[NYTr] Ssad Alan's Lament (Grugman on Greenspan)

[All the News That Doesn't Fit]

sent by Trent Schroyer (activ-l)

The New York Times - Sep 17, 2007

Sad Alan's Lament

By PAUL KRUGMAN

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.

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.