Paul Krugman: Sad Alan's Lament

Paul Krugman takes issue with Alan Greenspan's contention that he didn't mean to endorse the Bush tax cuts:

Sad Alan’s Lament, by Paul Krugman, Commentary, NY Times: 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 ... Greenspan ... was a very different man.

Suddenly, his greatest concern ... 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. ...

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. ... But ... if Mr. Greenspan wasn’t intending to lend crucial support to the Bush tax cuts, he had ample opportunity to set the record straight...

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 ... 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... He declared ... 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 ... in which he demanded to know what he had said that was wrong. In his book, he claims that Robert Rubin ... was stumped by that question. ... 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.

[T]wo years later, when the administration proposed another round of tax cuts, even though the budget was now deep in deficit..., 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 —... 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. ...

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.

_________________________
Previous (9/14) column: Paul Krugman: A Surge, and Then a Stab

Comments

[NLS]

Thanks Paul Krugman. Thanks Mark Thoma.

[Jim in Chicago]

Thank God for Paul Krugman. There is a special place in hell for Bush's enablers who surely knew better but wanted to kiss up to power! I love it that Krugman is able to give Greenspan some richly deserved hell while he's still with us.

I diared the column over at Daily Kos, btw:

http://www.dailykos.com/story/2007/9/17/11325/3993

[alphie]

May that special place in hell involve the new novel Ayn Rand has spent the last 25 years down there writing just for her cabana boy Greenspan to hear over and over and over.

[Lafayette]

I really do not see the sense of dredging this up from the past. "Saint Alan" never was a saint, far from it. We should have known that. Both he and Clinton took advantage of an economy on the roll. (Mickey Mouse could have been president and the result wouldn't be all that different, I should think.)

And, just when the going was getting tough -- Alan let's himself out to pasture. How prescient of the man ...

Our preoccupation should be the future ... and, from all present indications, it aint gonna be rosy.

[Oupoot]

He was just ensuring that economics remain relevant into the next century. I mean, he ensured that bubbles will be created, inequality likely to rise, etc that will ensure some financial and social volatility/instability, which in turn will ensure the comments from "trained" economists will be sought. So what if a few people lost their houses, or jobs, or that the US is so deep in the red that it is fast losing its leading country status, as long as economists remain relevant.

PK should thank him for still having a job to do.

[elvis]

Al Greenspan: A profile in Kow-Tow

[Lafayette]

Oups: So what if a few people lost their houses, or jobs, or that the US is so deep in the red that it is fast losing its leading country status

Ah ha, the vultures are descending on what they smell as a rotting carcass.

Greenspan wasn't a saint, but neither should we visit upon him all the financial and economic ills that have beset America.

The Fed's main concern is to stabilize prices, avoid inflation and thereby (hopefully) maintain employment coincident with a strong economy.

Government profligacy (in general and specifically in Iraq) and our own tendency to want/consume everything and at once (and very cheaply, please) are also to blame. The latter has resulted in a chronic current-account deficit for the past fifty years. Neither are within the purview of Fed responsibilities.

"We have met the enemy and he is us." Pogo by Walt Kelly (1970)

[Cassandra]

Lafayette said Government profligacy (in general and specifically in Iraq) and our own tendency to want/consume everything and at once (and very cheaply, please) are also to blame. The latter has resulted in a chronic current-account deficit for the past fifty years. Neither are within the purview of Fed responsibilities.

I seem to recall an understanding between Fed and CLinton-I that implicitly would reduce rate if fiscal policy hit prudently set targets. That certainly was in the purview of the Fed, and so the reversal of said understanding with demagogues > 2001/02 would have at the very least been philosophically consistent.

[ndd]

Good for Krugman and the other critics. Greenspan's secret caveats (as set forth in the "What did Greespan say..." thread) are nothing more than rear-flank protecting paper for the history books. At the time of Greenspan's testimony in 2001, I recall very well the press trumpeting that he had endorsed Bush's tax cuts. That was a political stand. Greenspan never once took to the microphone or the word processor to clearly disabuse people of the press' opinion.

