Why Alan Got Bush's First D.C. Call

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Happy landings? The President-elect and Alan Greenspan following a meeting

President-elect George W. Bush may be relatively new to Washington, but when he came to town Monday with a $1.3 trillion across-the-board tax cut on his mind, he knew just the man whose ring he had to kiss first: Alan Greenspan, pontiff of the U.S. economy.

It must have been an interesting breakfast. There may be a touch of bad blood between the two — Bush's father blamed his 1992 unseating partly on Greenspan's reluctance to cut interest rates in the early '90s. Greenspan has made it perfectly clear (by his standard, anyway) that he prefers debt reduction to a big tax cut. And the meeting came a day before Greenspan and the FOMC meet, at which time they are likely to restore the Fed's neutral bias toward interest rates headed into the winter.

And thus, in an early-morning meeting whose minutes we will never read, came the first big test of Bush's vaunted people skills. One of the hallmarks of Bill Clinton's unparalleled economic run was his cordial relationship with the Fed; Bush would be wise to follow that lead. Yet the first thing he's bringing Greenspan is a plan to rock the boat.

Greenspan's political skills

A slightly safer topic: treasury secretary. Bob Rubin and Larry Summers, both Greenspan buddies, are tough acts to follow, and one hopes Bush ran his Treasury shortlist (currently headed by ALCOA chief Paul O'Neill) by the Fed chairman, because the relationship between the Bush administration and the Fed will be Topic A for Wall Street's Beltway-watchers. The bad news: The new treasury secretary's first job will be selling that very same tax cut.

But don't climb on the ledge just yet. Greenspan knows how to handle politicians, and he must know when not to worry about them. Bush is facing a House divided and a Senate split right down the middle, and to an economist, gridlock is always preferred. Even if the cut passes in full — which Dennis Hastert has already placed in doubt — any economic impact is at least a year away, long after Greenspan's spring landing has been judged soft or hard by economists.

So Father Greenback can be indulgent of Bush's use of an uncertain economic spring as a political foot in the door. By then, the Fed will have cut rates if it feels it needs to, and the cloud over the boom may well have passed. Bush, for his part, brought Bush senior's adviser Larry Lindsey along to help sell the cut as harmless (he's a former Fed governor, so he and Greenspan speak the same language). Besides, there is a legitimate economic case for putting a couple of bucks back in consumers' pockets, as long as the new administration treads lightly.

Flattery flies

And when it comes to treading lightly, Bush is living up to his no-crushed-toes billing. At the post-meeting photo-op, Bush started spreading the love, calling the Fed chairman a "distinguished, thoughtful economist." And when reporters started sniffing for discord, Bush replied, "One of the things I'm certain that I should not do as President-elect is to try and put words in the mouth of Alan Greenspan."

So far, so good.