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Should President Clinton Have Reappointed Alan Greenspan as Fed Chairman?

Aired January 5, 2000 - 7:30 p.m. ET



ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: And that is a challenge, which I must say to you, as I said to the president before, it's like eating peanuts: You keep doing it, keep doing it, and you never get tired, because the future is always ultimately unknowable.


BILL PRESS, CO-HOST: Tonight, a day after President Clinton renominates Alan Greenspan, why are so many people nuts about the Federal Reserve chairman? Is he the best man for the job, or is it just a lot of irrational exuberance?

ANNOUNCER: Live from Washington, CROSSFIRE. On the left, Bill Press; on the right, Robert Novak. In the crossfire, in New York, Roger Altman, former deputy treasury secretary and chairman of Evercore Partners. And in Chicago, economist Brian Wesbury, author of "The New Era of Wealth."

PRESS: Good evening, and welcome to CROSSFIRE. At last, Bill Clinton did something even Republicans could applaud, and did: He reappointed Alan Greenspan to a fourth term as chairman of the Federal Reserve Board.


WILLIAM J. CLINTON, PRESIDENT OF THE UNITED STATES: Wise leadership from the Fed has played a very large role in our strong economy. That is why today I am pleased to announce my decision to renominate Alan Greenspan as chairman of the Federal Reserve Board.


PRESS: That was yesterday. Those honors were heard today from both sides of the aisle on Capitol Hill, from almost every major newspaper across the country, and even from business leaders.

"There's a basic rule in business. Don't mess with success," said the National Association of Manufacturers' Jerry Jasinowski. But dissenting voices were also heard from economists who fear that Greenspan will use his new lease on life to raise interest rates, fears which may be reflected in yesterday's big market drop. Today the Dow recovered, up a little more than 124 points.

So tonight: four more years of Alan Greenspan; time to count your money, or hold onto your wallet? -- Bob.

ROBERT NOVAK, CO-HOST: Roger Altman, the Greenspan Federal Reserve raised interest rates three times in the last year when there was no evidence of any inflationary danger, and all indications are they're going to go up 100 basics points in the race -- one whole percentage point, when the interest rates are a record high. Why in the world would President Clinton, your old boss, want to name Mr. Greenspan to another term?

ROGER ALTMAN, FORMER DEPUTY TREASURY SECRETARY: Well, first of all, Bob, none of us knows whether the Fed is going to raise interest rates, and your estimate of a full percentage point is, in my view, excessive. But we can all agree that we don't know whether that's going to happen, and I don't even think the Federal Reserve board knows, because it depends on the flow of economic data between now and when it might make that decision.

But the second and more important point is, the reason to reappoint Mr. Greenspan is his record. He has a sterling record. He served for 12 years, as we know. It's been one of the greatest periods, if not the greatest period, of economic prosperity this country has seen. and he's managed monetary policy in not just a good way, but a brilliant way. And it's unarguable, it seems to me, that his record deserves another term, and that's why there's such universal acclaim over the president's decision.

NOVAK: Well, "universal" means total. And I would say it's a majority, that it isn't universal. Roger, don't pay any attention to an old right-wing reprobate like me. Let's listen to what Senator Byron Dorgan, left wing Democrat from North Dakota, a puree populist, says about Alan Greenspan -- quote -- "He's been consistently wrong about how fast our economy can grow and how fast unemployment can drop. He continues to search in closets and under beds for inflation" -- end quote.

Isn't it a fact, sir, that Alan Greenspan is implicitly invoking the discredited Philips Curve, that if too many people go to work, you're going to have inflation?

ALTMAN: I disagree entirely, Bob. First of all, it's difficult to conceive that our economy could have grown more steadily and faster than it has over the past few years if only Mr. Greenspan had pursued the right monetary policy. That argument is, in my view, preposterous, because we've had such an extraordinary period of steady and high growth, and of course, low inflation, low interest rates and low unemployment.

So the notion that if only he'd done the right thing, we could have grown more successfully is fallacious. Moreover, he's shown great flexibility. He has -- I think Mr. Greenspan, in many respects, is a proponent, or at least a partial proponent, of the new economy, and his views on the productivity increases we've seen and the degree to which they permit a more rapid growth with lower unemployment than had historically been the model, I think is a sign of his flexibility, and so I don't agree with Senator Dorgan's comments at all.

NOVAK: Let me ask you one more thing, Mr. Altman. I knew you as a straight shooter, somebody who told the truth about the economy. And I expect you to be even more so since you're not in government now.

ALTMAN: Thank you, Robert.

NOVAK: Let me ask you this: Did you see any justification for three interest rate increases in the last year, when there was no inflationary pressure, when the tight job market was not inflationary?

