Hard-pressed advocates of economic growth may soon get an unexpected boon: appointment to a long vacant seat on the Federal Reserve Board of a young member of the White House "perestroika group" that has been tangling with Budget Director Richard Darman about how to deal with recession.
According to senior White House officials, no final decision has been made. But the odds strongly favor the prospect that supply-sider Lawrence B. Lindsey, a 35-year-old middle-level presidential aide, will be the newest governor of America's central bank.
The inevitable reaction of Wall Street will be: Who is Larry Lindsey? But the former Harvard economics professor is well known inside the Beltway as the administration's most tenacious advocate of cutting capital gains tax rates to revive the sluggish American economy.
While Fed-watchers will surmise that the president is seeking a dependable governor to pump out money in the face of recession, Lindsey's appointment in fact would convey a subtler message: that the growth agenda has not been abandoned by George Bush and his chief of staff, John Sununu. Lindsey at the Fed would be unimaginable without the patronage of Sununu, who would thus demonstrate that the conservatives grown disaffected with him may be condemning too quickly.
Lindsey was on nobody's list when Manuel Johnson quit as the Fed's vice chairman five months ago. He certainly did not fit the qualifications privately listed by Treasury Secretary Nicholas Brady, who first wanted a politician (retiring Rep. William Frenzel of Minnesota was mentioned) and then a CEO who had met a mega-payroll.
With Fed Chairman Alan Greenspan coming under criticism from the president's men for not responding promptly enough to their demands for easier money, the White House wanted a vice chairman as sympathetic as it considered the departed Johnson. It was thus decided several weeks ago to promote the Fed's most junior governor, David Mullins, who left his job as an assistant secretary at Treasury only last May. So the mystery remained: Who would get the vacant governorship?
Surely not Lindsey, who sounded like a Reagan revolutionary bucking the Bush Thermidor. It is unusual enough for a Bush aide to write books ("The Growth Experiment," published this year) and articles, but Lindsey also resisted the general appeasement of Democrats. Asserting that the 28 percent capital gains rate "loses revenue, hampers entrepreneurship and blunts competitiveness," Lindsey contended it was "kept high out of envy and demagoguery."
That was not the message Darman wanted sent to the Democrats as he maneuvered toward a budget deal. Lindsey became a special target of Darman's lethal tongue at morning staff meetings. When Lindsey boosted capgains cuts on the "Money and Politics" television talk show, he got a heated call from Darman telling him: Quiet, please.
As part of the self-named "perestroika group" and the official Empowerment Working Group, Lindsey was one of the White House reformers upbraided in Darman's Nov. 16 speech that exposed the deep trouble inside the Bush team. It was expected that Lindsey would soon depart the White House, returning to Harvard.
That he instead may be installed at the Fed's marble palace on Constitution Avenue is testimony that Sununu, though castigated by the right for abandoning the conservative cause, has done no such thing. Although both the president and Treasury secretary seem to have buried capital gains cuts, Sununu has not. He wants to get it into this year's message.
Lindsey, of course, can do no more at the Fed to lower capgains rates than Greenspan (who privately is disposed to outright repeal of the tax). But naming to the Fed the clearest proponent of economic growth since Johnson would be a weather vane suggesting the climate at the White House is different than generally imagined.
Just what position Lindsey would take on the Federal Open Market Committee is less clear. His prolific writings contain precious little on monetary policy (nothing at all in his latest book). Furthermore, nearly as much as Supreme Court justices, Federal Reserve governors historically disappoint the presidents who appoint them. It is unlikely that Lindsey would be sympathetic to Darman's tight-fiscal, easy-monetary mix (suspiciously like Jimmy Carter's) as the road to growth.
But Lindsey named to the Fed would be an important symbol. At a time when Bush and Brady unconsciously have been parroting the Keynesian dogma that big deficits by themselves stimulate the economy, one of the academy's most brilliant deflators of Keynesianism may soon appear at the door of the central bank.