President Bush will likely nominate Alan Greenspan for a fourth term as chairman of the Federal Reserve, and Greenspan will accept said renomination. This may please defenders of the status quo, but the president’s passive action here will do nothing to help the economy, either in the short term or in the long run.
The theory for renominating Greenspan is stability: Since the economy remains jittery following the Iraqi war, it’s best not to disturb the steady hand at the Fed. This is just plain nonsense. No one man is invaluable to the nation, certainly not Greenspan. We constitutionally limit presidents to two terms without problem, so it’s hard to argue that the Fed chairman must remain in office close to 16 years.
But that’s not the reason to dump Greenspan. The reason is that the chairman’s continued presence forecloses any debate over the function of the Federal Reserve itself. Few institutions have contributed more to the decline of capitalism in America than the Fed. Central banking itself is an inherently wealth-destroying mechanism, as any nation that’s ever dealt with the World Bank and IMF can attest to.
Now, obviously, simply replacing Greenspan is no guarantee of radical reform. Given President Bush’s preference for pragmatism, Greenspan’s successor might prove to be a bigger obstacle. But that said, there is no possibility of meaningful discussion over the Fed’s future while Greenspan remains in power. Washington officials have simply become too deferential to the mythical “aura of Greenspan” to seriously challenge him. It’s nothing personal, really, just the predictable effect of giving one individual too much unchecked power for too long.
Contrary to urban legend, the economy runs itself with or without the Fed’s intervention. The nation experienced plenty of economic booms (and busts) long before Greenspan came along, and it will continue to do so long after he finally is turned out of power. Best to learn that lesson now, before the Greenspan aura swallows what’s left of the current economic recovery.