ALTMAN: Bob, I think you need to naught into a historical perspective. In my view, all the Federal Reserve board did with those increases was to take back the three easing steps, the three productions in interest rates which it had put in place in response to the fall 1998 financial crisis, the Long Term Capital Management collapse and the peaking of the Asian financial crisis at that time.

So basically, monetary policy is just where it was over most of the past two or three years, and the narrow statistics -- if you look at the money supply and velocity so forth, all suggest that monetary policy is actually quite easy.

So I don't think that the Fed has moved to some era of great tightness, quite the opposite.

PRESS: Mr. Secretary -- I mean, I'm sorry, Mr. Wesbury, good evening. Welcome to CROSSFIRE.


PRESS: Let me ask you, first of all, the president renominated Alan Greenspan. I'd like something unusual on CROSSFIRE, if we can -- yes or no, did the president do the right thing?



PRESS: I knew I was asking for too much.

Why maybe?

WESBURY: It all depends on which way you look at it. Politically, probably he did the right thing. There has been some contention between Misters Gore and Bradley, Vice President Gore and Senator Bradley, about whether they would reappoint Alan Greenspan, and I think that was just taken off the table. He took it off politically. And so yes, it was the right thing. From the economic perspective, it's kind of an interesting proposition. You don't have to reappoint Alan Greenspan today. You could wait until June. And giving Alan Greenspan the credit for this economic boom, clearly, he deserves some kudos, but not the credit. The credit for this economic boom should lay at the feet of the entrepreneurial class in this country, the high-tech analogy that's boosting productivity, and the tax cuts and deregulation that we did in the early 1980s that really allowed all of that to come to pass.

So in my view, it's kind of a mixed maybe about whether or not we really need chairman Greenspan there today to manage this economy.

PRESS: Well, I know there's -- you know, there's a lot of credit, and a lot of people should get credit. I am sure you just inadvertently left President Bill Clinton off the list of the people you gave kudos to.

But I did mention at the top of the show that almost every major newspaper today praised this reappointment. Let me just read something that the "USA Today" said: "Since he took the reigns in 1987, the stock market's risen more than 300 percent. Inflation- adjusted income Inflation-adjusted incomes are up roughly 11 percent. During Greenspan's tenure, the economy has suffered just one mild, short recession. Over the past 12 years, unemployment has never reached the 8 percent mark. More importantly, inflation has been all but excised."

I am not asking you politically, Mr. Wesbury; I am asking you economically, didn't the president do the right thing, based on that record?

WESBURY: But the real point that you have to understand I think, Bill, is that the Federal Reserve cannot make all of that happen. The Federal Reserve can really only control one thing, and that's where I'd give Alan Greenspan a ton of credit. Inflation was 4 1/2 to 5 percent when he took over the Fed in 1987. Today it's down around 2 percent. And this is one of the problems that I think we have with this Federal Reserve. We don't really know what they're shooting at. Is it unemployment? Is it stock prices? Or is it inflation?

PRESS: Well, what did he do...

ALTMAN: I think we know what they're shooting at.

PRESS: Go ahead, Roger, if you want to jump in.

ALTMAN: I think they're obviously shooting for steady, noninflationary growth and to Mr. Greenspan's everlasting credit, they've achieved that. And it's -- as I said before, he deserves credit for the flexible approach he's taken. He's not a prisoner of any particular model, and that's good since the economy and the character of the economy has changed so much. But I think we know what his goal is, and it's a very bottom line goal.

PRESS: Go ahead, Brian.

WESBURY: I understand that, but it's very interesting this inflation has not come up. The Fed has raised rates three times. And if you go to the Midwest, go to the farming communities. We have the lowest commodity prices in 30 years on farms today. They're hurting, and I believe that's because of tight monetary policy. It's just like the late 1920s, when the Fed was raising rates, trying to stop exuberance, or a bubble that they thought was in the stock market, and the first to get hit are the farmers, the commodity producers, the old era kinds of companies today. And we have to be very careful how we manage monetary policy in this environment. And we also, I think, have to be very careful about where we give credit.

It's not the Federal Reserve that creates wealth. If they could create wealth, then we might as well be able to counterfeit, but we can't, and the Federal Reserve can make huge mistakes, and where I would give Alan Greenspan credit is for not making the same kinds of mistakes that we made in the 1970s.

NOVAK: All right. Mr. -- Roger Altman, in the question of what -- exactly what that the Greenspan Fed has been targeting, I have been watching the Fed for about 40 years and I have -- for the first time under Greenspan I have seen the Fed target the stock market. Now, in 1996 when the Dow Jones average was at 6,437, Mr. -- Dr. Greenspan warned of irrational exuberance. It is now well over 10,000 without inflation, without a bubble. Doesn't that show the futility of a central bank targeting equities?

