THERE IS A MOMENT IN EVERY successful con game when the victim thinks that he or she has gotten the better of the deal. Thus, going into the 2000 elections, Democrats congratulated themselves on having become the party of fiscal responsibility. Urged on by Federal Reserve Chairman Alan Greenspan, Bill Clinton had made eliminating the national debt more important than expanding investment in health, education, and other social programs. It was a sharp contrast to the preceding Reagan-Bush years of irresponsible tax cuts and profligate military spending. With the surplus predicted to rise for a decade, the Clinton White House had become, as Washington Post columnist David Ignatius recently observed, "one of the most ardently pro-Wall Street administrations in the nation's history."
The delusion continued throughout the 2000 presidential campaign. George W. Bush promised to balance the budget except during a time of war or recession. Al Gore, however, happily positioned himself to the right of Herbert Hoover by proclaiming that he would cut government spending in an economic downturn, "just as a corporation has to cut expenses when revenues fall off."
Then there is the moment when the swindle is revealed to those who have been duped. In this case, it occurred shortly after Bush's inauguration: Greenspan announced that he approved of Bush's proposal for a $1.6-trillion tax cut (it was later scaled back to $1.3 trillion). The media reported that the Democrats were "shocked." How could Greenspan support a proposal that would not just eliminate the surplus but actually push the federal government back into a deficit? How could Greenspan, who had lectured the Democrats for eight years that deficits were the root cause of runaway inflation and would destroy the Social Security system, so cavalierly dismiss his own concerns?
On the evidence, the answer is that Greenspan and his Wall Street clientele were never that interested in balancing the budget; nor were they especially worried about inflation or the fate of Social Security. Rather, Greenspan's real concern seems to have been to keep the Democrats from expanding domestic government after they won the election. Like all good con artists, Greenspan knew where his "mark" was vulnerable: The Democrats feared reliving the late 1970s, when double-digit increases in consumer prices drove Jimmy Carter out of the White House. But the economic evidence for Greenspan's doomsday scenario--in which an overheated peacetime domestic economy triggers a politically unacceptable wage-price spiral--is strikingly thin: Greenspan certainly knew that the cause of the 1970s inflation was the global energy crisis, and that spending on war, not domestic programs, triggered every other major inflationary episode of the last century. …