Greenspan counterweight is what the Fed should have as a vice chairman. The fact is that the president’s choice for vice chairman espouses economic policies so far to the left of the national consensus for shrunken government as to make him almost an anachronism in this age of limited government. Indeed, that the president was reaching for a man who the Times admiringly says “is among the few highly successful figures on Wall Street who back progressive causes and activist government” tells us something (as Sen. Connie Mack, the key congressional opponent of the Rohatyn nomination, said) about Clinton’s sincerity in declaring his conversion to the proposition that “the era of big government is over.”
In Rohatyn the president found a perfect instrument to inject some of the old-time liberal religion into America’s economic policy. Better even than Alan Blinder, the Clinton appointee who resigned to return to his economics professorship at Princeton University. Blinder was certainly softer on inflation than Greenspan, but he was a trained economist who carefully weighed his desire for lower interest rates and more rapid economic growth against the dangers of higher inflation. Rohatyn has no such analytical training. But he does have a host of inclinations, a mindset that he has described as favoring “energetic domestic policies” “some variant of a national industrial policy,” and government action to correct our ” overdependence on foreign capital and foreign energy.”
No small-government man, this investment banker. Devolve power to the states? Quite the contrary: We need “some assumption of local burdens by the federal government.” Lower taxes? No again. Rohatyn favors an increase in gasoline taxes “tied to infrastructure investment” and would postpone tax cuts “until a balanced budget is within reach.” Would he have spent sleepless nights worrying about inflation, as central bankers are expected to do? No a third time: Rohatyn dismisses “the inordinate fear of inflation resulting from higher growth,” thinks Greenspan is foolish to accept 2.5 percent as the growth rate beyond which we are likely to see a resurgence of inflation, and wants the president and Congress to “target an economic growth rate averaging 3 percent to 3.5 percent a year over the next decade.”
Here Rohatyn is on particularly shaky ground, as the editorial writers of the New York Times would know if they hadn’t joined the thousands of others who regularly treat the newspaper’s Sunday magazine section as a must- miss. For a recent issue contained a most compelling article by Stanford economist Paul Krugman, hardly a man of the hard Right. Krugman points out that Greenspan’s enemies, among them “financier-pundit Felix Rohatyn,” say that the Fed “is keeping interest rates unnecessarily high, in a pointless war against a phantom enemy.” But, says Krugman, those who propose to have the economy grow more rapidly than the Fed’s 2.5 percent target rate are ” wildly unrealistic.” Experience over the past 20 years shows that for every point of annual growth beyond 2.5 percent, the unemployment rate falls by half a point. If Rohatyn were to have his way and push the economy ahead at a 3.5 percent clip for even one year — much less a decade — the unemployment rate would drop so low that inflation would take off. “There is a lesson in all this,” writes Krugman, “namely, that some of our most influential economic commentators are not in the habit of doing much homework before issuing their pronouncements.”
If Rohatyn’s grab bag of big-government, high-tax views weren’t enough to turn off Senate Republicans, the rumor that he was destined for the added role of inside-the-White-House policy adviser would have done the trick. As would the likelihood that the Lazard Frres deal-maker would provide a back- door channel for the president into the inner sanctum of the Fed, which is supposed to be insulated from such political shenanigans.
And Rohatyn’s famous penchant for publicity would have made it diffcult for him to adopt the enigmatic policy of Greenspan, who prides himself on telling everyone as little about how he reaches his decisions in as many words as he can possibly muster. One person who worked closely with Rohatyn when he was chairman of the Municipal Assistance Corporation during the New York City fiscal crisis of 1975 still resents the success with which Rohatyn worked the press to make sure that he, rather than then-governor Hugh Carey, received credit for bailing out the city. Little wonder that the Wall Street Journal fears Rohatyn might find it diffcult “to curtail his public candor, as the Fed expects its policy-makers to do.”
None of this is to deny that Rohatyn has had a brilliant career as an investment banker, or that he has helped to propel his firm to the first rank in its field. The same can be said of Robert Rubin, the investment banker who gave up Goldman Sachs for the Treasury Department — and squandered his credibility by threatening to default on the nation’s bonds if the Republicans refused to give in to Rubin’s boss in the battle of the budget.
There might be a lesson there for Rohatyn: A political association with Bill Clinton is not the sure way to cap a brilliant career in the private sector. Ask fellow investment banker Roger Altman, who got entangled in Whitewater; or Webster Hubbell during visiting hours; or a Rohatyn comrade-in- arms in many merger wars, former White House counsel Bernie Nussbaum. For the sake of posterity, better that Rohatyn retire to that porch in Wyoming and write his memoirs under the Big Sky.
Irwin M. Stelzer, a frequent contributor, is director of regulatory policy studies at the American Enterprise Institute.
