March 15 (Bloomberg) -- While Federal Reserve Chairman Alan Greenspan is certainly political, he is no ``hack,'' as Senate Minority Leader Harry M. Reid declared recently.

During his 17 1/2 years as Fed chairman, Greenspan has toiled endlessly -- and largely successfully -- to shield the U.S. central bank from assaults on its independence, whether from Congress or the White House.

Greenspan is keenly conscious of a point made in 1986 by political scientist Donald F. Kettl of the University of Pennsylvania in his book, ``Leadership at the Fed'': The Federal Reserve has no power base of its own. To be successful, it has to have either the president or Congress on its side, and preferably both.

Reid, a populist Democrat from Nevada, has been a Greenspan critic for years, primarily because he has wanted lower interest rates than Greenspan and his central bank colleagues have thought wise.

Now Reid is upset that the Fed chairman hasn't been sufficiently critical of the tax cuts and budget deficits of the Bush administration, and Reid has a point. Even when Greenspan has attached caveats to his support of tax cuts, as he did in 2001, President George W. Bush and his Republican allies could claim that Greenspan supported the basic notion that a large personal income tax cut was appropriate.

Giving His Support

The president and his aides can also claim that the Fed chairman has supported creation of private investments accounts, Bush's key proposal related to Social Security. Never mind that such accounts, financed by borrowing, as Bush has proposed, wouldn't add a penny to national saving, which Greenspan says is the real issue.

On the other hand, Reid doesn't seem to care that Greenspan supported President George H. W. Bush's effort in 1990 -- in conjunction with congressional Democrats -- to reduce budget deficits. Bush later regretted his actions because the deal included tax increases.

Greenspan also supported President Bill Clinton's proposal in 1993 to raise taxes, primarily on higher income taxpayers, as part of a plan to reduce the federal budget deficit explicitly to bring down longer-term interest rates.

That support paid off handsomely the following year when the Fed began to increase interest rates rapidly to keep inflation under control at a time when the U.S. economy began to grow quickly.

The Presidency

Despite some serious qualms, Clinton stuck with the policy that his economic advisers had enunciated at the beginning of his administration: There would be no public comments on monetary policy.

Eventually, of course, Clinton reappointed Greenspan to the Fed chairmanship and publicly sang his praises.

Later in the Clinton years, when the federal budget moved into surplus, Greenspan strongly supported Clinton's tight fiscal policy position. At every turn, the Fed chairman told congressional questioners, ``Let the surpluses run.''

The reality is that Greenspan has a thing about the presidency. He seems to revere the office.

When he meets with presidents, regardless of party, he never reveals what has been said, even to colleagues at the Fed. If the president or other White House officials do so, that's okay. He simply doesn't do it himself.

Nuanced Comments

``Fed chairmen in general, and Greenspan in particular, seem to have concluded that they maximize their independence on monetary policy by cooperating with presidents on the rest of the president's agenda,'' analyst Tom Gallagher of International Strategy and Investment Group, told his clients earlier this month. ``Greenspan has served under four presidents, and it's hard to come up with a time when he was notably critical of any of their fiscal policies''

``There is a constraint in this calculus, which is that he doesn't want to lose credibility with the opposition party by being too supportive. His comments, both supportive and critical, are always more nuanced and qualified than generally get repeated in the political debate,'' Gallagher said.

That certainly was true in 2001 and has been true again this year, particularly in the raging debate over Social Security solvency and the creation of private accounts.

Budget Deficits

Some of Greenspan's Fed colleagues have always been less than happy with his penchant for speaking out on fiscal policy. Privately they wish he would adopt the same approach he uses to turn aside questions about the dollar. He and the secretary of Treasury have an understanding, Greenspan says. The secretary doesn't talk about monetary policy and he doesn't talk about the dollar.

Nevertheless, Greenspan has been talking about the danger of budget deficits for decades. And in 1987, after he was nominated to the Fed chairmanship but before he was confirmed, he was on two Sunday talk shows. He said not a word about monetary policy. Instead, he inveighed repeatedly against budget deficits.

Even some other Fed officials who would prefer he had less to say about fiscal policy recognize it is hard for a Fed chairman to say ``No'' when a congressional committee asks him to discuss a particular topic.

For one thing, during his confirmation hearings, a standard question from the chairman of the Senate Banking Committee has always been, ``When asked, do you agree to appear to testify before Senate committees?'' The answer, naturally, is, ``Yes.''

Being `Philosopher-King'

Prior to his appearance before the Senate Budget Committee early in 2001 at which Greenspan supported a large personal income tax cut, he had received an invitation to appear from the then committee chairman, Senator Pete V. Domenici, a Republican from New Mexico, and the ranking Democrat, Senator Kent Conrad of North Dakota.

The letter of invitation read, in part, ``The budget surpluses projected for the next decade have generated considerable debate over the appropriate course of future fiscal policy. Your assessment of both the up- and downside risks to the assumptions underlying the recent budget projections will help us assess the likelihood that projected surpluses will materialize with current policies unchanged.''

Would Greenspan's successor be able to reject such a request to appear and answer such questions?

Perhaps, or perhaps not. After all, the Fed is part of the Congressional branch of government, and no Fed chairman with political smarts is likely to brush off such invitations.

At the same time, Greenspan's successor won't immediately have his stature and maybe he won't get such invitations.

As ISI Group's Gallagher put it, ``It seems a good bet that the role we've all become accustomed to, that of Fed chairman as philosopher-king (someone who influences policy by dint of his competence and ability) will end at least temporarily with Greenspan, until his successor demonstrates comparable abilities.''

To contact the writer of this column: John M. Berry in Washington at jberry5@bloomberg.net.

Last Updated: March 15, 2005 00:11 EST