WASHINGTON -- Fed-watchers who marvel at Chairman Alan Greenspan's survival skills compare his unexpected Senate testimony last week to his equally surprising appearance eight years ago at Hillary Rodham Clinton's side in the House gallery. His 1993 ploy was symbolic while his 2001 move was substantive. In both cases, the crafty central banker was identifying himself with the new president.
International fax machines reported the news in March 1993. The liberal first lady had invited the conservative Republican head of the Federal Reserve to join her while her husband proposed the largest tax increase in the nation's history. Analysts from Wall Street to Tokyo to Frankfurt smelled a deal: acceptance of tax increases balanced by a soft monetary policy. Subsequent events proved that deduction correct.
No monetary detective work was needed to understand Greenspan last week. After his Senate Budget Committee testimony blessing tax cuts, global e-mails sent out the word that Greenspan was closer to Vice President Dick Cheney than he ever was to anybody on the Clinton team.
The newest Greenspan suddenly perceived wisdom in tax reduction after taking such a sour attitude while Clinton was in the White House. "Alan was just saying, 'We are all supply-siders now,'" cracked a veteran Fed-watcher (referring to Richard M. Nixon's frequently misquoted 1971 comment that "I am now a Keynesian on economics"). Greenspan's rationale actually is that the central bank cannot manage money if the national debt is completely eliminated.
It is difficult to imagine that such battle-hardened Democratic senators as Robert Byrd, Ernest F. Hollings and Paul Sarbanes could be disillusioned. But they were, more distraught than conservative Republicans were eight years earlier when he embraced Clinton's high taxes.
Greenspan, on his way to becoming Fed chairman for life, has been appointed by three presidents for a tenure now reaching 14 years. His pervasive political influence in a supposedly non-political post means that the 1993 Clinton tax increase could not have passed without Greenspan's nod, and he now may have guaranteed passage of the Bush tax cut.
A victory by George W. Bush threatened to isolate Greenspan from the corridors of power. The senior George Bush still grumbles that the chairman's tight money policy in 1992 elected Bill Clinton, and tribal resentments in the Bush clan run deep. During the Florida recount in late November when Greenspan incredibly maintained a tight money bias, it was widely assumed that the chairman was playing it safe and taking no Fed action while he prayed for Al Gore's victory.
But the master power broker hedges his bets. As early as last summer, Greenspan in private waxed ecstatic about Cheney as Bush's running mate. Greenspan joins Cheney, Defense Secretary Don Rumsfeld and Treasury Secretary Paul O'Neill as a band of brothers from the Ford administration. That does not foretell a confrontation of central bank vs. Treasury.
Greenspan now takes the basic Republican position that if the surplus is not depleted by tax cuts, it will be spent. He also sees recession at the door. Indeed, inability to get financing for less credit worthy enterprises is shelving new projects, generating frantic mergers and escalating job layoffs. Yet, the chairman is not held accountable for the Fed's 18 months of tightening to satisfy bond traders.
At the Budget Committee hearing, only Sen. Sarbanes brought up the six separate rate increases in 1999 and 2000 that the Fed ordered without compelling evidence of inflation. Even he did not press the point, nor mention the post-election decision in November to maintain a bias toward higher interest rates as the economy began to tank.
Sarbanes questioned whether Greenspan might couple an easy fiscal policy with a tight monetary policy, as happened in the early '80s under far different circumstances. But there is little chance of that, with the Fed on Wednesday continuing to roll back the long string of rate increases.
Bush was so delighted last week that he turned a silent photo opportunity into praise for Greenspan, the second time he had done so in contrast to Clinton silence about the Fed. The praise could turn to criticism. Alan Greenspan does not quite have the free hand he enjoyed the past eight years.