Magazine article Insight on the News

Greenspan Doesn't Always Get It Right

Magazine article Insight on the News

Greenspan Doesn't Always Get It Right

Article excerpt

When Alan Greenspan set his face against tax cuts during the 1990s, deficit hawks and big-spending liberals couldn't get enough of the Federal Reserve chairman. They lauded him and never tired of invoking his name and quoting his remarks to whomever argued that the tax burden was too great and should be eased.

Then came Greenspan's tax-cut-endorsing testimony on Jan. 25 before the Senate Budget Committee -- and all of a sudden the Fed chairman wasn't so wise after all.

Both the Washington Post and New York Times devoted space to knocking him -- the latter turned to pop economist Paul Krugman to question why the Fed chairman felt empowered to stray from pure monetary policy. How dare the chairman enter the fiscal field and hazard an opinion about tax cuts!

That, of course, wasn't the line when Greenspan could be counted on to provide useful arguments against cutting taxes. His every word was pure gold then, and even the chairman, who is not known to hide his light under a bushel, got a little tetchy being asked to opine on every economic subject known to man, according to transcripts of 1995 Fed meetings released on Jan. 26.

During one meeting called to discuss financial assistance to Mexico, Greenspan noted with a touch of exasperation that he had "just been invited to speak, for example, to the Democratic Senate Caucus, not on Mexico but more or less on the world at large." And in a moment of humility the chairman noted that the Fed in recent years had amassed such credibility that every word and action of the agency was treated as gospel. "The markets truly believe that we know what is going on in the economy to a degree that no one else really does -- I worry about that basically because we could be our own worst enemies in this regard."

Greenspan doesn't have to be anxious about that now; the Post in its testimony coverage even dredged up the "R" word, noting that Greenspan is -- horror of horrors -- a Republican.

And in handy notes the Post explained: "Greenspan is an economist and a Republican. And one thing both economists and Republicans tend to believe is that, if there's an extra dollar lying around, individuals will tend to spend it more wisely than government."

Actually, economists would tend not to use the rather subjective word "wisely" -- they would employ the word "efficiently" and argue from data that economies with limited government spending do better than economies with free-spending governments. Oh well, obviously Greenspans little lectures during the last few years haven't quite sunk in at the Post yet.

Of course, Republicans, who were nervous that Greenspan wouldn't back George W. Bush's tax-cut proposal, also have changed their tune about the Fed chairman. Prior to his January Senate remarks, they fired warning shots across Greenspan's bow, with behind-the-scenes, off-the-record comments rehashing the charge that the Fed chairman lost the 1992 election for the elder Bush by failing to ease interest rates rapidly enough. …

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