The Bush-Greenspan Power Struggle

George Bush will take office in choppy economic waters. His worst fear — and the fear of all Republicans — is that he will suffer the same fate as his father who was done in by a recession. Meanwhile, Bill Clinton has, so far at least, managed to get all the credit for the country’s remarkable economic boom. But who is really responsible for all of those results?

When George W. Bush made his first foray to Washington after the election, his first stop was to visit Alan Greenspan at the Federal Reserve. That move was not surprising, considering how powerful a force Mr. Greenspan has been in the past few years.

News photographs showed the President-elect with his hand on Mr. Greenspan’s shoulder, as though he wished to steer him in a certain direction. And indeed, George W. Bush is trying to obtain the Fed Chairman’s support for his tax cut package, even though Mr. Greenspan is widely known to prefer debt reduction to tax cutting.

To make his point, George W. Bush has tried not so subtly to put the head of the Federal Reserve on a guilt trip. After all, the only blemish on Mr. Greenspan’s record is that he waited too long back in 1990 to cut interest rates — and thus failed to head off the recession that ultimately cost George W. Bush’s father the oval office.

Surely this was not the intention of a loyal Republican who had given years of service to the party. From his days on Jerry Ford’s Council of Economic Advisors to his service on the 1983 Social Security Commission, Mr. Greenspan took tough jobs for the Republicans. In the case of the Social Security Commission, he succeeded in removing an explosive issue that was always a loser for the Republicans from the table for over ten years.

And in his first year at the Fed, Greenspan’s quick action prevented the 1987 stock market crash from affecting the rest of the economy — and helped to keep the presidency in Republican hands.

Then came the recession in 1990, and with it, Bill Clinton’s victory. Worse, Mr. Greenspan was delighted with President Clinton’s deficit reduction, and appeared to reward him with an extraordinary job of keeping the economy growing on an even keel during the entire eight years.

And, increasingly, Mr. Greenspan has been at odds with key Republicans in Congress over the issue of tax cuts. As Mr. Bush has weighed in on this debate, he has found the prestige of the Fed Chairman to be an important roadblock in passing a sweeping tax cut bill.

Of course, Mr. Bush is not defenseless. He has the clever ex-Fed governor, Larry Lindsey, at his side. They apparently decided to up the ante, using the prospect of economic weakness to sell the Fed on their tax cut package. A good try, you might say.

But the Fed’s chairman would not be the sage he is if that maneuver had left him defenseless. To stall the new administration’s push for a tax cut, he simply decided to cut interest rates by an impressive half percent. That loads some stimulus into the economy over the next year — and thus removes pressures on him to endorse Mr. Bush’s beloved tax cut. So much for the arms race over taxes — and the tax cut.