May 01, 2003

Why Oh Why Can't We Have a Better Press Corps? Part CCXIV

Time to Bang My Head Against the Wall Once Again...

Why, oh why, can't we get a better class of journalists? Those who write ABC's The Note claim to be unable to understand Alan Greenspan's nuanced--and consistent--position on fiscal policy issues. They write, "The Note has no idea what Alan Greenspan thinks about the prospects for growth and about the Bush economy, and that is after reading everything he said, and everything ABOUT what he said..." And those who write ABC's The Note are close to the cream of the crop.

But it's really not hard to understand Greenspan if you are willing to accept that his positions are always nuanced and that he is almost always polite. In Greenspan's view, expressed yesterday and many times in the past. Greenspan believes that:

  • In the long run the most important thing is to have a balanced federal budget. Having a budget not in deficit is especially important over the next decade because of the forthcoming retirement of the baby-boom generation. But it is always important. Having a budget that is not in deficit is job 1. Once that is taken care of, one can turn to other goals.
  • In the long run the second most important thing to do is to shrink the size of the government. The federal government is too big. So when you have a choice, spending cuts are better than tax increases, and spending increases are worse than tax cuts. [You won't be surprised to learn that I disagree with Greenspan here.]
  • Once one has a budget that is not in deficit and has settled on the size of the government, the next most important fiscal policy job is to get a good tax system: a more rational tax system is to be preferred to a less rational one, a system that taxes capital less (and labor more) is to be preferred to a system that taxes labor less (and capital more).
  • In the short run, there are times when there may be a case for running a deficit to boost demand and reduce high unemployment--but now is not one of these times. [You won't be surprised to learn that I disagree with Greenspan on this point too: I think now is one of those times.]

This is what Greenspan believes. This is what Greenspan has believed for a long time. He believes in these four ideas, and he believes that the most important ideas come at the front of the list. Yet America's journalists have a hard time with this. They say "he supported the dividend tax cut," and then someone else says that "he worries about the deficit," and someone else says "but he's for spending cuts." But the only way you can manipulate Greenspan's sound bites to create the appearance of ambiguity is by ignoring the ordered structure of his thought. Point one--balance the budget--is most important. So making progress on point three--reducing capital taxation--is a good thing only if it does not move us backward on point one.

Why is this so hard for American journalists to understand? It's not rocket science, after all. It's elementary logic.

David Rosenbaum: Greenspan... said... new academic evidence had strengthened his opinion that budget deficits led directly to higher interest rates.... In response to a question about the need for additional economic stimulus, Mr. Greenspan said that with the tax cuts enacted in 2001 and sizable growth in government spending, "we already have a significant amount of stimulus in place."

He added that he was skeptical of the ability of changes in tax and spending policy to "fine tune" the economy in the short term.

Mr. Greenspan said he strongly supported the president's tax policy, particularly the proposal to eliminate taxes on most stock dividends, "provided it is matched by cuts in spending."

Deficits are especially important [read: dangerous] in the near future, he said, because of the pressure on the economy early in the next decade when the baby boom generation begins to reach retirement age...

Posted by DeLong at May 1, 2003 11:35 AM | TrackBack


Maybe the press is confused because they listen to others who claim to be speaking for Dr. Greenspan. We have seen a lot of re (mis) statements of positions from those who write for National Review for example. It's sort of like some pseudo-astronomer trying to convince us that the earth is flat by taking the research of real astronomers and editting it. Real paper from Dr. X: "Before Columbus, many said 'the earth must be flat' ...". Then National Review edits this and quotes Dr. X as saying "The earth is flat". I know this is a silly example, but this kind of misrepresentation has become pervasive.

Posted by: Hal McClure on May 1, 2003 11:51 AM

Thought so, the earth really is flat. Try listening to the the commentary on Wall Street Week or Washington Week in Review or Rukeyser to find out just how flat is is.

Posted by: lise on May 1, 2003 12:12 PM

Remember fairness? Fairness means if I say that the sun rises in the east, there must be allowance made for an expert who has seen it rise in the west. Jobs? No problem, the reason we lost jobs last month is snow in Kansas. But there was no snow in Los Angeles. Kansas. Los Angeles. There was a recession, says Paul Krugman. No there was not, says Diane Swonk. Of course, if a Democrat were President Larry Kudlow would find a recession in boom times.

Posted by: anne on May 1, 2003 12:22 PM


Los Angeles may not have had snow, but it was awfully awfully hot about the time new jobless claims began to top 400,000 a week. Awfully hot.

Posted by: lise on May 1, 2003 12:27 PM

Does anyone know what the new research is that Greenspan was referring to on the effect of deficits on interest rates?

Posted by: The Fool on May 1, 2003 12:35 PM

Possibly new old research that came to mind after another term as FRS Chair was clinched. Aw....

