The Economist: Don Kohn should fill Alan Greenspan's shoes

The Economist cover story this week is about Alan Greenspan, A hard act to follow. The leaders notes that although President Bush said last week he's looking for a successor to Mr Greenspan who would be seen as politically independent and who would thus inspire global confidence:

...the leading candidates have all advised or worked for Mr Bush. Mr Greenspan, of course, also has close Republican ties, but financial markets will be less forgiving of his replacement. Any suspicion that Mr Bush has selected someone simply because he is a loyal Republican would undermine confidence in the next chairman, even before he takes office.

Their choice of Donald Kohn as Greenspan's replacement may surprise some readers, but their argument is a reasonable one:

If Mr Bush means what he says about the next chairman being politically independent, then we believe the best choice would be Don Kohn, a governor on the Federal Reserve Board, who is not affiliated to any party. Mr Kohn has another big advantage. As a staff member before being promoted to governor in 2002 on Mr Greenspan's recommendation, Mr Kohn has been attending the Fed's policy-making meetings for almost 24 years, even longer than Mr Greenspan.

His vast experience of monetary-policy decisions and financial crises would be invaluable in troubled times. He is highly regarded by economists in the Fed and on Wall Street, and having worked with Mr Greenspan for so long, his thinking on interest-rate policy and financial markets is also close to the chairman's. He would offer continuity and a safe pair of hands.

Of course it would go quite against the grain for President Bush to appoint someone with as much experience, integrity and independence as Don Kohn. Mark Thoma recently pointed to a Bloomberg story on Governor Kohn as the Next Fed Chair? and commented:

I'm a stronger advocate of inflation targeting than Kohn, but I would not oppose him and a Greenspan clone with his experience would not be likely to upset financial markets.

An accompanying Economist article, Who will succeed Mr Greenspan? (subscribers only) discusses "the main candidates commonly touted" as Greenspan's replacement. They argue that each "has serious drawbacks".

Comments

[Edward Hugh]

Maybe I follow too much football, but I can't help feeling that the putting the former manager's co-worker in to run the team isn't a good long term approach (although Bob Paisley did prove me wrong). Really I suppose it depends on what you expect from the next Fed chairman. If you think that Greenspan is such a hard act to follow that failure is guaranteed, then maybe Kohn's your man (with no disrespect for Don Kohn intended). I mean this simply in the sense that this would suggest an inter-regnum.

On the other hand, if you think starting a new era with a fresh page is a good approach you'll go for an outsider, and maybe even someone not currenty tipped as a favourite. One problem which the Economist indirectly touches on is that this is a bad moment for the change in the sense that Bush's authority (see the Miers affair) is under even more challenge than it usually is. This may not make for a good decision. Obviously in this sense Kohn is a safe bet.

OTOH I still go with Bernanke, even though he may be too much of an academic and an intellectual for the bankers to stomach.

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