Monday :: Mar 24, 2008

By The Book

by Turkana

Alan Greenspan got honest and blunt in the Financial Times:

The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

Of course, as Scott Horton noted:

Greenspan forgets some obvious points: such as reckless, uncontrolled deficit spending for a period of seven years, followed by the incurrence of more than $2 trillion in unfunded war debt. That would be enough to stop the healthiest economy in its tracks. Now remind me, didn’t Greenspan occupy some sigificant position of fiscal responsibility while all this was afoot?

Not only did he occupy it, he enabled the very fiscal irresponsibility he once would have decried. As CNN Money reported, just after Bush first took office:

Federal Reserve Chairman Alan Greenspan gave his broadest endorsement of tax cuts to date Thursday, while also indicating that the U.S. economy has slowed dramatically, raising investors' hopes that further interest rate reductions are on the horizon.

In testimony to the Senate Budget Committee, Greenspan declined to comment on President Bush's $1.6 trillion, 10-year tax cut plan, saying a decision on the size of a cut was best left up to Congress and the political process. But the Fed chairman's backing of tax cuts as economically sound likely will provide a boost to the new administration's proposals.

Of course, a little historical revisionism came into play, when he wrote his book. According to the New York Times:

Alan Greenspan, who was chairman of the Federal Reserve for nearly two decades, in a long-awaited memoir, is harshly critical of President Bush, Vice President Dick Cheney and the Republican-controlled Congress, as abandoning their party’s principles on spending and deficits.

In the 500-page book, "The Age of Turbulence: Adventures in a New World," Mr. Greenspan describes the Bush administration as so captive to its own political operation that it paid little attention to fiscal discipline, and he described Mr. Bush’s first two Treasury secretaries, Paul H. O’Neill and John W. Snow, as essentially powerless.

Well, you know, maybe the Administration would have exhibited a little fiscal discipline had Greenspan not given them the green light to abandon it. Anyone who was paying attention at the time remembers that supposed deficit hawk Greenspan's tacit endorsement had a huge impact in helping get those tax cuts passed. And when those tax cuts resulted in the largest federal deficits in human history? Blame the victims. As explained in this February, 2004 New York Times article:

Alan Greenspan, the Federal Reserve chairman, told lawmakers on Wednesday that Congress should rein in the federal deficit through reductions in spending -- including cuts in entitlement programs like Social Security -- rather than through tax increases.

''The crucial issue out here is the rate of growth of productivity and the rate of growth of the economy, and what history does tell us is that keeping tax rates down will tend to maximize that,'' Mr. Greenspan told members of the House Budget Committee.

That was music to the ears of President Bush and many Republicans, who want to extend permanently more than $1.7 trillion worth of tax cuts even as they face a deficit that could exceed $500 billion this year.

But Mr. Greenspan touched off a furor by calling on Congress to trim Social Security and Medicare benefits in the future, provoking criticism from Democrats and causing heartburn among some Republicans.

Ah, yes- starve the government, then blame the people. Rob from the poor and the middle class to give to the rich. It wasn't the spending that exploded the deficit, it was the tax cuts that Greenspan had claimed would be no fiscal problem. Tax cuts for the wealthy. Wealthy people like Alan Greenspan. Now, what was John McCain's great insight into solving our economic mess? As Paul Krugman noted, last month:

Take, for example, John McCain’s admission that economics isn’t his thing. “The issue of economics is not something I’ve understood as well as I should,” he says. “I’ve got Greenspan’s book.”

Which should be great comfort to wealthy people, everywhere. Except, of course, those who care about our federal fiscal disaster.

Turkana :: 5:48 PM :: Comments (17) :: Digg It!