President Bush has famously changed the composition of the Supreme Court with the appointments of judges John Roberts and Samuel Alito, two big conservative victories. But equally interesting is the president’s overhaul of the Federal Reserve, which becomes the “Bernanke Fed” with the retirement of Alan Greenspan this week. While the Supreme Court has loudly gone right, our central bank is quietly doing the same.
Late last week, the president nominated Kevin Warsh and Randall Kroszner to fill two vacancies on the Fed’s Board of Governors. Warsh is a current White House economic advisor and a former Morgan Stanley investment banker. Kroszner is the University of Chicago economics professor who served on the Council of Economic Advisors during Bush’s first term. The two nominees are tried and true free-market, low-tax, deregulation-inclined policy advisors.
Prior to this, 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 Republican congressman Bill Frenzel of Minnesota. All told, Bush has appointed six of the seven current board members, an incredible turnover. While they are not all supply-siders (Donald Kohn is more of a traditional Washington Keynesian while Roger Ferguson is a Clinton-era carryover), I would say this Fed board is at the margin much more supply-side -- in terms of an allegiance to low taxes and regulations -- than prior boards.
Adding together the shifts to the Supreme Court and the Federal Reserve, it could be argued that the policy organs that hold sway over the judicial and monetary influences on business are more free-market, Reaganesque, and pro-growth than anything we’ve 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 Ip’s piece discussed a more open and transparent central bank. And monetary transparency is a good thing. 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 in its operations, but fortunately biased towards free-enterprise growth in its underlying philosophy. The same, in theory, could be true of the Supreme Court.