HASSETT WOULD BE A TERRIBLE CHOICE TO LEAD THE FED

Remember Arthur Burns ?

When deciding whether to accept an offer from Bloomberg News, one of the people I consulted was conservative economist Kevin Hassett. When I went there, I hired him to spar with Democrat Gene Sperling.
Until he became a Donald Trump enthusiast -- a high level White House economist in both the first and current Trump White House -- we had a good relationship.
He now is reported a leading candidate to be the next chairman of the Federal Reserve Board, succeeding Jay Powell next year.
That would be a disaster. Hassett's unwavering fealty to Trump would make a mockery of the independence of the Federal Reserve.
The last time that occurred was more than a half century ago and I'm familiar with that saga.
In 1971, Arthur Burns was chairman of the Federal Reserve. He was an eminently respected conservative economist and a friend of President Nixon, who had blamed his 1960 loss to John F. Kennedy on the restrictive monetary policies of the Federal Reserve's William McChesney Martin. As President, Nixon worried about a repeat in his 1972 reelection with rising inflation.
He was agitated with Burns' repeated calls for an "incomes policy" or jawboning business and labor to hold down prices and wages. The President wanted him to keep quiet.
The Wall Street Journal was the most influential newspaper on economic and monetary matters. I was the junior economics reporter in the Washington bureau.
That explains why early that summer I got a call from Van Shumway, a White House assistant to Charles Colson to come over for a big story. I liked Shumway, a former journalist, although Colson was a hatchetman.
In his Old Executive Office Building quarters, reading from notes, Shumway assured me the information had been cleared at the highest level, he said:
The President was annoyed with Burns who was privately lobbying for a pay raise for himself while calling for restraint from others. Therefore, the President might increase the size of the Fed and "pack" the board to dilute the Chairman's clout. He set ground rules that we could attribute this only to White House sources.
They were giving this "scoop" to me for a simple reason: I was inexperienced, a fish, who would bite for a big story.
I went back to the office and, guided by my bureau chief Alan Otten, the premier Washington journalist, wrote a piece about how the Administration was escalating a war with Burns and the Fed.
Of course the story they were leaking was bogus and weeks later Nixon instituted nationwide wage and price controls, more radical than what Burns suggested. A bureaucracy was set up to run this; among the leaders were Donald Rumsfeld and Dick Cheney.
I believe the phony leak about Burns served its purpose. He went along with the massive federal intrusion on the economy. Critically, he engineered an expansionist monetary policy over the next year. That helped Nixon win a landslide reelection in 1972. It also helped lead to double digit inflation by 1974.
That inflation only ebbed when Paul Volcker took over the Fed five years later and directed a hard line policy that drove up unemployment but brought inflation from 13.3% in 1979 to less than 4% three years later. Those policies didn't help the reelection of President Carter, who appointed Volcker, but paved the way for a robust economy.
Nixon would have won in 1972 even without Burns' accommodation, and Carter would have lost in 1980 even without Volcker's tough love.
The larger lesson is Volcker's courage and regard for the Fed's independence ultimately worked; he is considered one of the two or three best chairmen in the history of the Central Bank. Burns' loyalty to the President harmed the economy and tarnished his legacy.
Starting with Volcker, the Fed has been led by exceptionally able chairs who valued the central bank’s independence: Alan Greenspan, Ben Bernanke, Janet Yellen and now Powell. They have, on occasion, been criticized from the left and the right, and made a few mistakes. But they always honored the integrity of the institution, seeking to serve the best interests of the economy and the country, not the man.
Donald Trump, more than any President, has contempt for all institutions; he believes the Federal Reserve is there to serve him. I'll be skeptical of any Trump appointment to head the Fed; I know Kevin Hassett would be a dangerous choice.