Feldstein Could Be Next Chair of Fed

Baker Professor of Economics Martin S. Feldstein ’61 may have left the federal government more than two decades ago, but keeping one foot in the door, he continues to exert powerful influence on national economic policy.

His proteges have risen to the nation’s top economic policy posts, and Feldstein himself has counseled the Bush administration from behind the scenes.

And now, after his 21-year break from government, some predict a return to the nation’s capital may be in store for the 65-year-old economist. Experts say Feldstein—an economic superstar who has gained international respect for his bedrock ideas in academia and policy—is one of three top candidates for the chairmanship of the Federal Reserve.

He began his career as an economist at Harvard nearly 50 years ago, but unlike other contenders for the post, Feldstein hasn’t held a job in Washington since 1984, when he finished a term as chairman of President Reagan’s Council of Economic Advisers (CEA). At the CEA, Feldstein gained a reputation as a conservative economist with a strong dislike for deficits.

During his tenure, he broke party ranks and advocated temporary tax hikes to reduce the deficit, a move that drew ire from Republicans and later prompted Reagan to hint that he might abolish the CEA.

But despite his rocky tenure in government, Feldstein maintains a close relationship with policy-makers in Washington to this day and remains a fervent supporter of President Bush’s economic policies.

In Cambridge, Feldstein runs the nation’s leading economic research center—the National Bureau of Economic Research (NBER)—which, among other things, decides when recessions officially begin and end.

Colleagues say leaders turn to “Marty” for his unparalleled acumen and straightforward advice.

“He’s just a good, very natural economist, someone who is able to think through any economic problem and come up with the right answer pretty quickly,” says Professor of Economics Caroline M. Hoxby ’88.

Feldstein’s peers say that he works like a human catalyst, providing the passion and vigor necessary to communicate his ideas and get them into practice.

“He has more energy than anyone else on the planet,” says Jeffrey B. Liebman, an associate professor of public policy at the Kennedy School of Government (KSG).

Feldstein’s experience in academia and his relationship with current administration officials have led many to speculate that when the seat of the Fed chair is vacant next January, President Bush will turn to Martin Feldstein to head the nation’s central bank.

HARVARD MAN

Born in 1939, during the final years of the Great Depression and at the onset of World War II, Feldstein grew up in the suburbs of New York City. He left for Harvard at age 17 and graduated four years later as both an economics concentrator and a pre-med.

Feldstein was torn between his interests in economics and medicine throughout his undergraduate career. After college, he was accepted to Harvard Medical School, but decided to postpone his enrollment after he received a full-ride scholarship to attend Oxford University.

“I discovered I really did like economics,” he says. “I was attracted to the fact that economics provided answers to important questions—it wasn’t just speculation.”

After earning his doctorate in economics at Oxford, Feldstein crossed the Atlantic to assume a professorship at Harvard while he was still in his late twenties.

Feldstein says that he initially decided to become a teacher because of the freedom it offered.

“The main thing that I found attractive is that a professor decides what he wants to work on,” he says. “Unlike working at a business or for the Federal Reserve or in the government...as an academic, you can pick what you find interesting.”

At Harvard, Feldstein’s name has become synonymous with the flagship Harvard course he has taught for 21 years: Social Analysis 10, “Principles of Economics.”

But this year marks a major milestone for Feldstein. Last month, he announced that he would turn over the reins of Ec10 to Freed Professor of Economics N. Gregory Mankiw.

Feldstein seems bittersweet about his departure from Ec10, which he calls a “very important part of my life.”

“It has been a great privilege teaching Ec10,” he says. “I will miss Ec10.”

He estimates that during his 21 years at the helm, more than 15,000 students have flocked to Sanders Theatre to hear Feldstein lecture on financial markets, aggregate demand, and macroeconomic growth.

Former doctorate student Jonah Rockoff says Feldstein’s popularity is a result of the personal connections he forms with his students.

“I think what’s really particularly great about Marty is that...when he sits down with you, you always are made to feel like there’s nothing else on his schedule and all he wants to do is talk and help you with your work,” says Rockoff, now an associate professor at Columbia Business School.

INFLUENCE

The author of more than 300 papers on economics and a mentor to hundreds of budding Harvard economists, Feldstein has maintained a significant influence on U.S. economic policy.

Winner of the John Bates Clark Medal of the American Economic Association in 1977—which, along with the Nobel Prize, is considered the most prestigious award in economics—he is most famous for his research on taxes and government spending and the way in which policy influences consumer behavior. His name frequently appears on the op-ed pages of major publications, and many say he is a driving force in persuading the public to back President Bush’s tax cuts.