Posted by: jd on May 1, 2003 12:46 PM

This post reflects what was said about Greenspan's comments about the 2001 tax cut.

As per my recollection:

Paying off the debt would be most wise.

Nuanced comments about cutting taxes and government, both ultimately worthy goals.

If we become overzealous in paying off the debt we may disrupt the bonds market.


The Republicans (and the press) seized on the very last comment as proof that Greenspan was in favor of the 2001 Bush tax cut.

It's pleasing to note that the bond market shows no sign of being disrupted any time soon!

Posted by: Saam Barrager on May 1, 2003 12:52 PM

I got the impression that The Note meant they could not tell if Greenspan believed the STOCK MARKET would come roaring back or whether he believed we would "muddle through". It is murky because the market cheerleaders on the TVs in the airport terminals are always equating the stock market with the economy. At one time, stock traders were hanging on AG's every word. AG pronouncements on the economy were clear. What that means to the stock market is not clear.

I am assuming that the press corp is less on the ball than Brad does. Brad thinks the press corp are not up to speed on the sayings of AG. I think they don't even know the difference between the stock market and the economy.

Posted by: bakho on May 1, 2003 01:08 PM

"It's pleasing to note that the bond market shows no sign of being disrupted any time soon!"

Please explain.

"I think they don't even know the difference between the stock market and the economy."

Do I ever get this impression.

Posted by: bill on May 1, 2003 01:33 PM

Are there signs of economic strengthening or is Alan Greenspan cheerleading and still worried?

Posted by: dahl on May 1, 2003 01:35 PM

"'The Note has no idea what Alan Greenspan thinks ...'... Why is this so hard for American journalists to understand? It's not rocket science..."

"I know you believe you understand what you think I said. But I am not sure you realise that what you heard is not what I meant."
-- Alan Greenspan

"If I say something which you understand fully in this regard, I probably made a mistake."
-- Alan Greenspan

"Dammit Smithers, this isnít rocket science, itís brain surgery!"
-- Mr. Burns

Posted by: Jim Glass on May 1, 2003 02:21 PM

I think the Fed research is this article from a few weeks ago. (Why can't I write links??) Evidence on the Interest Rate Effects of Budget Deficits and Debt
Thomas Laubach

Abstract: Estimating the effects of government debt and deficits on Treasury yields is complicated by the need to isolate the effects of fiscal policy from other influences. To abstract from the effects of the business cycle, and associated monetary policy actions, on debt, deficits, and interest rates, this paper studies the relationship between long-horizon expected government debt and deficits, measured by CBO and OMB projections, and expected future long-term interest rates. The estimated effects of government debt and deficits on interest rates are statistically and economically significant: a one percentage point increase in the projected deficit-to-GDP ratio is estimated to raise long-term interest rates by roughly 25 basis points. Under plausible assumptions these estimates are shown to be consistent with predictions of the neoclassical growth model.

Posted by: kb on May 1, 2003 02:37 PM

"In the long run the second most important thing to do is to shrink the size of the government. The federal government is too big. So when you have a choice, spending cuts are better than tax increases, and spending increases are worse than tax cuts. [You won't be surprised to learn that I disagree with Greenspan here.] "

In the event that you take requests for future journal entries I would be delighted to read why you disagree with Greenspan on this. And by extension why you believe the government is about the right size or should be bigger.

Posted by: Rob Sperry on May 1, 2003 02:49 PM

As a former journalist and long-time Fed watcher, I sympathize with those who are not immersed in Fed arcana, yet are responsible for reporting on our central bank.

It looks easy, simple and straight-forward to those of us who follow the Fed professionally, but for generalist writers it is bloody mystifying.

It really is true that the more one knows about a particular field, the worse the press' work in that field looks.

Posted by: George Zachar on May 1, 2003 05:11 PM


Here's the quote, from

"Private asset accumulation may be forced upon us well short of reaching zero debt. Obviously, savings bonds and state and local government series bonds are not readily redeemable before maturity. But the more important issue is the potentially rising cost of retiring long-maturity marketable Treasury debt. While shorter-term marketable securities could be allowed to run off as they mature, longer-term issues could only be retired before maturity through debt buybacks."

I take this to mean that if you buy a 30 year T-Bill and the government doesn't want to honor it for 30 years, then it will cost more to get out of it.


I have no mercy for a press corp that cannot read these documents. I work in QA.

Posted by: Saam Barrager on May 1, 2003 08:29 PM


Your comment about President Lawrence Kudlow had me laughing SO HARD. Thanks!

Posted by: Hal McClure on May 1, 2003 09:21 PM

I don't know much (well, that's false modesty, but you know what I mean), but I've long known enough to understand Greenspan's views to be pretty much as Brad describes them.

