Sad Alan’s Lament

Sad Alan’s Lament

By PAUL KRUGMAN

Published: September 17, 2007


When President Bush first took office,
it seemed unlikely that he would succeed in getting his proposed tax
cuts enacted. The questionable nature of his installation in the White
House seemed to leave him in a weak political position, while the
Senate was evenly balanced between the parties. It was hard to see how
a huge, controversial tax cut, which delivered most of its benefits to
a wealthy elite, could get through Congress. Skip to next paragraph



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Then Alan Greenspan, the chairman of the Federal Reserve, testified before the Senate Budget Committee. Until
then Mr. Greenspan had presented himself as the voice of fiscal
responsibility, warning the Clinton administration not to endanger its
hard-won budget surpluses. But now Republicans held the White House,
and the Greenspan who appeared before the Budget Committee was a very
different man. Suddenly, his greatest concern — the “emerging
key fiscal policy need,” he told Congress — was to avert the threat
that the federal government might actually pay off all its debt. To
avoid this awful outcome, he advocated tax cuts. And the floodgates
were opened.As it turns out, Mr. Greenspan’s fears that the
federal government would quickly pay off its debt were, shall we say,
exaggerated. And Mr. Greenspan has just published a book in which he
castigates the Bush administration for its fiscal irresponsibility.Well, I’m sorry, but that criticism comes six years late and a trillion dollars short.Mr.
Greenspan now says that he didn’t mean to give the Bush tax cuts a
green light, and that he was surprised at the political reaction to his
remarks. There were, indeed, rumors at the time — which Mr. Greenspan
now says were true — that the Fed chairman was upset about the response
to his initial statement. But the fact is that if Mr. Greenspan
wasn’t intending to lend crucial support to the Bush tax cuts, he had
ample opportunity to set the record straight when it could have made a
difference.His first big chance to clarify himself came a few
weeks after that initial testimony, when he appeared before the Senate
Committee on Banking, Housing and Urban Affairs. Here’s what I
wrote following that appearance: “Mr. Greenspan’s performance
yesterday, in his first official testimony since he let the genie out
of the bottle, was a profile in cowardice. Again and again he was
offered the opportunity to say something that would help rein in
runaway tax-cutting; each time he evaded the question, often replying
by reading from his own previous testimony. He declared once again that
he was speaking only for himself, thus granting himself leeway to
pronounce on subjects far afield of his role as Federal Reserve
chairman. But when pressed on the crucial question of whether the huge
tax cuts that now seem inevitable are too large, he said it was
inappropriate for him to comment on particular proposals.“In
short, Mr. Greenspan defined the rules of the game in a way that allows
him to intervene as he likes in the political debate, but to retreat
behind the veil of his office whenever anyone tries to hold him
accountable for the results of those interventions.”I received
an irate phone call from Mr. Greenspan after that article, in which he
demanded to know what he had said that was wrong. In his book, he
claims that Robert Rubin, the former Treasury secretary, was stumped by
that question. That’s hard to believe, because I certainly wasn’t: Mr.
Greenspan’s argument for tax cuts was contorted and in places
self-contradictory, not to mention based on budget projections that
everyone knew, even then, were wildly overoptimistic.If anyone
had doubts about Mr. Greenspan’s determination not to inconvenience the
Bush administration, those doubts were resolved two years later, when
the administration proposed another round of tax cuts, even though the
budget was now deep in deficit. And guess what? The former high priest
of fiscal responsibility did not object. And in 2004 he
expressed support for making the Bush tax cuts permanent — remember,
these are the tax cuts he now says he didn’t endorse — and argued that
the budget should be balanced with cuts in entitlement spending,
including Social Security benefits, instead. Of course, back in 2001 he
specifically assured Congress that cutting taxes would not threaten
Social Security.In retrospect, Mr. Greenspan’s moral collapse in
2001 was a portent. It foreshadowed the way many people in the foreign
policy community would put their critical faculties on hold and support
the invasion of Iraq, despite ample evidence that it was a really bad
idea. And like enthusiastic war supporters who have started
describing themselves as war critics now that the Iraq venture has gone
wrong, Mr. Greenspan has started portraying himself as a critic of
administration fiscal irresponsibility now that President Bush has
become deeply unpopular and Democrats control Congress.