Who Is Alicia Munnell? And Why Is She Drawing Fire?Dean Foust and Mike Mcnamee
Presidential nominations to the Federal Reserve Board are normally humdrum affairs. In fact, Congress hasn't rejected a central-bank nominee in more than eight decades. But this is the Clinton White House, which seems unable to fill any job easily. And that creates uncertainty for the Clintonites' expected choice for a Fed opening: Alicia H. Munnell.
Munnell, Assistant Treasury Secretary for Economic Policy, hasn't yet been formally nominated to replace Governor John P. LaWare. But Senate Republicans already have launched a preemptive strike against the 52-year-old economist, charging that she is too liberal for the job. On May 10, 10 GOP senators warned Clinton to appoint a candidate who will focus on one issue: price stability. That was a thinly veiled attack on Munnell, whom Republicans believe to be an inflation dove. "It was a wake-up call to the White House," says Senate Banking Committee Chairman Alfonse D'Amato (R-N.Y.), whose panel handles Fed nominations. Republicans are "very concerned that she may not have a proper appreciation for the dangers of inflation," he adds.
Another GOP gripe: Joint Economic Committee Chairman Connie Mack (R-Fla.) blasts Munnell for her past advocacy of taxing pension assets. Given her liberal positions on pensions, taxes, and other issues, he says, "I don't think she can make it" through confirmation.
REVISIONIST HISTORY? Munnell isn't talking, but her Administration backers argue that after 20 years as an economist at the Federal Reserve Bank of Boston, she knows well the evils of inflation. But they're hampered in defending her because as a loyal Fed soldier, she never spelled out her personal views on managing the economy. "There isn't a paper trail of her views on monetary policy," says a Treasury colleague. Charges another: "Some conservatives are doing with her what gun lovers did with Waco. They're creatively rewriting her history."
Munnell made her reputation at the Boston Fed with studies of wealth distribution, savings, and retirement policies. She has criticized private pension plans as tax breaks for "a relatively privileged subset of the population" that don't increase national savings. In a 1992 article, she advocated imposing a tax on both accrued benefits and future contributions--and using that revenue windfall to cut the budget deficit or pay for education or infrastructure projects.
Munnell gained additional notoriety with a groundbreaking 1992 study that found systemic racial discrimination in mortgage lending among Boston banks. After reviewing 4,500 loan applications made in 1990, she and her co-authors concluded that blacks and Hispanics were 60% more likely to be denied mortgage loans than similarly qualified whites. The study served as a catalyst for greater scrutiny of bank lending practices by federal regulators. But it has come under fierce attack from conservatives and bankers, who say that the data used were flawed and that the discrepancies in lending rates may have been caused by other factors. "It troubles me that poor research would be the basis for an all-out attack on an industry," says James Chessen, chief economist for the American Bankers Assn.
Little wonder, then, that bankers seem intent on persuading Senate Republicans to block Munnell in favor of a banker. After all, they note, LaWare was the only banker on the Fed board, and Chairman Alan Greenspan is said to prefer an industry representative.
OPTIONS. Munnell's fate may ride on whether Clinton can stomach another bruising confirmation fight on the heels of the battle over Surgeon General designate Henry Foster. The Administration already has had problems filling the seat: Its first choice, North Carolina banker John G. Medlin Jr., declined for personal reasons, leaving Munnell as the only clear candidate. But as the Clintonites drag out their deliberations, conservative attacks on Munnell may give them pause. Officials admit they may have to reconsider the nomination, though they have no backup.
Even if a fight erupts over her nomination, Munnell could yet win out. After all, the GOP raised similar qualms at her 1993 Treasury confirmation hearing and she was approved anyway. But if Senate Republicans make good on their threats to staunchly oppose her, her nomination will embroil the Fed in a rare partisan fight. That could portend even nastier battles next year, when the terms of Greenspan and Vice-Chairman Alan S. Blinder expire. The Munnell controversy may prove to be only a warmup.
GOP gripes about Alicia Munnell:
MORTGAGE DISCRIMINATION Munnell co-authored a 1992 redlining study while at the Boston Fed that used mortgage data to argue that Boston banks were discriminating against minorities. The study resulted in closer federal scrutiny of lending practices and legal action against banks.
TAXING PENSION ASSETS In 1992, Munnell proposed lowering taxes with a one-time tax on pension funds, plus an ongoing tax on future contributions. She argued that private pension programs are a tax shelter for the affluent.
ECONOMICALLY TARGETED INVESTING Republicans charge that Munnell wants the government to force pension funds to invest in projects with social objectives. But Munnell-backers say she always has opposed trading lower returns for social considerations.