ALTMAN: Well, Bob, I wouldn't agree that he's targeting the stock market. I don't agree with that at all. I think he is concerned, of course, as any Fed chairman has to be, about any speculative excesses, including, you know, an asset bubble of the Japanese type, but I don't think he's targeting the stock market, no.

NOVAK: Well, he was totally wrong -- if he scared everybody half to death and he does it periodically about irrational exuberance in the markets, and then there's no inflation and the markets continue to reach new highs. Isn't that true?

ALTMAN: Yes, that's true, but I don't think that monetary policy is tight. And I think his inflation record is one of the reasons why the market has reached such new highs. So, I think he deserves a lot of credit for the levels of the stock market and it's not a case at all of his trying -- of his actually having restrained it and targeting market levels, no.

NOVAK: He sure hasn't restrained it, thankfully. We're going to take a break. And when we come back, we'll ask whether Alan Greenspan is really the indispensable man.


NOVAK: Welcome back to CROSSFIRE.

The financial community was overjoyed when President Clinton named Alan Greenspan, a conservative Republican, to serve a fourth term as Federal Reserve chairman. But others wonder whether the Fed is too secret, too elitist and too cautious for the 21st century.

We're talking to Roger Altman, former deputy secretary of the Treasury and now chairman of Evercore Partners, and to economist Brian Wesbury, author of "The New Era of Wealth" -- Bill.

PRESS: Mr. Wesbury, when you look back over Alan Greenspan's 12 years, I think it's pretty clear, I believe, that he has not been rigid in his policy at all toward interest rates. As you know, he slashed interest rates in the early 90s, increased them seven times in 1994, cut them three times in 1998, as Bob pointed out, he raised them three times last year slightly. I mean, isn't that the kind of flexibility you need to steer this economy, to keep economic growth going while assuring low inflation at the same time?

WESBURY: Well, I agree. We need flexibility out of a Fed chairman. But the interesting thing is, why did he do those things? Back in the early part of his tenure, Alan Greenspan watched things like the price of gold and the price of commodities and inflation, and that's what allowed him to manage monetary policy in a way that was understandable by markets. Lately, though, he's bounced back and forth between a new era view, which says productivity is rising and maybe we're not going to have as much inflation in the future, and then lately this last year he's been worried about low unemployment, and rising stock prices and too fast growth.

And what's happened is the market has become very confused about what the Fed is actually looking at. And as a result, we've got long- term bond yields up at extreme highs. We're at 6.6 percent today. In my opinion, if it wasn't for that uncertainty of what the Fed is looking at we'd really be at around 5 1/2 percent on long-term interest rates and they'd be a lot lower.

PRESS: But, you know, I still don't understand what's your beef. And you paint this guy as some hoary old frosty guy who never changes. In fact, Alan Greenspan is one -- I mean, it used to be before Alan Greenspan that you wouldn't -- you couldn't let unemployment dip below 5 percent or that was going to trigger inflation. Alan Greenspan has destroyed and dismissed that theory. It used to be that you couldn't have growth more than 2 1/2 percent, economists would say -- or that would trigger inflation. Alan Greenspan has proved the American economy can do more than we thought. I mean, again, what's your beef with Alan Greenspan? How can you argue with a success?

WESBURY: Well, I'm not -- I don't have a huge beef with Alan Greenspan. I think that's important to realize. I mean, if you compare him to history and look at other Fed chairman, he's done a lot better, especially a lot better than those we had in the 1970s. The problem...

PRESS: So, you're just afraid -- are you afraid he's going to screw up now, is that what it is?

WESBURY: Well, no, I am not. I think that the last year when we had three interest rate increases, when inflation has not gone up -- in fact, other than oil prices, inflation has gone down -- those three interest rate increases are dangerous to our economy, they have driven interest rates up, they have begun to slow the housing market, they have knocked the heck out of commodity prices. I mean, literally go to the farms in this country and ask how they make profits at 30-year low crop prices. If you look at...

ALTMAN: I think there's very little evidence of that cause and effect, if I can say so.

WESBURY: Well... PRESS: You're on Roger, go ahead.

ALTMAN: First of all, Mr. Wesbury is, of course, right about the absolute level of long-term interest rates and 660 on the long Treasury bond, but the Fed doesn't determine medium and long-term interest rates. It only determines short-term interest rates and what the -- and the markets, therefore, are not reflecting in my view any uncertainty or lack of confidence in the Fed, quite the opposite. They couldn't have more confidence in the Fed. So this notion that if only the Fed was more clear about what its target was, we'd have lower interest rates, is just wrong. And as far as commodity...