Money quote:
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.”...

Precisely.

Special note to Lafayette: Again, for political reasons, it is critical that officials like Greenspan and Colin Powell be held up in plain view in the public square and loudly denounced for their evasions and enablings of the current Administration. It is an accountability that has been entirely lacking for the last 5+ years. To this day, how many officials have lost their jobs over 9/11? Zero, that's how many. The US needs catharsis, and needs it badly, so that a chastened electorate doesn't just see, but FEEL the lesson.

[Worst. President. Ever.]

Government profligacy (in general and specifically in Iraq) and our own tendency to want/consume everything and at once (and very cheaply, please) are also to blame. The latter has resulted in a chronic current-account deficit for the past fifty years. Neither are within the purview of Fed responsibilities.

Methinks thou dost stamp your feet to raise a cloud of dust, attempting to obscure the fact that Greenspan fucked up mightily by endorsing Bush's obvious-even-at-the-time profligacy.

Methinks if Bill Clinton had been equally profligate, thou would be less generous in spreading the blame around to others.

[One Salient Oversight]

Government profligacy (in general and specifically in Iraq) and our own tendency to want/consume everything and at once (and very cheaply, please) are also to blame.

Poor Laffy, he keeps getting quoted on this passage.

The whole point of monetary policy is to curb market stupidity. If the market has gone haywire it is because the Fed didn't take away the punch bowl soon enough.

If there's anything we can learn from the history of asset-price bubbles it is that people with money often forget about history, otherwise they wouldn't make the same mistake again.

[Dormilon]

The courage to lead.

I remain aghast at the lack of conviction and leadership displayed by those in positions of authority. This is not a question of sainthood, rather the execution of the implied responsibility of leadership. And Messrs. Greenspan and Powell, in particular, were the greatest disappointments.

Uniquely positioned, respected and knowledgeable, each squandered significant opportunities to serve the interests of the people of the United States, choosing instead to protect their loyalties to a half-baked administration. Each failed to exercise their enormous influence in the pursuit of more analytically-reasoned policies. Each understood years ago the likely consequences of their failures, yet towed the line as vapid functionaries.

In short, each demonstrated a regrettably common lack of leadership. And, in conclusion, I am beginning to wonder whether the electorate is capable of recognizing leadership and distinguishing it from the rotten stubbornness and arrogance that has infested the White House over the past 15 years!

Some of our best examples of late have simply let us down.

[anne]

What idiocy, what complete deceiving idiocy; we return now as always to blaming Bill Clinton and Democrats what are the policies of George Bush and Republicans. The problems of these last 7 years are the problems of President Bush and a Republican Congress that supported the President so fully as to make the veto completely unnecessary irrelevant.

[anne]

Get it; we have been living through policy designed by a thoroughly and startlingly united conservative Republican Administration and Congress, and are now subject to a conservative Republican Supreme Court majority.

[save_the_rustbelt]

Greenspan found his courage a few days before his book tour started, I don't think he will qualify for the next update of Profiles in Courage.

Is anyone else bothered that an office exists that is extremely powerful in managing the economy yet is nowhere mentioned in the Constitution?

Like all drunken parties, this one will have a hangover. Bush should know something about creating hangovers.

(Anne, which comments are you reading?)

[anne]

http://select.nytimes.com/2007/09/17/opinion/17krugman.html

September 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....

[Thank you, Paul Krugman.]

[anne]

Ah, I was referring to the comment on 15 years and always the associated anti-democratic implication of what the public can distinguish.

[jim casey]

This is just another example of what a disgusting, dishonorable person Alan Greenspan was and continues to be. Recall - it was Greenspan who testified in 1994 that the only way to save social security was to raise payroll taxes and to promise the american people they would not see future benefit cuts - then he turns around in 2003?? and tells congress the only way to save social security is to cut benefits. I believe Krugman pointed this out in a column titled "et tu alan"

[bailey]

And what "advice" is PK giving to BB? And, why aren't we reading any PK critiques of BB's actions (& inactions) in the NYT?

