What did Federal Reserve Chair Alan Greenspan think of the 2001 tax cut, exactly? The Wall Street Journal's David Wessel reports:
Posted by DeLong at January 15, 2004 05:26 PM | TrackBackCapital: Mr. O'Neill quotes Fed Chairman Alan Greenspan as describing the first Bush tax cuts as "irresponsible fiscal policy" because they don't include a "trigger" to undo them if the deficit grows too large, and as predicting this will "eventually ... be the consensus view." (Mr. Greenspan denies this. "It's been rare over the many years of our friendship that Paul and I have different recollections of events, but in this case we do," he says.)
Didn't Greenspan add the tax cuts are good as enacted, (and I'm paraphrasing) because they do not impede privatizing assets? Isn't this another way of saying getting the government out of the services providing business: allow the deficit to grow so that services must be cut (i.e. shrink it so that it may be drowned in the bathtub). Greenspan is letting his Ayn Rand leanings come to the surface? Does Rove have pictures of Greenspan in compromising positions?
Posted by: Cal on January 15, 2004 09:44 PMNo compromising photos. AG has really been quite consistent as a small government champion. When Clinton came to office, AG brokered a deal whereby he would leave money supply a little looser than he liked if Clinton would reign in spending on programs a lot more than Clinton would have liked.
I think that is consistent. What is less consistent is the AG support for the 2001 tax cuts. How could he have missed the obvious slide into deficit? Certainly AG should have known that the projections were off, that after 10 years any surplus would go to fund the elderboom. Maybe he was looking at a way to reign in elderboom programs in the future?
At the same time, AG must be livid that the Bush administration cannot get spending under control. Despite the rhetoric, Bush Inc. has increased spending by more than 1% of GDP after the frugality of the Clinton years. Bush Inc. cannot seem to pass up opportunities to shovel money to their military-industrial complex supporters in the form of no-bid contracts, missile defense that does not work, space programs that are inefficient with respect to putting payloads in space, farm subsidies to agribusiness, etc.
AG proabably does not like being powerless in terms of monetary policy. AG has all the levers wide open but no steam in his boiler. He probably hoped that the 2001 tax cuts would create inflation so he could get some steam back in the boiler.
AG is part of the old school monetarists who believe in the transitory nature of fiscal stimulus and deny that how the financial stimulus is spent makes a difference. AG would greatly prefer that fiscal stimulus be given in the form of temporary tax cuts instead of as part of permanent new programs. This is the preference of the monied class who have lost touch with how the rest of us live.
How a fiscal stimulus is delivered makes a huge difference, especially in a global economy where fiscal stimulus can just as easily flow overseas to stimulate foreign economies instead of our own if placed in the wrong hands. That is what AG and the rest of the monetarists don't seem to comprehend. This is why AG needs to be replaced with someone younger that is in better touch with the realities of today. Given the Bush history of choosing economic advisors, the likelihood that he would appoint the right type of replacement is pretty low. IOW, a Fed Chair could do a lot worse.
Posted by: bakho on January 16, 2004 05:52 AMSo did they really fear deflation so he accepted any stimulous, however ill-suited for the specific purpose, just to get more source of liquidity in the system at some point? Krugman has shifted his focus from deflation to fiscal nightmare, our host states that deflation is no longer the risk it appeared to be, Stephen Roach at Morgan Stanley (referred by our host), who was the most consistent and vocal Cassandra about deflation, in his year end summary seems to think that deflation is no longer a risk. I also seem to remember that AG said we needed tax cuts in part because he feared paying off our acculated debt too quickly. I never figured out what he meant by that (but I'm limited in my ability to understand the Fed and its ways) or read any commentary about what he meant by it. It seems to me that AG has not been honest about what he feared, what he wanted Congress to do, and what he was trying to achieve while he aided and abetted the Bush team ramming those tax cuts through Congress. I don't think he's lost touch with how people live, I think he compromised himself to help Bush II. I remain dumbfounded why everyone seems to go out of their way to help, or not impede, Bush. The mainstream media lets him off without strict scrutiny. Democrats rolled over as if he had won the election by a landslide. That's why I gave the wisecrack about the photos. What else can explain AG's conduct?
Posted by: Cal on January 16, 2004 07:53 AMAgainst the view that we are out of the woods as far as fearing deflation goes, this piece caught my attention:
http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=29690
I agree with you on just about everything else:"It seems to me that AG has not been honest about
..." And no need to adjoin any qualifiers. He is the Great Obfuscator. There is always the need for a huddle, (esp among the pundits,) after his pronouncements to confer on what the hell he said.
But this one misses by a mile:
"I don't think he's lost touch with how people live,...". When was the last time AG went for a stroll through a working class neighbourhood? And this goes for the rest of the Bush tribe too. ( There I go insulting the natives --my humble apologies!)
"The mainstream media lets him off without strict scrutiny." The mainstream media has been bought by the Bush squad. I now go with that clairvoyant cartoonist(Trudeau), who saw Bush so much better than I did.
The "positions" wisecrack appreciated. There is a real demand at the moment for relief humour.