Greenspan's diminishing aura

If Alan Greenspan were a politician facing election, he might well be worried. The Federal Reserve chairman's approval rating in public opinion polls have slipped abruptly in recent months.

Central bankers, of course, are appointed by the president, not elected. They are supposed to be independent from politics - willing even to risk a recession by taming the inflationary risks of a too-hot economy.

But they are also human beings, arguably no less prone to worry about their reputation than any other public figures. And Greenspan is no ordinary Fed chairman. He was long revered for presiding over a record economic boom, and more recently has been presiding over a "jobless recovery."

Once policymakers hung on his every pronouncement. Now, some have questioned the appropriateness of some comments, such as a recent remark that Social Security benefits may need to be cut.

In short, these are trying times for America's economic oracle. While managing the Fed in a seemingly fragile recovery, he also, analysts say, concerned with managing his own reputation in posterity, and perhaps with whether he wants to be reappointed when his term finishes in June.

"[Greenspan's] no longer so revered as he was in 1999," says Paul Kasriel, an economist at the Northern Trust Co. in Chicago.

Despite the most stimulative monetary policy in the memory of most Americans (one interest rate set by the Fed is at 1 percent), an NBC News/Wall Street Journal this month found that only 45 percent of Americans gave Greenspan a "very positive" or "somewhat positive" rating, down from 54 percent in a similar poll six months earlier. It's the first time in this decade that Greenspan's favorable ratings have dropped below 50 percent. The portion of respondents professing a somewhat or very negative view of Greenspan remains small, but rose from 10 to 14 percent.

If Greenspan accepts an expected reappointment offer from President Bush, he would be poised to become the longest-serving Fed chief ever. He has held the post since 1987. Greenspan's term as a Fed governor - separate from his chairmanship - expires on Jan. 31, 2006. By law, he can't be reappointed, though he could remain in office until a replacement was named and approved by Congress.

"He shouldn't pay attention to public opinion," says Allan Meltzer, a leading Fed expert at Carnegie Mellon University in Pittsburgh.

Indeed, in seeking relative price stability, central bankers often regard unpopularity as part of their job.

The trait is the stuff of jokes.

Walking through a museum of West Coast Indian artifacts in Vancouver, British Columbia, in the 1980s, Greenspan predecessor Paul Volcker spotted a particularly menacing mask and joked that it must have been that of the tribe's central banker.

Though they share policymaking with 11 other Fed officials, Fed chairmen are usually regarded as holding the most powerful economic position in the world. That's because monetary policy has a major impact on the ups and downs of the gigantic US economy, and thereby on the economies of its trading partners. As a result, Mr. Greenspan's words are followed closely both on Wall Street and in other major financial capitals.

Fed watchers cite two key factors to explain Greenspan's decline in the polls.

Probably most important is the end of the late 1990s economic boom, the bursting of the stock market bubble, with a brief recession and a nearly jobless recovery following. "There's a lot of anxiety in America today," says Mr. Kasriel. "The job market is less than exuberant. There is fear out there in household-land."

Though the recovery is proceeding at a vigorous pace and unemployment is relatively low by historical standards, polls show the public has a sour view of the economy.

The second factor could be Greenspan's multiple statements of his views, either in testimony to Congress or in speeches, on controversial non-monetary-policy issues. These include Social Security, tax cuts, huge budget deficits, globalization, the risk adjustable-rate mortgages, and foreign central bank purchases of US federal debt. "I'm waiting for him to testify on same-sex marriage," jests Kasriel.

Supporters say Fed chairmen have a right to express views on financial matters outside their purview. To some, Greenspan is a courageous truth-teller. Others with opposing views have become annoyed.

For instance, Joan Entmacher, an official at the National Women's Law Center in Washington, calls it "a travesty" for Greenspan to suggest cuts in Social Security benefits to rein in federal deficits generated by "tax cuts for the very wealthy and corporations."

Critics also recall Greenspan's vigorous support of the first Bush tax cuts. He said federal surpluses could be so large that the Fed might run out of Treasury bonds to buy back from the market. Instead, the nation now has a massive deficit.

The criticism can be harsh. Peter Schiff, head of Euro Pacific Capital in Newport Beach, Calif., calls him "Pinocchiospan," charging that he lied when he told Congress that interest rates wouldn't rise if foreign holders of US Treasuries chose to sell.

Earlier Fed chairmen have on occasion stepped into public-policy debates outside the Fed's monetary domain. During the Nixon years, Arthur Burns urged wage and price controls. Under Franklin Roosevelt, Marriner Eccles argued for stimulative policies, disputing the balanced-budget position of the treasury secretary.