TCS Daily

Draft Greenspan

By Kevin Hassett - August 1, 2002 12:00 AM

There has been rampant speculation inside Washington that Chairman Greenspan might decide not to seek reappointment at the end of his current term. Having seen Greenspan in action recently, I can attest to the fact the speculation is unrelated to his vitality. But the Chairman has been working at the Federal Reserve for 15 years, and might well be tiring of the responsibility. To many, the most important question surrounding his departure is "who will replace him?" This focus is, I believe, misplaced. The more interesting question is, what should Greenspan do?

On this, I believe that there is one clear answer. President Bush should, as suggested recently by columnist Bruce Bartlett in the National Review, ask Mr. Greenspan to assume the role of Secretary of Treasury. And Mr. Greenspan should take the job. Here's why.

First, fiscal policy is a complete mess. The tax code is more complicated and economically inefficient than it has been since the 1986 Tax Reform Act, and easy fixes are available. But none can gather steam because no amount of arm twisting or cajoling from economists can move policy makers in the right direction. But suppose that the Babe Ruth of economic policy were at the Treasury, designing fixes for the tax code with an eye toward improving its overall efficiency. If such reforms were constructed to be revenue neutral, it's hard to imagine how the Democrats could oppose them.

Second, Mr. Greenspan's position at Treasury would reassure markets during the transition period to his successor. There will be an enormous amount of uncertainty about the quality of the new Federal Reserve Chairman, an uncertainty that could roil markets. But suppose that the new Chairman takes over with the old Chairman still actively engaged in economic policy. The two would necessarily be talking all of the time, but not in a way that threatens the new Chairman's authority at the Fed. It's hard to imagine a better transition strategy.

Third, Mr. Greenspan's presence at Treasury would give the Bush economic team a much needed shot in the arm. The fact is that liberals often focus their sharpest ridicule for the economics of conservatives, and effective defense of free-market principles is a must if a Republican is to be successful in the White House. The current team is lined with extremely able economists, but the weakness of the Treasury has put them all on the defensive. Add Greenspan to the mix, and the team vaults from a contender to Super Bowl champion. This will increase the influence of sound economics across the entire government. When new and senseless regulations are proposed, how will they make it past a team rallied around Greenspan?

Fourth, the Republicans need Greenspan, who is a Republican. President Bush wisely chose to associate himself with the enormously popular Colin Powell while he was running for office. This reassured voters that a person they trusted would be in a position of power and influence during a Bush administration. Imagine the impact on the 2004 election of an actively campaigning Treasury Secretary Greenspan pushing conservative principles. The Democratic strategy has always been to demean the conservative messenger rather than to address the message, but how could they do that to Greenspan?

So it certainly makes sense that the President should ask Greenspan to be Secretary of Treasury, but why should he do it? This is an easy one. Chairman Greenspan has revolutionized the way economists think about monetary policy during his tenure at the Federal Reserve. In many ways, monetary policy was broken when he arrived and it is fixed now. A new Chairman, drawing on the lessons of the Greenspan era, will have significant guidance concerning the proper and effective course of action.

Fiscal policy is such a mess, and the debate so irrational, that there is much low-hanging fruit. In a few years at the Treasury, Mr. Greenspan could set the fiscal house in order and set the country on a trajectory that is significantly more promising than the current one. There is little left to improve for monetary policy. Fiscal policy could hardly be worse.

Given the leftward drift of the political classes in response to the recent flurry of scandals, Greenspan's cold-eyed rationality could hardly come at a better time. Let's hope he agrees, because the country needs him.



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