[Dormilon]

Anne,

I will not respond to your outbursts hereafter.

That said, please do not misconstrue one's criticism for the Clinton administration or, as Jim Casey notes above, Greenspan's pliant legacy as anti-democratic (in all its interpretations).

My comment was specific to a lack of genuine leadership. And, independent of one's opinion of the success of Clintonian policies during the exuberant 90s, and coincident with the fact that Mr. Bush's presidency exhumed the ugliest aspects of executive privilege, we have simply not witnessed true leadership from Washington in, at least, 15 years. Or, not the kind that I would point to when my children ask me to provide a good example.

[Historian]

(Mickey Mouse could have been president and the result wouldn't be all that different, I should think.)

You are mistaken. For detailed documentation check the archives at Brad DeLong's site. Some of the economic boom of the 90s was due to fortunate circumstances, but an important part came from good policy.

[Jean]

Well, he sure made the republicans look like miserable money grubbing thieves, didn't he? And his policies made Clinton look pretty good (to many). As an outsider to economics, that's what I see.

[anne]

"I am beginning to wonder whether the electorate is capable of recognizing leadership and distinguishing it from the rotten stubbornness and arrogance that has infested the White House over the past 15 years!"

Idiocy, and offensive anti-democratic idiocy. Always blame another Administration for the problems soely created by the Administration of George Bush and by 6 years of a Republican Congress completely aupportive of President Bush. Then, blame the public for the deceptions of the Republican Administration and Congress even after the public elects a Democratic Congress.

[Jill]

Good old Alan (the "libertarian") Greenspan. Remember when the market tanked in early 2000 (here's a hint- a presidential election year)? What did the Fed do at the very next meeting? Raised the Fed Funds rate 1/2 point to 6.5!

http://library.hsh.com/?row_id=88

And when did they lower it - as soon as Bush was installed. They then kept it at historic lows - 1 and barely above for 3 years until the election of 2004.
Greenspan let his politics get in the way and is now trying to pretend he had nothing to do with this disaster - what a hack.

[bob mcmanus]

"Good old Alan (the "libertarian") Greenspan."

Greenspan was a Randite. Calling him a "Libertarian" would be like calling Trotsky a socialist, indistinguishable from Bernstein or Goldman. Greenspan is as radical, as revolutionary, as they come, much more radical than say Milton Friedman. He should never have been Fed chairman, or let anywhere near the levers of power.

[bob mcmanus]

The "Greenspan Commission" of the early 80s is probably one example. What effect did the large increases in the payroll taxes have on the marginal costs of manufacturing labor in the US and the movement of manufacturing jobs overseas? Was this one of many intended effects?

Greenspan certainly did not wield unrestrained power. But he did what he could, subtly and sevretively, and I believe all of his actions and recommendations were in service of his Randian ideology, and not according to his oath, his legal obligations, or his professed objectives.

Revolutionaries often lie.

[kthomas]

Chairman Greenspan does seem a tad concerned about his legacy, as well he should.

Still, we can't whine too much. Some of us on this blog made a great deal of money in the years this man chaired the Fed.

I would agree that some ideology/politics got in the way, this is not forgiveable, if true. Especially the politics. Definitely not forgiveable. What makes me the most upset is the blind-eye approach he and Board took to the sub-prime lending, securitization ponzy BS that was going on in the economy. Which he could have stopped WAY WAY back. This is what he really wants us to forget....or forgive him for.

Lastly, he should refrain from speaking so much. He's retired. This is prudence. I suggest the Chairman attend some ball games, and forget about economics for a while. His every answer should be "no comment". No more books. No more of his wisdom or mea culpas. He's too controversial.

[donna]

This has been my favorite post on Greenspan:

http://agonist.org/stirling_newberry/20070916/hi_can_we_talk_greenspanism

Love it...

