'Whoa!' Says Senator, Let's Talk Fed Policy
Sen. Tom Harkin is considering holding up the confirmation of Alan Greenspan for a second term as Federal Reserve chairman until the New Year.
"It might be the wisest choice," says the Iowa Democrat.
Unless, that is, the Republican majority permits three days of debate on whether Mr. Greenspan has limited job growth too much.
Greenspan's four-year term as Fed chairman expired in February, though he continues de facto in the job. He was nominated for a second term by President Clinton. But Senator Harkin has used Senate rules to hold up the confirmation as a way of prompting not only a debate in the Senate but in the nation on what he terms Greenspan's "antigrowth" stance. "People are starting to stand up and take notice," Harkin says.
So are the Republicans. Shortly before his election as the new Senate majority leader Wednesday, Sen. Trent Lott of Mississippi told the press that the delay in the confirmation of Greenspan and two other Clinton nominees as Fed governors "has gone on long enough. My intent would be to cut it off pretty quickly. And if they [Harkin and other liberal senators] are not reasonable, they will have to pay the price."
Responds Harkin in an interview: "I am not going to take any threats from the new majority leader. I can play hardball too."
Senator Lott said that with two months and two weeks left in this session of Congress, the Senate has a lot of work ahead and "cannot give three days to anything."
Harkin charges that the Senate has "twiddled its thumbs" for the past two weeks and could afford the time to consider the nomination of a man who, "in terms of the economy, has more power than the president and all members of Congress put together." If the Fed cuts interest rates by half a percentage point, he notes, it would have more effect on a $7.5 trillion economy than reducing the deficit by a few billion dollars.
Harkin expects Greenspan to win confirmation, should it come to a vote in the Senate. There are reports that another Fed nominee, Alice Rivlin, at present director of Clinton's Office of Management and Budget, has run into trouble with Sen. Christopher Bond (R) of Missouri, over some of her budget positions.
Despite a personal appeal from Clinton, Harkin opposes the Greenspan nomination on the grounds that the Fed has kept growth too low by seeking about a 2.5 percent real rise a year. The senator says the nation can achieve at least 3.5 percent growth after inflation for several years. This, he says, would add $75 billion a year to output, create more jobs, encourage faster wage growth, boost productivity, and reduce the federal deficit.
"We have got to have a Fed chairman who understands growth policy, and Greenspan doesn't," Harkin says. Greenspan is "afraid of a reflection of a shadow of inflation."
That, of course, is not how Fed officials or some private economists see the situation. For instance, Roger Brinner and David Wyss of DRI/McGraw-Hill, a Lexington, Mass., economic consulting firm, say demographics and other factors put a "speed limit" of 2 to 2.25 percent real growth on the economy. They argue that inflation is already rising, albeit slightly, and that the drop in unemployment - below 6 percent since September 1994 - has begun to push up wages faster. Hourly wages and salaries rose 3.2 percent in the year ending March 1996, versus 3 percent and 2.9 percent in the years ending March 1995 and March 1994, respectively - putting pressure on businesses to raise prices.
This week's statistics show consumer prices up 2.9 percent in May over the previous May, but up at a 4.1 percent annual rate for the first five months of this year. Producer prices have risen at a 2.2 percent rate so far this year.
The Fed under Greenspan has acted to preempt faster inflation before it happens. Harkin says the Fed should put on the brakes only when inflation becomes a problem. Greenspan, he says, is operating as if the economy was still in the 1970s, when actually the United States has become so joined to the world economy that products imported from abroad will dampen any price-hiking trends, and outsourcing of output will restrain excessive wage hikes.
Maybe, Harkin says, unemployment could sink as low as 4.5 percent without kicking off inflation. "No one really knows."
But many economists maintain that education, technology, and other factors that influence productivity affect economic growth more than monetary policy does.
As for delaying confirmation to next year, Harkin likes the idea of each newly elected president being able to name a Fed chairmen at the start of his term with whom he would be comfortable.