WASHINGTON -- It is difficult to exaggerate the aggravation at the White House over Alan Greenspan's gratuitous shot at President Bush's tax cuts. So angry are the president's advisers that they are willing to consider not reappointing Greenspan next year to a final term as chairman of the Federal Reserve Board.
The conventional wisdom is that shaky financial markets could not withstand the loss of Dr. Greenspan, exalted in Wall Street as master of the universe. Similar predictions about non-reappointment of past Fed chairmen Paul Volcker and Arthur Burns proved groundless. With the expiration of Greenspan's chairmanship 16 months away, adverse impact on investors could be discounted by early disclosure of the president's intentions.
Greenspan's prestige is so overpowering that hand-wringers will tell Bush that he dare not prevent Greenspan from serving his final two years at the nation's central bank. Still, senior officials privately mention Robert Glenn Hubbard, chairman of the Council of Economic Advisers, as a possible replacement. A more conventional choice they ponder is William McDonough, the Fed's second-ranking official as New York Federal Reserve Bank president. Furthermore, the White House is in the market for additional names.
The White House and the independent Federal Reserve have been in an effective non-aggression pact for two decades. Since the middle of the Reagan administration, the White House has said nothing about the Fed's handling of monetary policy. Accordingly, Greenspan could unwisely tighten money in the face of a coming recession with impunity.
In return, Greenspan has assented to any fiscal policy by any president -- from Bill Clinton's 1993 tax increase to George W. Bush's 2001 tax cut. In a departure, however, Greenspan's recent testimony to Congress placed him in a clearly adversarial relationship with the president. On Feb. 11, he told the Senate Banking Committee there was no need for the Bush tax cuts and warned of increasing budget deficits.
That was something Bush and his inner circle did not expect or appreciate, and Greenspan's characteristic modification in House testimony Feb. 12 earned him a rebuff from Democrats but not a reprieve from the White House. He had made it harder for Bush to win his major domestic initiative.
Consequently, senior White House aides began to consider the decision the president soon will face. Although only two Fed governors have completed the single 14-year term since it was established in 1936, Greenspan has served on the board nearly 15 years -- six years filling an expired term and nine years for a full-term. The 14 years end in 2006, and Greenspan cannot be reappointed. His latest four-year term as chairman expires June 20, 2004. Thus, Bush must decide whether to give Greenspan a fifth term as chairman, which would be cut short after two years.
Given this situation, the White House yearns for a new face at the Fed -- such as Glenn Hubbard. The Bush inner circle was not happy about Hubbard's feud with Lawrence Lindsey, then the national economic adviser. Nevertheless, Hubbard survived the purge of the Bush economic team, and was dispatched by the White House Feb. 12 to answer Greenspan's claim that the Bush tax cut is "premature." Hubbard, a Harvard Ph.D. economist who is only 44 years old, would be an articulate young voice at the Fed.
McDonough, who has announced his retirement from the New York Fed effective in July after an unusually long 10 years in charge there, would be a safer pick than Hubbard. A nominal Democrat who admires and supports Bush, he was considered for secretary of the Treasury late last year. He is a traditional central banker well respected by the investor community. McDonough is 68 years old, but that is nearly a decade younger than Greenspan, who celebrates his 77th birthday March 6.
"You have been in this position for a long time, some would say too long," Republican Sen. Jim Bunning told Greenspan after he criticized the tax cuts. That sentiment is shared at the White House, which wants Hubbard, McDonough or any Federal Reserve chairman who will not be a back shooter. The question is whether Bush has the nerve to fire Alan Greenspan and the skill to get away with it.