Over my adult life, as I've become more autodidactically educated on economics ó and not very educated at all, mind you ó I've become more and more aware of how astonishingly ignorant almost all Americans are of basic economic theory. Most who think they know stuff (and this undoubtedly applies to me to some degree, as well, although I try to be self-critical about it) know only highly politicized pop-economics that has zero rigor and a buttload of aggressive ideology.

Whenever I read real economists writing in the popular press, I wonder to myself how they can stand the mileau.

And ditto on the whole stock market == the economy meme. Back when I still had some substantial investments in the market, I particpated on a web chat board dedicated to one of the companies I had invested in. On an almost daily basis I argued with people who either implicitly or explicitly claimed that what was good for the market was good for the entire American economy. It astounded me.

While it's true that Greenspan speaks oracularly, I repeat my agreement with Brad that his views are pretty plain. But I think the real explanation for why people are confused isn't that they are idiots or aren't paying attention or whatever. It's that he *is* consistent and that his consistent views have rarely comformed to the political reality du jour. That deeply confuses Washington, both the politicos and the press.

Posted by: Keith M Ellis on May 1, 2003 10:22 PM

I posted this a while ago, but Greenspan's second priority on shrinking government is not realistic (and in my opinon just plain wrong). So I'm asking what exactly does Greenspan want to cut? There really isn't very much.

Here's the breakdown of the percentage of federal outlays devoted to each program for 2000, (this is from the Statisical Abstract of the United States at Chart No. 453, which shows the levels of spending):

Social security: 0.228868515
Defense: 0.16463551
Interest on the debt: 0.12466458
Medicare: 0.110185599
Pensions for federal workers: 0.043157424
Veterans' benefits: 0.026330501
Transportation: 0.026218694
Unemployment insurance: 0.012857782
Administration of justice: 0.015652952

Total spending so far: 0.752571556

Aside from this there is non-Medicare health spending, which I think includes Medicaid:

Health Care Services (Medicaid?): 0.076140429
Health research and training: 0.008944544
Consumer and occupational health and safety: 0.000559034
Total non-Medicare Health spending: 0.086370751

Total Spending so far: 0.838942308

Then there are various 'income security' programs, which help the poor and old and include what is generally thought of as 'welfare.'
Gen. retirement & disability ins. (exc. soc. sec.): 0.002906977
Housing assistance: 0.016100179
Food and nutrition assistance: 0.018168605
Total Income security spending: 0.085699911

Total Spending so far: 0.924642218

And of course the federal government spends on education:
Elementary, secondary, and vocational education: 0.0115161
Higher education: 0.005646243
Research and general education aids: 0.001397585
Training and employment: 0.003801431
Other labor services: 0.000670841
Social services: 0.007043828
Total Educ./training/employment/& social services: 0.030076029

Total Spending so far: 0.954718247

Then there is what I would call miscellaneous spending:
International affairs: 0.009615385
General science, space and technology: 0.010398032
Energy: -0.000614937
Natural resources and environment: 0.01397585
Agriculture: 0.020460644
Commerce and housing credit: 0.001788909
Community and regional development: 0.00592576
General government: 0.007435152
Undistributed offsetting receipts: -0.023814848
Total miscellaneous spending: 0.045169946

Total Govt spending so far: 0.999888193, which is about 100%

I made this a while ago, and the source file is

Posted by: Bobby on May 1, 2003 11:14 PM

Therefore serious cutting of govt spending is not an option, both on the grounds that it would be inhumane and that it would be unrealistic. Any politically realistic level of cutting spending likely wouldn't be large enough to make a serious dent in the overall deficit. Any cuts that might actually occur would likely hurt the poorest members of society and a disproportionate number of children.

If indeed Greenspan were serious about keeping his first priority of a balanced budget, he would forgo this utopian idea (remember that he's an Ayn Rand acolyte) that we can erase these huge projected deficits with spending cuts.

A realistic Greenspan would call for the tax cut passed in 2001 to be repealed and for no new tax cuts.

Of course he doesn't act this way. And that's why I don't think a balanced budget is Greenspan's first priority. Not that I could say what his priorities actually are. But I have a feeling that they don't have much to do with economics.

Posted by: Bobby on May 1, 2003 11:45 PM

"So when you have a choice, spending cuts are better than tax increases, and spending increases are worse than tax cuts."

Sorry, I know his last testimony is interpreted as opposition to the present tax cut plan. But I think the issue is more the 2001 tax cut, and why he doesn't propose its repeal. I don't see how you can realistically be for a balanced budget unless you support repealing it.

