SYNOPSIS:

Alan Greenspan is expected to retire next year. The Bush administration, because of its nature, will have a hard time finding a successor.

One Fed chairman famously described his job as being to "take away the punch bowl just when the party gets going." Bond and currency markets want monetary policy in the hands of someone who will say no to politicians. When a country's central banker is suspected of having insufficient spine, the result is higher interest rates and a weaker currency.

Today it's even more crucial than usual that the Fed chairman have the markets' trust. The United States is running record budget and trade deficits, and the foreigners we depend on to cover those deficits are losing faith. According to yesterday's Financial Times, central banks around the world have already started shifting into euros. If Mr. Greenspan is replaced with someone who looks like a partisan hack, capital will rush to the exits, the dollar will plunge, and interest rates will soar.

Yet President Bush, as you may have noticed, only appoints yes-men (or yes-women). This is most obvious on the national security front, but it's equally true with regard to economic policy. The current Treasury secretary has no obvious qualifications other than loyalty. The new head of the National Economic Council apparently got the job because he is a Bush classmate and fund-raiser.

Of course, Mr. Greenspan himself has become a Bush yes-man. The chairman acted as a stern father figure, demanding fiscal rectitude, when Democrats held the White House. But he turned into an indulgent uncle when Mr. Bush took office. First, he urged Congress to cut taxes in order, he said, to prevent an excessively large budget surplus. Then, when surpluses were replaced by huge deficits, he supported a highly irresponsible second round of tax cuts.

Nonetheless, Mr. Greenspan retains considerable credibility with the markets. Who else can satisfy both Mr. Bush and foreign investors?

For a while, the presumed front-runner to succeed Mr. Greenspan was Martin Feldstein of Harvard. Mr. Feldstein, like Mr. Greenspan, has a reputation built over a long, distinguished career. Also like Mr. Greenspan, he is a former crusader for fiscal responsibility who became an apologist for budget deficits once Mr. Bush took office.

I've known Mr. Feldstein a long time, and worked for him at Ronald Reagan's Council of Economic Advisers. He used to be a deficit hawk; now, out of what may be sincere conviction but looks from the outside like an effort to demonstrate political loyalty, he endorses tax cuts in the face of large budget gaps and gigantic borrowing to privatize Social Security.

But it's reportedly not enough, because right-wingers have never forgiven Mr. Feldstein for his finest hour - the time when, as a member of the Reagan administration, he spoke out against deficits. It's not just vindictiveness on their part: a man who once took a stand on principle while holding office might do so again once ensconced at the Fed.

Glenn Hubbard of Columbia, who served in the administrations of both Bushes, is also frequently mentioned. He's a smart economist, but everything in his policy career suggests that when the party really got going, he would say: "More punch? Yes, sir, whatever you want."

The last name one often hears is Ben Bernanke, currently a member of the Fed's Board of Governors. (Before going to the Fed, Mr. Bernanke was chairman of the Princeton economics department, where I'm on the faculty.) If Mr. Bernanke were appointed directly from his current Fed position to the chairmanship, there would be general acclaim. But he may soon move to the Council of Economic Advisers. Why?

Surely it's not because this administration, with its disdain for technical expertise in all fields, wants his advice. I hope I'm wrong, but my guess is that what's intended for Mr. Bernanke is a form of hazing: he will be expected to prove his loyalty by defending the indefensible and saying things he knows aren't true.

That might seem a tolerable price to pay for the Fed chairmanship - but a year of it might well make Mr. Bernanke damaged goods from the point of view of the markets.

It's a dilemma. I don't have any sympathy for the administration's perplexity. But I do wish Mr. Bernanke the best of luck, and hope he knows what he's doing.

Originally published in The New York Times, 1.25.05