- The Washington Times - Tuesday, August 14, 2001

These days, rumors that Alan Greenspan is putting the final touches on his letter of resignation are about a dime a dozen. But then again, the issue of a midterm resignation for the 75-year-old Fed chairman does have some plausibility. In Washington, where there's smoke there's usually at least some fire.
When President Clinton reappointed Mr. Greenspan to an unprecedented fourth term in June 2000, there were numerous rumors that the nation's top banker would not stick around for the full four years. Instead, he would permit the next president to name his own head of the central bank. At the time, it was widely believed that Al Gore would be the next president. And Mr. Greenspan has frequently said on the record that he believed Fed chairmen should serve "co-terminously," meaning presidents have the right to appoint their own Fed chiefs. So on this point alone, it would not be surprising if he retired next year.
Mr. Greenspan was first appointed to the Fed by Ronald Reagan in 1987 and has a long history as a Republican economic adviser. During the 1990s, he developed a close working relationship with Democrat Bill Clinton and his Treasury Secretary Robert Rubin. The recent book "Maestro," by Bob Woodward, confirms this, as did an earlier Woodward book on the first days of the Clinton administration.
In George Bush's Washington, however, there is considerable nervousness about the current state of the U.S. economy, and whether or not recovery over the near-term is truly in the cards. This past winter and spring, the Fed chairman and numerous Reserve Bank presidents put out the word that there would surely be a second-half recovery following the Fed's interest-rate cuts. Treasury Secretary Paul O'Neill, a longtime Greenspan friend, bought into this view.
Lately, however, the deflation of technology and manufacturing has led to deeper cutbacks of inventories and jobs than anyone thought probable 90 days ago. What's more, several Bush economic advisers are now increasingly worried about continued raw material commodity deflation, a development that does not augur well for any near-term snap-back of the economy.
So, once again, Mr. Greenspan has changed his line. Now, his official word is that there will be a fourth-quarter recovery, but nothing to write home about this summer. Recently, the estimable Fed chairman even told Congress that "we're not out of the woods yet." The Bushies know full well that this year is Mr. Clinton's recession, but without clear signs of an upturn, next year it becomes Mr. Bush's recession.
Surely, Bush political adviser Karl Rove recalls that Ronald Reagan's prolonged 1982 downturn contributed mightily to a 25-seat Republican loss in the House that year. A repeat performance next November would be devastating to George Bush's political fortunes. So naturally, the Bushies look to Mr. Greenspan to solve the problem.
As for Mr. Greenspan's performance, numerous economic analysts in Washington, on Wall Street and around the country have become frustrated with his confusing pronouncements on the economy. Very much like the old quiz show, "To Tell the Truth," hosted by the elegant Bud Collyer in the '50s and '60s, many economists are now demanding, "Will the real Alan Greenspan please stand up."
In order to justify the Fed's scorched-earth deflation policies of last year, Mr. Greenspan has at various times cited the so-called diminishing pool of available workers, an alleged excess of demand over supply, productivity gains (that he first argued as positive and then negative), M2 money-supply growth (that he first said was unimportant but recently noted is important) and the significance of consumer confidence as a recovery indicator (a measure he backed off once recovery failed to materialize).
During the early 1990s, Mr. Greenspan argued that financial- and commodity-market signals were the best Fed policy guides, but just last week he told Sen. Bob Bennett, Utah Republican, that those indicators had no real monetary content. If Mr. Greenspan returned to real-time market price indicators — be it stocks, Treasury bond rates, commodities or the dollar exchange rate — he would see the need for much more easing.
Sometimes the chairman throws in real corporate bond rates, other times he argues a short-term Phillips Curve tradeoff between unemployment and inflation. In fact, at bottom, no one knows what the Fed is targeting. There are no clear rules or guidelines. And it is precisely this confusion that is keeping venture capitalists, ordinary investors and corporate CEOs from taking risks, making new investments and creating jobs.
In the old days of "To Tell the Truth," stylish panelists like Polly Bergen, Kitty Carlisle and Ralph Bellamy could always make clear-sounding judgments when the mystery guest finally stood up. Would that today's markets could do likewise.
Perhaps it is time for some new blood at the nation's central bank.

Lawrence Kudlow is a nationally syndicated columnist.

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