Posted by: Bobby on May 2, 2003 01:07 AM

it should say "we can erase a substantial amount og these huge projected deficits with spending cuts"

Posted by: Bobby on May 2, 2003 01:10 AM


Whether we should substantially cut spending or not is one of those political questions that is beyond me. But what we can readily do is to look at how government spending has evolved over time. If one segments out defense spending out, an interesting pattern emerges. Nondefense spending as a share of GDP has been virtually constant for the last 30 years. Transfer payments as a share of GDP have also been virtually constant for the last 30 years. Regardless of the level of tax collections or which party was in power, neither have changed. Reagan talked about spending cuts and had enormous deficits but spending did not fall as a share of GDP. Why would any believe things will be different now - especially since Bush has not proposed any significant spending cuts - just increases?

Posted by: Hal McClure on May 2, 2003 05:30 AM

"Over my adult life, as I've become more autodidactically educated on economics ó and not very educated at all, mind you ó I've become more and more aware of how astonishingly ignorant almost all Americans are of basic economic theory."

Yes, I agree, and I include myself. A question I've been wanting to ask for a while is: what economic principles should a responsible citizen comprehend? What does one need to know in order to think critically about economic policy? I'd love to see Brad address this in a post.

Posted by: Caroline on May 2, 2003 06:18 AM

Two areas of the budget that could be cut are the payments to unemployed and the interest on the debt. To do this, we should knock down unemployment by giving money directly to the states and incur a short term deficit to do so. Once unemployment drops, outlays will decrease and revenues will increase. The revenue could be used to pay down the debt.

Defense spending could be cut without harming military readiness. The Pentagon is forced to maintain bases that they don't want and don't need. This is waste to keep Congressmen in office. Weapons procurement could be altered. By buying fewer of the most expensive planes and supplementing that with less expensive current technology the procurement costs could be reduced.

Money could also be saved by hiring mercenaries. Why send US soldiers to Iraq if we can hire and manage locals to do the same job for less money?

Before 9/11, Rummy had big plans to change Defense procurement and save money. He had resistance from the military that caused rumors of his resignation. Now that Rummy has political capital (including praise from Bill Clinton) he can push his skip a generation proposal and save a lot of money. Moves against opponents like Shinseki and Enron crony White paves the way by sending the message that defenders of the dinosaurs will go.

Posted by: bakho on May 2, 2003 08:02 AM

I was about to write some smart-alecky thing that would begin "I beg to differentiate" when I saw George's post. I'm afraid George is right. Anyone who is has great depth of understanding on any subject is not fit to judge the ease or difficulty of comprehending issues within that subject. Sorry Brad.

We should differentiate between those who have mastery and those who have a job. Reporters have a job. Their egos are more satisfied and their job prospects more certain if they pretend to mastery, but in many cases, they do not.

One thing that mastery allows is the paring down of a mass of information into the essentials. I doubt many journalists charged with writing about Greenspan have thought to put together a list of "Greenspan basics" in the manner of Brad's 4 points. It is obviously a valuable exercise, as much for finding that one is mistaken ("hey, that's not what the model predicts!") as for providing context for the next new batch of facts, but I suspect one need to be pretty good at what one does before such lists can emerge.

By the way, this is part of the problem with getting the public to understand economics. The public is not able to differentiate between those who have a grasp of the essentials and those who do not. Much of what passes for economics in the popular press just parrots the views of some (often partisan, sometimes ignorant) individual. If the filter doesn't differentiate, and the public (in general) cannot differentiate, what can be done?

Posted by: K Harris on May 2, 2003 09:51 AM

Not to be French or anything, but something notable about some European newspapers is that they will actually hire first-rank scholarly people rather than journalists to write about difficult topics. Krugman is actually an example of this here, but a rare one indeed. It's possibly also true that people in journalism in Europe are more likely to know top-notch people in other fields, since credentialization and specialization are a little less rampant there, and people who become journalists are more likely to have been in a position to meet people who become scholars.

Posted by: zizka on May 2, 2003 08:45 PM

"Two areas of the budget that could be cut are
the payments to unemployed and the interest on
the debt. To do this, we should knock down
unemployment by giving money directly to the
states and incur a short term deficit to do so.
Once unemployment drops..." (posted by "Bakho")

But why will pushing the problem "downstream" to the
states help solve it?

By now, both parties should recognize tinkering with
federal budget priorities demands more cooperation
with the states. Most states are gasping for air
because they are left with the hard realities of
issues only rhetorically addressed in Washington with
unfunded mandates, etc. From substandard airport
security to dealing with growing technological
unemployment, neither bloc grants nor official concern
from the Bush administration is making much headway
with such intractible problems.

As an earlier poster points out, the level of social
sector payments has stayed about the same, regardless
of which party owned the White House. Retirees and the
unemployed always have been understood to claim their
due under an American social contract, a safety net of
sorts. No party has told them otherwise, until now.
The reigning notion with George Bush and his advisors
is to rid the economy of what they regard as overhead,
equivalent to saying, "If we can just get these social
programs off our backs, why, who knows what some real
tax cuts and freed-up capital might accomplish!"

Posted by: BGraham on June 30, 2003 06:49 PM
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