Greenspan's heir apparent stays cryptic

The US Treasury official, considered by many Fed watchers the frontrunner to replace 76-year-old Alan Greenspan, ducked the issue like a pro during a briefing at the Foreign Press Centre in New York last week.

His first response was the standard "I'm very happy in my work" line. When your columnist observed that someone had to replace Greenspan some day and asked Taylor whether he would consider the job if approached, he replied: "Monetary policy responded to the (US) slowdown, interest rates were cut and our policies have been working well through the whole length of the 1990s and back to the 1980s. That's what the message should be: things are working very well and the evidence for that is there in many different places."

Even by Greenspan's cryptic standards, that was an astonishing effort. You could examine it for years trying to decode an answer to the question asked.

On the subject of the US economy, however, Taylor was not only direct, but also effusive. If President George W. Bush is looking for an economic cheerleader at the Fed, he may have found his man.

Taylor pointed out that the 1990's boom lasted a record 121 months and was followed by one of the briefest and mildest recessions in US history. Further, the 1980's expansion was the second-longest on record.

He suggested the US had entered a new era of longer expansions and shorter, tamer recessions. For this reason, there was every chance the expansion now underway would break all previous records.

"What we are seeing is an interesting situation where there are these long expansions occurring. It might well be that the first expansion of the 21st century will surpass those (the booms of the 80s and 90s)," he said.

"While we can't expect expansions to last forever, we can expect them to be longer."

Taylor, who was a professor of economics at Stanford University before joining Treasury, attributed this "change for the better" to sound economic policy, particularly Greenspan's handling of interest rates.

He predicted the rest of the world would follow the US lead, especially if other nations aspired to American levels of productivity growth.

"We are seeing a global turnaround that is remarkably in sync with the US ... so, it is the first global expansion of the 21st century," he said.

New York-born Taylor, 55, is Treasury undersecretary for international affairs. Considered a monetary policy guru, he combines impeccable academic credentials with extensive experience in government.

Like Greenspan, he is a Republican. The two worked together on President Gerald Ford's Council of Economic Advisers. More recently, he advised Bob Dole during his unsuccessful 1996 presidential tilt.

Taylor did economics at Princeton and received his PhD in the dismal science from Stanford at age 26. Not that anyone is making comparisons, but Greenspan didn't get his economic PhD until he was 51.

Here are Taylor's condensed thoughts on some other issues: Wall Street: "Good news on the economy should be good news for the market."

The US's strong dollar policy: "The Treasury Secretary (his boss, Paul O'Neill) has indicated there is no change on exchange rate policy."

The US's steel tariffs: "These are temporary tariffs - and I emphasise temporary - which do not affect our overall (free trade) strategy on trade."

The Euro: "I think the single currency is working very well."

Greenspan's fourth term as chairman expires in June 2004 - smack in the middle of the next presidential election campaign - and his tenure at the Fed ends altogether on 31 January, 2006.

Given that the 2004 campaign will start in 12 months, and given that he will not want to fiddle with the Fed in that atmosphere, Bush does not have a lot of time to ponder a replacement for Dr G.

One solution would be to nominate Greenspan for a fifth term - which would last only two years - and leave the question of a permanent replacement until after the election.

However, that might send the wrong signal: that Greenspan is irreplaceable. Probably better to anoint a successor before his current term expires.

If that's what Bush decides to do, John Taylor may suddenly become a name much more familiar to us all.

This is my final Wall Street column, as my time in New York has come to an end. I hope the column has brightened the occasional back-to-work Monday over the past three years. Thanks for reading.