[calmo]

Conspicuous examples of the broader paint-brush defence: from Dormwe have simply not witnessed true leadership from Washington in, at least, 15 years. [It's not merely the current administration...]

and bailey:

And what "advice" is PK giving to BB? And, why aren't we reading any PK critiques of BB's actions (& inactions) in the NYT? [PK is too narrowly focussed and should be advising little george and all his little helpers]

Not that I think character assassination is never warranted and there might be some merit in looking at responsibility in a broader context, but then I want you to recognize that --in more generous fees (currently zero, people) [but promising, right? Right?]...for my future speaking engagements --like Alan Greensbum.

[Winslow R.]

PK wrote: "Suddenly, his greatest concern ... 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. ..."

Perhaps I missed the discussion on sovereign wealth funds and their economic impacts, but might the word 'awful' be appropriate here and true to PK's thinking?

Roubini praised the 'many benefits' of SWF's, I for one would like to see them enumerated.

[paine]

lates laff riot

"a chronic current-account deficit ....(not)within the purview of Fed responsibilities "

shaved and clipped like that
its dead wrong

at least as i use the word "purview "
the dollar's forex is in the fed's "purview"

the fed and the treasury have joint "ownership"
of our long term over valued
imperial dollar
with its entrained
bigger and better
twin deficits ( internat payments
and federal fiscal)

[ECONOMISTA NON GRATA]

"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."

Really, what would you do....?

No one is perfect, perhaps the title that has been assigned to Mr. Greenspan "Maestro", is a misnomer. There was a great deal of "HYPE" that surrounded this man and perhaps he fell victim to his own devices, as Mr. Clinton, Mrs. Clinton and chonically more so Mr. Bush (Dubya). There are no Sacred Cows. Overall, I think that AG did a pretty good job, but he was, by no means, a Maestro. Volker was the Maestro if there ever was one, he's forgotten more about monetary management than Greespan and Bernake know together.

Econolicious

[skeptonomist]

Greenspan's performance over the last 8 years or so was not merely partisan, it was incompetent. He appeared to believe in the absurd long-term forecasts of surpluses, which led to his curious endorsement of tax cuts. After cutting the prime rate, he was apparently completely unaware of the possible consequences of his encouragement of adjustable-rate mortgages, even though he surely knew that short-term rates would rise again.

The positive part of the economy after the cuts was the housing industry. A large part of this was because of the drop in rates of conventional 30-yr mortgages. The 30-yr treasury rate, to which these mortgages are pegged, had been dropping for a long time. Was Greenspan responsible for this? Evidently not, because after raising short-term rates, he professed himself mystified by the negative yield curve - i.e. he did not understand why long-term rates remained so low. Of course many others had tied this to foreign investment in treasuries and other long-term bonds, and foreign investment in the U.S. was necessitated by the balance of payments. It thus appears that the "good" part of the housing boom, that is that due to conventional morgages which are less likely to default, was not primarily a result of Greenspan's policy, while the "bad part", tied to ARMs and other loans dependent on short-term money, was something that he expressly encouraged.

In short, Greenspan seems not to have understood the situation and the consequences of his own actions. This all occured after his deification (or delphic oracleization). Was this a result of senility or a sudden access of partisanship? Or could it be that his performance before this period was greatly overrated?

[RW]

I am still inclined to believe the changes in Greenspan's behaviors are more related to the changes in the White House than anything else:

During Clinton's terms he worked with a president who not only understood but loved developing policy and, while tough on people in some respects, by most accounts respected intellectual acumen and well-considered disagreement. Greenspan apparently got into the habit of visiting the White House at least once a month for substantive discussions as a result.

During Dubya's term(s) Greenspan actually visited the White House considerably more often than he did during Clinton's presidency (curious he doesn't mention this) but it is highly doubtful there was much 'discussion;' e.g., Paul O'Neill asserts he never had a substantive conversation regarding policy w/ Dubya or Cheney during his tenure as Treasury Secretary nor saw so much as a white paper from the West Wing; he also mentions barely veiled threats if he failed to play ball with the political wing (Rove & Co.) but finally decided his wealth made him largely immune so he resisted.

