Semi-Daily Journal

This White House Is Very Strange Indeed

This White House is very strange indeed. Fred Barnes of the Weekly Standard interviews administration officials, and the picture they paint of how economic policy works seems to have no contact with reality:

The Four Horsemen of Bush Economic Policy | From the Winter 2003 issue of The International Economy | by Fred Barnes | 01/20/2003

...Another big name with diminished influence is Alan Greenspan, the Federal Reserve chairman. Greenspan was close to O'Neill. The firing of O'Neill was "a shot across the bow" of Greenspan, an administration official says. At the White House, there's a feeling the Fed has fallen behind the economic curve. This is bad news for Greenspan, hardly a friend of the Bush family after his tight money policy helped doom the re-election chances of President Bush senior in 1992. White House aides can recite the date--June 2004--without hesitation. That's the deadline for the chairman's reappointment. For Greenspan, the message in the O'Neill canning is that the same awaits him should he jeopardize Bush's re-election prospects by raising interest rates...

You fire a Treasury Secretary to send an oblique message to a Federal Reserve Chair that his reappointment is in jeopardy should he not "behave"? Isn't that rather wasteful?

Isn't it also rather ineffective? It presumes that Alan Greenspan would value an extra term as Federal Reserve Chair more than he would regret the damage that would be done to his reputation were he to swear up and down that the Bush Administration's 2004 Budget is the greatest thing since sliced bread--an inaccurate presumption. Greenspan's open and public position is the same as that of the overwhelming majority of economists: improving the taxation of income from capital is a good thing, but not if it is bought at the price of a substantial widening of the federal budget deficit.

Moreover, the threat not to reappoint a non-compliant Greenspan is not a credible one. Let's climb up to the leaves of the game tree. It's June 2004, and Greenspan's term has expired, and Bush is annoyed at the Greenspan who said that fixing the deficit is more important than reducing taxes on dividends, and so he doesn't renominate Greenspan but instead nominates... somebody else. What happens then?

What happens then is that at the start of July Tom Daschle calls the Democratic Senate Caucus together, and says, "Look: it's the middle of the presidential campaign season. We're in session this July, we're on vacation in August, we're in session in September, by the end of September we are recessed again. Let's stall on the Federal Reserve vote until after the presidential election. Then there's a 50-50 chance that a Democrat will get to appoint the next Fed Chair. And if Bush wins in November, we can approve Greenspan's successor in November and be in no worse position than we are now." Bush can get Alan Greenspan--or perhaps Greenspan's designated successor (Don Kohn or Peter Fisher or William McDonough?)--past a narrowly-divided Senate in the late summer of a presidential election year. But any other candidate? No Republican possibility has the street cred to get a floor vote in July or September of 2004.

So at some point in the spring of 2004, Bush's Legislative Affairs people will sit him down and tell him the facts of life: either reappoint Greenspan, or run a 50-50 chance of having a Democratic president appoint the next Federal Reserve Chair. Unless Bush is a cut-off-your-nose-to-spite-your-face kind of guy, Greenspan gets the nod--if he does want another term. Greenspan knows this. Is whatever White House official is singing to Barnes--Josh Bolten or Karl Rove or one of their deputies--so dumb that they do not recognize how strong a position Greenspan is in? And how stupid it is to make empty threats?

Moreover, Barnes's article gets even stranger.

Barnes writes what he clearly believes is a slam directed against Paul O'Neill and John Taylor:

John Taylor, the treasury undersecretary for international economics, was expected to be a heavyweight in economic policy. But that was not to be. He's been held back both by [Paul] O'Neill's clumsiness in global affairs and O'Neill's failure to play as significant a role in international economics as treasury secretaries Robert Rubin in the Clinton administration and James Baker under President Reagan. In particular, the Bush administration has been inconsistent in assessing the need for bailouts of foreign countries in economic trouble. O'Neill opposed a bailout for Argentina and won. He also opposed a bailout for Brazil, but Bush decided without consulting O'Neill or Taylor to back a large package of financial aid for Brazil.

The line "Bush decided without consulting O'Neill or Taylor to back a large package of financial aid for Brazil" is, in Barnes's mind, supposed to underscore the fecklessness and powerlessness of O'Neill and Taylor. But there is only one group of people in the U.S. government who can do the staffwork to figure out whether a package of financial aid for Brazil is a good idea or not: only one group who can assess the sustainability of Brazilian fiscal policy, understand how the tides of Brazilian politics will flow, gauge which way the wind is blowing in first-world asset markets, and judge whether a large aid package to Brazil is a gamble worth making or not. This isn't a question of political philosophy. This is a question of practical economic management. And that one group of people works in Treasury International Affairs--works directly for John Taylor, and worked at one remove for Paul O'Neill.

So if you keep Paul O'Neill and John Taylor out of the room when the decision on aid to Brazil is made, then--unless you get the staff economists on the Brazil desk in the Treasury into the Oval Office, which is not how the Bush Administration works--the president's decision is made on the basis of no information at all. It becomes a wild-ass guess.

Whose job is it to make sure that presidential decisions are not wild-ass guesses? Whose job is it to make sure that the president hears all the arguments he needs to hear, and thinks about all the sides of the issue he needs to think about, before policy is set? It is the job of the chief of staff: Andrew Card. If it is indeed the case that Andrew Card did not make sure that Paul O'Neill and John Taylor were in the room when the president decided to endorse the loan to Brazil, then Andrew Card is not competent to do his job.

But is Fred Barnes smart enough to realize that his claim that O'Neill had no input into the Brazil decision is an accusation that Andrew Card is incompetent?

Posted by DeLong at February 11, 2003 09:38 PM | TrackBack