Within the next three months, Alan Greenspan will retire. Personally, I don’t put him in the complete “political hack” category, although I will admit he has made some questionable calls for what appear to be purely partisan reasons. My main complaint with Greenspan is his failure to raise interest rates in the 1990s and 2000’s to prevent asset bubbles from bursting. But, that is not the reason for this essay.
The reality is the US economy is entering a very difficult period. We are facing a second asset bubble bursting, energy inflation, a federal deficit out of control, another year with a record trade imbalance, global competition driving down US wages, extreme income stratification and a lack of any meaningful economic development to create 21st century jobs. One of these tasks alone would be difficult; together they almost seem insurmountable. To deal with them, we need leadership – strong-willed leadership. We need someone like Paul Volcker.
For those of you unfamiliar with Volcker, he is my favorite Fed chairman (yes I actually have a favorite Fed Chairman – I am a real econ geek). In the early 1980s, the US was in the midst of stagflation – high unemployment and inflation. Volcker had the unenviable task of dealing with this situation. His answer was to jack-up interest rates until inflation dropped to a manageable level. It was a painful period as the US went through 2 recessions. However, there was no other way to wring inflation out of the system without this policy measure.
Volcker knew he was creating pain for the economy as a whole. He was criticized and burned in effigy. However, he stick to his guns and 25 years later, we are better for it. While he didn’t completely beat inflation, he certainly put it in its place.
And here is where the problem comes. We need another Volcker in the US economic policy arena. We need someone who will stand-up and call a spade a spade. We need someone who will be willing to disagree with the administration when their policies are wrong. We need someone who will say for the deficit to go, you either have to lower spending or increase taxes. We need someone who will say a trade imbalance like the US’ is unsustainable. We need someone who will talk about needing to create good-paying jobs. We need an economic leader.
Bush’s track record on appointments is to seek out the most loyal person – not the most qualified or able. Bush doesn’t have enough confidence in his own opinions to deal with disagreement nor the self-confidence to admit policy mistakes. As a result, we face a strong possibility of an economic sycophant like Treasury Secretary Snow.
Should Bush appoint someone like Snow – a glorified yes man – we will be in very deep trouble. We will lack someone with a vision for dealing with these Bush created problems. In short, we will be in for a rougher economic road.