Feldstein has served as president and CEO of NBER—a consortium of more than 500 economists—since 1984. NBER’s power comes from its reputation as a forum for top-notch researchers, who often turn to NBER first to publish their works.

In 1982, Feldstein began his stint as chairman of the CEA. He left after two years, citing the need to return to his teaching post in Cambridge (Harvard limits faculty hiatuses to two years).

But Feldstein doesn’t appear to miss life in the nation’s capital.

“It’s been 20 years, and I continue to be involved in a peripheral kind of way with government policy,” he said. “But I wouldn’t want to have had a full-time steady dose of that for the last 20 years.”

Feldstein has also advised scores of influential economists who have passed through Harvard’s gates, including University President Lawrence H. Summers, fellow Fed chair candidate and Columbia Business School Dean R. Glenn Hubbard, and KSG professor Liebman, who served as an economic assistant to President Clinton.

Liebman says Feldstein’s benevolent rapport with both Democrats and Republicans has earned him a positive reputation in Washington.

“He’s mentored economists with policy interests regardless of their politics,” Liebman says. “That’s enabled him to have his ideas be very influential no matter who’s running the show in Washington.”

ON THE ISSUES

Feldstein has been an ardent supporter of Bush administration economic policy in recent years.

In the immediate future, Feldstein says the pace of growth will be a chief concern for the American economy.

“We’re looking at a situation where we are unsure whether the economy is slowing down or not,” he says. “We have to work on maintaining economic growth rate and preventing an increase in inflation.”

A trusted outside adviser of President Bush, Feldstein says he supports the president’s efforts to reform Social Security by changing to a system of individual accounts.

Feldstein says he thinks President Bush has done “very well” in general with the American economy, pointing to his handling of the recession, tax reforms, and trade policy as positive steps for the U.S. economy.

But Feldstein does see peccadilloes in the Bush administration’s overall economic policy, but nothing particularly worrying, he says.

“There are always little things but I think the main thrust of policy has been the right one,” he says.

He is also supportive of current Fed chairman Alan Greenspan.

“There have been some crises along the way...but the Fed responded appropriately,” he says. “I think he gets very high marks.”

FELD AT THE FED?

Feldstein is consistently listed as one of three top contenders to become the country’s next chairman of the Federal Reserve, along with Fed Governor Ben S. Bernanke ’75 and Hubbard. (See related stories on Monday and Wednesday).

But Feldstein declines to offer any comment on the prospect of an appointment to the Fed and attributes the chatter to media hype.

“Everybody knows that Mr. Greenspan is going to retire, so there’s nothing happening other than press speculation,” he says.

But some experts say Feldstein’s chances of getting the Fed have diminished in recent months. Feldstein currently sits on the board of directors of the American International Group, Inc., an insurance company that has come under scrutiny for a financial scandal. (See story, right.)

But regardless of the scandal, he is still in the running for the Fed, says Thomas Schlesinger, executive director of the Financial Markets Center, a nonprofit research organization that monitors the Federal Reserve.

“I think he is taken seriously for his economic expertise in the Bush administration, and his views by-and-large seem to be in synch with those of the Bush White House,” says Schlesinger.

Schlesinger points to a speech Feldstein delivered at a recent Kansas City conference, in which he says Feldstein sided with Alan Greenspan in opposing inflation targeting—a concept pushed by Fed chair contender Bernanke.

“It is one of the most interesting distinctions we can draw between two of the guys who have been most mentioned frequently as potential Greenspan successors,” says Schlesinger.

David R. Gergen, director of the Kennedy School of Government’s Center for Public Leadership, says the nomination of Greenspan’s replacement will be a “critical appointment.”

“Many would argue that the appointment of the next Federal Reserve chair is as important to the future of the country as the appointment of the next Supreme Court justice,” said Gergen, a former adviser to Presidents Nixon, Ford, Reagan, and Clinton.

Gergen says he expects that President Bush will assemble a team of advisers to assist him in making the appointment, including Deputy Chief of Staff Karl Rove and two officials from the Reagan White House: former CEA chairman Michael Boskin and former Secretary of State George Shultz.

Despite the speculation, Feldstein remains mum on the possibility and says he is happy with being “Professor” Feldstein for the time being.

“I like teaching. I don’t see any reason to stop anytime in the foreseeable future,” he says.

—Staff writer Javier C. Hernandez can be reached at jhernand@fas.harvard.edu.