NOVAK: All right. Roger Altman, let me ask you another question. My colleague, Bill Press, was correct for once when he said that there were hosannas in Wall Street when Mr. Greenspan was elected -- was nominated for another term. But I would like to read to you what I think is a very wise statement on December 3 by Bill Bradley, who happens to be running for president. He said: "The reality is that there are a lot of other people in the country who could also do a good job. When you select someone for Fed chairman, what you want is somebody who has the confidence of the financial markets, and there are more people than one who do that." You disagree with that, Roger?

ALTMAN: No, I don't disagree with that. Of course, Mr. Greenspan is not the only human being on the planet who can do this job. For example, former Treasury secretary Rubin could do it with great skill. But Mr. Greenspan deserves reappointment, his record really could almost not be a better one. Everybody has confidence in him, from financial markets to business to, I think, Main Street, consumers, households. And so, while he's not indispensable, Bob, because no human being is, he's the best man for the job and that's why everyone is so enthusiastic about the decision.

NOVAK: Well, Roger, let me give you -- let me give you a hypothesis of why the president so early in his term -- Dr. Greenspan's term does not expire until June -- why he named him instead of some new person who might be a little fresher and more open to new ideas. He named Mr. Greenspan because he was afraid if he didn't and he had him sitting out there as a lame duck, he, following the -- the -- the cue of the bond traders, would really jump up interest rates, ruin the economy, and elect a Republican in November. Is that a pretty good theory?

ALTMAN: Well, Bob, I think Bill Clinton is the 54th American president, if I have the number right, and I think that Alan Greenspan would have been reappointed by any of his 53 predecessors. It's an obvious decision. It's the right decision, and frankly, it's also the politically safe decision.

And what the -- what the president did by moving here in January instead of later -- after all, the term doesn't expire until June -- is to take it out of the campaign process, which I think is good for everybody. It's good for...

PRESS: All right. Brian, I hear you want to... WESBURY: That may be true that another president might have reappointed him, but maybe we should allow that to happen. Alan Greenspan is on record as saying he would like to see co-terminus...

ALTMAN: Well, that's a nice spot, but it's impossible.

WESBURY: But the other problem that we have, Roger -- and I want to disagree with something you said -- and that is that Chairman Greenspan, what he hasn't done is set up a legacy. He hasn't told us how he manages monetary policy. In fact, we kind of learned it's sort of the Greenspan rule: what he might look at on any given day.

I sure wish that this Fed today would set up a price rule for money. In other words, we manage monetary policy to keep inflation between 0 and 2 percent. When it gets out of that range, we raise interest rates. When it gets below that rate, we lower interest rates.

I sure wish they would do that.

PRESS: Brian...


PRESS: ... I want to interrupt, because we're almost -- we're almost out of time. A quick question before we do.

I mean, it's anticipated, it's speculated that at the February 1st meeting the Fed's going to raise interest rates again by one- quarter of one percentage point. No. 1, we know it ahead of time, because Greenspan's been very clear. He always warns ahead of time that's what he's going to do. And No. 2, it's that small.

Are you telling me that that's really going to, you know, slow down this economy or cause this market to drop?

WESBURY: There's always a straw that breaks the camel's back, and we don't know where it is. And when you look at inflation today, it's about 2 percent when you take oil out of the picture. And that means that real interest rates on the short end of the curve, when you use that measure, are higher today than they have been since 1990 just before the last recession.

If they raise interest rates by a quarter, they're going to be even higher. That threatens the economy. That threatens the markets. And I believe that could be very damaging.

PRESS: All right. On that -- on that point of gloom, we have to close, because that's going to have to be the last word. We're out of time.

Roger Altman in New York, thanks so much for joining us. Brian Wesbury in Chicago, thank you for being there.

Chairman Bob Novak and I will be back with our closing comments.


NOVAK: Bill, I am really shocked and saddened that you, as a liberal Democrat, have let your loyalty to President Clinton surpass your good sense.

Don't you realize that interest rates are now approaching an all- time record high, and don't you realize this hurts the people that you're supposed to care about? And don't you think it's time for a new person at the Fed who understands the economy and the society of the 21st century?

PRESS: Yes, Bob, I remember the double-digit interest rates under Ronald Reagan. I appreciate the single-digit interest rates today.

And let me tell you something, Bob: My loyalty to my 401(k) is higher than my loyalty to Bill Clinton. I support this because I have made more money in the last year, thanks in part to Alan Greenspan, than I ever did before, Bob.

It's working. And if it ain't broke, don't fix it.

NOVAK: It's very sad that I care more about the poor people than you do.


And I think...

PRESS: Big laugh. Get out of here.

NOVAK: And I think that's always been true of conservatives. And you just revealed yourself tonight.

PRESS: A steady economy helps everybody, including the poor, Robert.

From the left, I'm Bill Press. Good-night for CROSSFIRE.

NOVAK: I got you on that one, didn't I? From the right, I'm Robert Novak. Join us again next time for another edition of CROSSFIRE.


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