Herman Cain: Federal Reserve Chairman, Tea Party Champion

The businessman's tenure with the Kansas City Fed should make for interesting debates with anti-Fed stalwart Ron Paul


There's no question that Herman Cain is the big winner in the the latest national Gallup poll of Republican presidential primary contenders, where he won 8 percent support. That's higher than Tim Pawlenty, Jon Huntsman, Michele Bachmann or Rick Santorum. Most voters still haven't heard of Cain or think of him simply as the black tea party candidate and former Godfather's Pizza CEO who once hosted a talk radio show.

But Cain has a fascinating background and has followed a political path that's the opposite of what you normally see. It's not uncommon to move from the fringes of the business world to the center of the political world: Harry Truman was a haberdasher and became president; Tom DeLay was an exterminator and became House majority leader. But it's rare for someone to journey from the top of the business world to the tea party political fringe. That's what Cain has done. Although it hasn't gotten much attention, he was actually chairman of the Kansas City Federal Reserve Bank in the mid-1990s. That's the epitome of the Establishment and the opposite of the tea party.

The Kansas City Fed is one of twelve regional banks that advise the Federal Reserve Board and initiate changes in the discount rate. The Kansas City Fed in particular has a reputation for monetary conservatism and distrust of central authority. (Along with the Dallas Fed, it's one of only two Fed banks currently pushing for higher discount rates.) Curious about Cain's chairmanship, I requested an interview with Thomas Hoenig, the president of the Kansas City Fed (then and now), who is a famous inflation hawk. I didn't get to talk to Hoenig, but he sent along this statement:
From 1992 to 1996, Herman served as a director of the Federal Reserve Bank of Kansas City in the capacities of deputy chairman and then chairman of the Board. Fed directors are dedicated representatives of Main Street business, community development, organized labor and financial services sectors who agree to give their time to help the Federal Reserve understand the economy and to oversee our operations. It was my privilege to work with Herman very closely during his five years on the Kansas City board.

I appreciate the opportunity to provide greater understanding of the role of Federal Reserve Bank directors because they provide a tremendous service to our country.
I had better luck with Drue Jennings, a Kansas City lawyer who served with Cain on the Federal Reserve Board and succeeded him as chairman. Jennings is quite fond of his old colleague. "Herman was a pleasure to work with," he told me. "His views were pretty consistent with those of the Fed at the time. Alan Greenspan was, of course, chairman and Herman was in lock stop with the policies of the Fed." Jennings added that this was not atypical; he could not recall a single dissent from anyone during this three-year term. Still, he said, Cain was no pushover. "He's a guy you'll never find in a gray area," Jennings said. "He's intelligent, well spoken, and very assertive to the point of almost being aggressive. He's anything but shy."

Jennings said Cain fit the profile of the Kansas City Fed. "Inflation was always the big bugaboo," he told me, "and when it comes to monetary policy, he was an inflation hawk. I'll tell you, that's the most conservative bunch of guys I've ever met."

Fed watchers caution against reading too much into Cain's chairmanship. "That's a part-time job -- typically meeting once every two weeks -- to give feedback to the bank president," Vincent Reinhart, a scholar at the American Enterprise Institute and a former director of the Federal Reserve Board, told me. "Its most important role is to lead the search for a new president, but that wouldn't apply because the same president [Hoenig] served through the 1990s."

Cain's fealty to Greenspan, although standard at the time, is potentially more problematic for him. That's because in the mid-1990s Greenspan was anything but hawkish. "In 1995-'96, Greenspan was to the left of the Democratic appointees on the Federal Reserve Board," noted Brad DeLong, an economics professor at the University of California-Berkeley. "Greenspan was the big inflation dove then. He was the left-most member of the Federal Reserve then and by simple force of character drove the policies that pushed through the dot-com boom."

An even bigger problem for Cain could be the tea party movement's antipathy to the Federal Reserve, since that's the same part of the conservative base from which Cain has thus far drawn his strongest support. A spokeswoman for Cain told me that his Facebook page is routinely defaced by supporters of Ron Paul, the leading Fed critic in Washington and author of the bestseller, "End the Fed". (They also object to Cain's support for TARP.)

On Tuesday, an alarmed Glenn Beck nearly had a breakdown when he heard the news. "You were a Fed chairman?!" he exclaimed to Cain.

Cain seems to have a three-part response to this problem. First, he defends his Fed tenure. He told Beck, "That Federal Reserve didn't do any of the stuff that this Federal Reserve is doing... Alan Greenspan never allowed the Fed to become politicized. We didn't have this $14 trillion debt to deal with, and as a result, they didn't have to inflate our currency the way this Federal Reserve board is doing."

Second, he emphasizes his monetary conservatism. "He's in favor of considering a return to something like a gold-based standard," his spokeswoman told me. Although that idea is considered archaic among most mainstream economists, it's more or less within the mainstream of the Republican Party these days (or at least the tea party).

Third, Cain makes clear that he wants no fight with Ron Paul. He told Beck that he supports Paul's authority as chairman of a House subcommittee to audit the Fed, although he may not have helped matters by adding that such an audit was unnecessary. Why is that, Beck asked. Because, Cain replied, "They have internal controls out the wazoo. I saw them."

With Cain's recent surge, he can expect more scrutiny and attention to his record, including his time at the Federal Reserve. I'm particularly looking forward to the Republican debate in which Cain and Paul square off over monetary policy. In the meantime, here's the clip of Beck struggling with the news of Cain's past:

Image credit: David Goldman, Associated Press