Just to follow up on my contention that this Fed will be a highly political body. Every board member has been appointed by GWB with the notable exception of Ferguson (appointed by Reagan and reappointed by Bush in 2001).
There is no better endorsement of this theory than this one from Kudlow:
Righting the court and the Fed
washingtontimes.com
By Lawrence Kudlow
February 1, 2006
President Bush has famously changed the composition of the Supreme Court by appointing Judges John Roberts and Samuel Alito, two big conservative victories.
Equally interesting is the president's overhaul of the Federal Reserve, which becomes the "Bernanke Fed" with the retirement of Alan Greenspan this week. The Supreme Court has loudly gone right. Our central bank is quietly doing so too.
Late last week, the president nominated Kevin Warsh and Randall Kroszner to fill two vacancies on the Fed's Board of Governors. Mr. Warsh is a current White House economic adviser and a former Morgan Stanley investment banker. Mr. Kroszner is the University of Chicago economics professor, who served on the Council of Economic Advisers during Mr. Bush's first term. The two nominees are tried and true free-market, low-tax, deregulation-inclined policy advisers.
Prior to this, Mr. Bush appointed two other Fed board members: Susan Bies, a former Tennessee banker, and Mark Olson, who was with Ernst & Young and U.S. Bancorp and was a legislative assistant to former Rep. Bill Frenzel, Minnesota Republican.
All told, Mr. Bush has appointed six of the seven current board members, an incredible turnover. While they are not all supply-siders (Donald Kohn is more a traditional Washington Keynesian while Roger Ferguson is a Clinton-era carryover), I would say the Fed board is marginally much more supply-side -- in terms of an allegiance to low taxes and regulations -- than before.
Adding together the shifts to the Supreme Court and the Federal Reserve, it could be argued the policy organs that hold sway over the judicial and monetary influences on business are more free-market, Reaganesque, and pro-growth than anything seen in a long time.
Ironically, a Page One story by Greg Ip in the Wall Street Journal carried the headline, "New chairman will take over an increasingly Democratic Fed." But Mr. Ip's piece discussed a more open and transparent central bank. And monetary transparency is good. But the real story is that the Fed is increasingly Republican in terms of inflation-fighting, taxes and regulations. With little fanfare, we have a Bush Fed that will continue to be independent but fortunately biased toward free-enterprise growth in its underlying philosophy. The same, in theory, could be true of the Supreme Court.
Clearly, Alan Greenspan departs the Fed with a strong economic legacy intact. During his 18-year tenure, yearly real economic growth averaged 3.1 percent, inflation 2? percent, and unemployment 5? percent. Inflation is the cruelest tax of all on an economy. Paul Volcker broke inflation in the 1980s, and Mr. Greenspan held to that tradition almost two decades more.
Under Ben Bernanke, the central bank is likely to hold to the idea price stability is the cornerstone of solid economic growth. Look for Mr. Bernanke to keep the Fed focused on forward-looking commodity and bond-market indicators to contain money-supply growth and steady monetary value in pursuing domestic price stability.
With a firm monetary foundation, Reaganlike policies of low tax rates and free-market deregulation will afford American entrepreneurs the freedom and rewards necessary to maximize economic growth. Without question, the private sector must be liberated so it can be an effective engine of prosperity. President Reagan restored and rejuvenated this capitalist model 25 years ago; its success has been copied worldwide.
Through numerous presidential and congressional cycles, the Reagan model, if anything, has been strengthened. Mr. Bush's appointments to the Fed and the Supreme Court are the latest testament to this. This leads me to say: If Mr. Bush is to complete the golden circle of free-market economic growth, he must follow his excellent Supreme Court and Fed appointments by pressing Congress to make the 2003 tax cuts permanent.
Interestingly, recent Pew Research Center polling shows much stronger support for the free-enterprise model than mainstream media doom-and-gloom pessimists would have us believe. Fifty percent of those polled by Pew approve of major cuts in federal income-tax rates, with only 38 percent disapproving. Regarding the Bush tax cuts on capital gains and investor stock dividends, 50 percent believe they should be extended and only 35 percent are opposed.
It would seem not only do most folks want higher after-tax rewards and the chance to keep more of what they earn, but the tax cuts symbolize a move to a free-enterprise economy.
To meet this challenge, the earmark-happy Republican Congress and an overspending White House must change their budgetary stripes and show they are capable of free-market reforms that will preserve the Reagan legacy of economic growth and optimism for the future.
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