In Greenspan's case it seems quite plausible it was made very clear to him there were going to be big tax cuts and he better get on board regarding that project. Doubtless the implication of professional and personal retribution if he didn't play along was clear enough. The Dubya administration and Republican leadership had already demonstrated their willingness and ability to exert force in the form of insinuation, calumny, blackballing, etc both directly and by proxy and it seems unlikely Greenspan felt himself able to resist the powerful or at least that he had sufficient resources to risk ruin.

I have no idea if this is true and it does little to remove the charge of cowardice but it is at least as plausible a tale as transforming 'the Maestro' into an idiot cad.

FWIW (which isn't much), what's done is done. I do wish Greenspan would shut up for awhile though.

[rana]

I think that the historical record is inconsistent with much of the hypervenitlating above. First, Greenspan did indeed in prepared testimony and in follow-up Q&As endorse triggers in 2001. Second, in 2002 and 2003 he testified against further tax cuts. Third, if there is no evidence that a Republican Congress and Republican President were willing to forgo tax taxes (see the 2002, 2003, 2004 tax cuts for example. I think that history will show that Greenspan did a great job managing the economy and a poor job regulating banks and mortgage markets. In terms of testifying before Congress, his endorsement of the Clinton 1993 deficit reduction plan and the Bush 2001 tax cuts probably changed exactly zero votes. Those fiscal decisions were made by our elected represntative ans the President

[Casssandra]

Rana said: I think that history will show that Greenspan did a great job managing the economy and a poor job regulating banks and mortgage markets.

Isn't that like James Watt and the Department of Environmental Protection doing a crappy job protecting the environment?!?

Maybe Mr Greenspan wasn't responsible (at least during the Bush Admin) for the appearance that the Fed never spoke or consulted with the Treasury, or the admin about anything. But when Cheney pulled the Kyoto rug out from Christy Todd Whitman at DEP, she did what she could: resigned. Mr. Greenspan, by contrast, having the luxury of a long appointment, and a veritable arsenal of minions and policy tools at his disposal, had plenty of opportunity to counter bad fiscal policy with semi-corrective means if he believed it inimical to longer-term economic interests. Yet, now his critics are chided for pointing out that IF Mr Greenspan thought it wrong at the time why did he do nothing save a miniscule squeak at the annual Humphrey-Hawkins where the boldest he managed when pinned to the ground by a Senator was something like: "i dislike deficits of this magnitude, and if you put a gun to my head, I would choose lower spending to higher taxes." Yet in the heat of the moment when he could have made any number of actual policy statements, threats monetary attentuations, all he seemingly did was to choose lower taxes AND higher spending AND lower interest rates. Who said "you can't eat your cake and have it too" [at least for a while]...

[howard]

Rana, you miss the key point: greenspan himself is now saying that his testimony was misread at the time. there was nothing to prevent him from noting that before he had a multi-million dollar book contract....

[calmo]

Thanks Cassandra and howard (noting AG's claim that "his testimony was misread (misinterpreted?, misheard?, misunderstood?...mistooked) at the time" brings a smile to my face.) This, from the man who invented an oratorical style (I believe Fisher is inventing another style...somewhat mercifully self-snuffing) that caused his devoted pundits to huddle after each delivery to solve the puzzle of what he meant.

[Mike]

Yes, Greenspan was and will always be remain an rightwing ideologue. What I still have never understood is why Clinton reappointed him.

I wish Krugman had added Clinton as a culprit in enabling this feeble man from causing horrific level of damage to our fiscal health.

[skeptonomist]

Krugman himself contributed to the myth of the all-powerful Fed chairman. I have just been rereading his 1994 book "Peddling Prosperity" in which he praises Volcker and Greenspan for past actions (IMHO on insufficient evidence) and generally touts the importance of active Fed intervention.

What are the odds of the Fed chairman being other than a banker, and having other than conservative views and Republican partisanship? These things essentially go with the territory. If the Fed is all-powerful then you had better accept that its actions will usually be biased conservative and Republican.

[baileyman]

Alan Greenspan defends himself against Krugman answering questions from a real journalist, Amy Goodman, Democracy Now! http://www.democracynow.org/, replay and transcript usually available after noon.