FIGHTING THE LAST WAR

Bush Backs Greenspan for Another Term at Fed (RICHARD W. STEVENSON, 4/23/03, NY Times)

President Bush said today that Alan Greenspan deserved appointment to a fifth term as chairman of the Federal Reserve, in effect leaving to Mr. Greenspan the decision of whether to extend his long tenure as head of the central bank.

Responding to a question in an interview with financial journalists about whether Mr. Greenspan had done well enough to be reappointed, Mr. Bush replied: "Yes. I think Alan Greenspan should get another term." White House officials said later that Mr. Bush would renominate Mr. Greenspan next year before Mr. Greenspan's current four-year term expires in June.

This--assuming the announcement is serious and not just an attempt to reassure the markets--is the second major misstep of the Bush Administration (the first was signing the Campaign Finance Reform law--good politics, bad constitutionalism). The problem with Fed chairmen is that they tend to fight the battles of their youth, rather than the battle of the day. Thus, Chairman Greenspan has remained an inflation hawk throughout over a decade of price stagnation or even deflation. He caused the current recession by tightening interest rates as we headed into surplus, a time when rates obviously should have been falling, and rates today should be at 0% or lower.

We've a solution to this problem though: the Fed chairman, if there's going to be one, should be required to be under thirty years of age. That way, the battles of his youth are the battles of the day. Posted by Orrin Judd at April 23, 2003 12:54 PM