Fed Chairman Alan Greenspan Speaks About Energy
Spencer Platt  /  Getty Images file
Federal Reserve chairman Alan Greenspan speaks in New York in this May 20 photograph. The names of possible successors are emerging. 
updated 6/6/2005 11:16:37 AM ET 2005-06-06T15:16:37

Wanted: Expert with a deep understanding of what makes the economy tick.

Must have credibility with Wall Street and the ability to deal deftly with financial turmoil, anytime, anywhere. Politically adept. A consensus builder. Unflappable. Business experience welcome, but not required.

If interested, contact 1600 Pennsylvania Avenue, Washington, D.C. Attn: President Bush.

Picking Alan Greenspan’s successor as chairman of the Federal Reserve will be one of Bush’s most important tasks. Greenspan, 79, has led the Fed since 1987. He is expected to step down on Jan. 31.

The next chairman will play a crucial role in steering the world’s largest economy so that it grows solidly and produces jobs without fanning inflation.

Fed experts say it is critical for Greenspan’s successor to maintain the central bank’s independence from political influence.

“Politicians like low interest rates. That’s a fact of life,” said Susan Phillips, a former member of the Federal Reserve Board.

“The ability to be able to raise rates even though politically unpopular is very important to the long-run well being of the economy,” said Phillips, dean of the George Washington School of Business.

Three frontrunners
Three people so far are drawing frequent mentions as possible successors to Greenspan. Each is a respected economist with a firm sense of how Washington works.

Martin Feldstein, 65.An economics professor at Harvard University and president of the National Bureau of Economic Research, he advised Bush when the Texas governor ran for president in 2000.

Feldstein says Bush’s tax cuts have helped the economy recover from the recession of 2001. Feldstein also has endorsed the president’s plan to overhaul Social Security, including letting workers set up personal investment accounts.

Major Market Indices

Feldstein has served as chairman of the Council of Economic Advisers from 1982 to 1984, during the Reagan administration. He often found himself at odds with the White House, however, over his persistent warnings about the negative effects of budget deficits.

“The challenge for policy now is to deal with the longer term budget problems of Social Security and Medicare that will begin when the baby boom generation retires a decade from now,” he wrote in 2002 in The Wall Street Journal.

The government ran a budget deficit in 2002 after four years of surpluses. The deficit climbed to $412 billion last year, a record in dollar terms.

R. Glenn Hubbard, 46. Dean of Columbia University’s graduate school of business and an economics professor, he was Bush’s chief economic adviser from 2001 to 2003.

Among the policies Hubbard helped shape was the elimination of taxes that individual investors pay on stock dividends. Congress in 2003 acted to cut taxes on some dividends. He also he promoted Bush’s idea for personal investment accounts.

In a commentary for BusinessWeek in January, Hubbard had kind words for the Fed: “Fed credibility in battling inflation has lowered market interest rates by making investors less worried that rising prices will cut into the value of their investment,” Hubbard said.

Hubbard worked for the first President Bush as deputy assistant secretary for tax analysis at the Treasury Department.

Feldstein was one of the supervisors on Hubbard’s dissertation for his Ph.D in economics at Harvard.

Ben Bernanke, 51. On the Fed board since August 2002, Bernanke was picked by Bush in April to become chairman of the Council of Economic Advisers. Bernanke is awaiting Senate confirmation.

“Economics is a very difficult subject,” Bernanke once said. “I’ve compared it to trying to learn how to repair a car when the engine is running.”

Bernanke also was a professor at Princeton University and chairman of the economics department.

At the Fed, Bernanke has pushed for the central bank to be more specific in its inflation objectives. Greenspan has opposed setting a numerical target for inflation.

Bernanke also has championed openness at the Fed — a policy that Greenspan has advanced prominently.

Feldstein and Hubbard are connected to the business world through their work on corporate boards. Bernanke has not held a post on a company’s board.

One of the boards Feldstein serves is American International Group Inc., the large insurer under investigation by state and federal regulators over accounting issues.

Would Bush get chairman's backing?
As Fed chairman, Greenspan helped Bush by endorsing the president’s tax cuts in 2001. More recently, the Fed chief came down on the side of Bush’s proposal for personal accounts as part of a revamp of Social Security.

Can Bush count on such support from the next Fed chairman?

“I’m sure Bush is not going to pick someone who he knows has been criticizing his economic policies. But that doesn’t necessarily mean it has got to be somebody who think every single decision that he had made is right,” says Anil Kashyap, an economics and finance professor at the University of Chicago Graduate School of Business who teaches a course on understanding central banks.

The White House says it will not speculate about personnel issues and says Bush is pleased with Greenspan’s performance.

Among the other names bantered about for the job are:

  • Donald Kohn, 62, a member of the Fed board.
  • Roger Ferguson, 53, vice chairman of the Fed board.
  • John Taylor, 58, an economics professor at Stanford University. He had been Treasury undersecretary for international affairs. He has written popular textbooks for economics and is author of the “Taylor rule,” a formula designed to help central banks set interest rates.

Greenspan ran an economic consulting business before he was appointed to be Fed chief. Before that, Greenspan was President Ford’s top economic adviser. Yet he was not a household name when he replaced Paul Volcker at the central bank.

The cult of Greenspan
Just months into the Fed job, Greenspan was tested by a 508-point plunge in the stock market on Oct. 19, 1987. He won high marks for acting swiftly to reassure financial markets.

Despite some missteps, Greenspan has assumed an almost cult-like status over the years.

Greenspan’s replacement also will have a chance to make a mark.

“The chairman dominates the Fed board. The next chairman may have an opportunity to shake the institution more than Alan did,” says Martin Mayer, an expert on the Fed and a guest scholar at the Brookings Institution.

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