Thursday, April 21, 2005

Hack Attack

My old friend Alan Greenspan was at it again today, warning Congress about the record high deficits that are endangering our economic well-being and, in a related sense, our national security interests. For example, the war on terrorism will be hard to fight in an economic downturn or with limited budgetary resources, especially if borrowing abroad is made more expensive by the loss of reserve currency status or a general loss of appetite for our debt instruments. But I digress.

While I was champing at the bit to get my Greenspan take-down into the 'sphere,
Kevin Drum slyly took advantage of yet another Blogger shutdown to edge me out at the line. Kevin covers most of the salient points: the fact that Greenspan is clamoring for a reduction in spending (read: reduction in Social Security benefits) and a restoration of fiscal sanity, and that his big scare tactic centers around the dreaded baby boomer retirement that seems to have snuck up out of the blue on the unsuspecting Greenspan. Why just four years ago, Greenspan was justifying Bush's $1.3 trillion dollar tax cut (that was the one in 2001, there have been many more since) by claiming that the surpluses were too high, and that we ran the risk of paying down the debt too quickly. Heh. Now, with that $1.3 trillion number in mind, look at the numbers that have Greenspan so concerned:

Last year, the government produced a budget deficit of $412 billion, a record in dollar terms. The deficit this year is projected to shatter that record, coming in at an estimated $427 billion.
I'm no mathematician, nor an economist, but according to those numbers, it seems to the layman that the two prior deficits could have fit under the umbrella of the 2001 tax cuts alone - with room to spare. But of course, Bush's tax cuts didn't stop at $1.3 trillion. There have been sizable additions each and every year, with each successive budget passed by the Republican controlled Congress - including the most recent repeal of the Estate Tax for multimillionaires. For Greenspan though, what a difference four years makes. Now he repeats the doomsday mantra about Social Security and Medicare, while admonishing the government's profligate ways. Guess he forgot about the boomer generation way back in 2001, caught up in the drunken frenzy of tax cut euphoria. But now, we get the sober Greenspan. This tale of two Greenspan's was not lost on some observers, and the criticism seems to be getting to poor beleaguered Alan.

Greenspan's call for fiscal prudence touched a nerve with Democrats who still sting from Greenspan's endorsement of President Bush's $1.3 trillion tax cut in 2001. It was proposed at a time when the government was expecting a decade of budget surpluses, which didn't materialize.

"I was wrong like everybody else on the issue of surpluses," Greenspan said.

In 2001, Greenspan said the tax cut should be accompanied by a trigger mechanism that would rescind the tax cut in later years if economic forecasts changed. The Fed chief said it was "frankly unfair" for people not to remember that point. [emphasis added]
Here's the problem with Greenspan's faux defense, and why it's not so unfair to hold him accountable: he has consistently counseled against repealing those same tax cuts as a means of putting the nation's fiscal house in order. So, according to him, he should be given a free pass on all of his sage advice concerning the preservation of those tax cuts because once, four years ago, he said they should have a sunset provision built in - even though now he opposes efforts to pass an ex post facto repeal. Not very convincing Mr. Greenspan. If you think those tax cuts should have been passed with provisions for their eventual rescission, why not advocate for their repeal now - which would accomplish the same goal. Otherwise, live with your hackularity.

What also caught my eye, at least in the
New York Times' coverage (note: the reference to private accounts is not included in the most updated online version of the story), was the fact that Greenspan cautioned that the time was not right for private accounts, and that the trillions that would need to be borrowed to fund the transition from the current system to partial privatization would further spike the deficits and would likely cause a sharp increase in interest rates. When one of the biggest GOP political hacks in Washington comes out against privatization, the President's plan might be DOA. If so, RIP.

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