February 12, 2003
LOOK MA, TWO HANDS:
Greenspan Throws Cold Water on Bush Tax Plan: Alan Greenspan, the Federal Reserve chairman, rebutted many of President Bush's arguments in favor of big new tax cuts. (EDMUND L. ANDREWS, 2/12/03, NY Times)"I am not one of those who is convinced that stimulus is desirable policy at this point," he told lawmakers at a hearing of the Senate Committee on Banking, Housing and Urban Affairs. "My own judgment is that fiscal stimulus is premature." [...]Mr. Greenspan bluntly challenged the administration's contention that big budget deficits pose little danger or that the government can largely offset them through faster economic growth.
"We are all too aware that government spending programs and tax preferences can be easy to initiate or expand but extraordinarily difficult to trim or shut down," Mr. Greenspan told the Senate panel.
"Faster economic growth, doubtless, would make deficits easier to contain," he added. "But faster economic growth alone is not likely to be the full solution to the currently projected long-term deficits."
Mr. Greenspan also took issue with the Bush administration's arguments that budget deficits have little effect on interest rates.
"Contrary to what some have said, it does affect long-term interest rates and it does have an impact on the economy," he said.
Mr. Greenspan is right in the first instance and wrong in the second. There is no need for immediate stimulus, something the Administration has made clear by instead proposing a package of long term reforms in the guise of stimulus. They should be passed because they are good for the structure of economy.
On the other hand--obligatory economicspeak--interest rates fell for twenty years while we ran sizeable deficits, but as soon as we headed into surplus the Fed started cranking rates up again, exacerbating, if not causing, the current slow growth economy. This was of course the exact opposite of what we'd been promised for decades; if only we got our fiscal house in order, lower rates would be the reward. Today, with the return of deficits, rates are low. Let the economy begin to show signs of robust recovery and Mr. Greenspan will raise them again. Fool us once; shame on you. Fool us twice; shame on us.
Posted by Orrin Judd at February 12, 2003 10:25 AMIs it at all possible that tax cuts might just move some small degree of power from D.C. (and from the Federal Reserve and himself) to taxpayers, and that the former objectivist Alan Greenspan is not so much the lover of liberty these days that he seemed to be when he hung out with Miss Rand and friends?
Just offering up a suggestion -- please, don't all you Greenspan and Rand fans beat me up too badly for it. :)
Kevin: Not with deficit spending.
I'm not too impressed by tax cutting; the resources for government programs will come from the public in the end. Cut the government and the tax cuts are an implementation detail.
Just prior to the 2004 Presidential contest Mr. Greenspan will be subject to reappointment. I think there can only be one assessment left as to his probability of continuing to lead the Fed.
Thank you Mr. Greenspan but the position has already been filled and we will no longer be needing your assistance.
It's really amazing how Greenspan doesn't take any of the blame for the recent recession. Indeed, he did keep interest rates too high after the Capital Gains tax cut in 1997 and the subsequent economic growth that followed, thus triggering a slow deflation that slowly made its way through the economy before finally killing big debtors in the last couple of years. In order to escape blame for this, he has decided to follow the Democrats' argument that deficits cause higher interest rates, when in fact it is the Federal Reserve that has the most control of interest rates in this country. That's why rates are at 30-year low despite the budget going back into deficits the last two years.
Here
is a good summation of why the big deficit -> higher interest rate argument is bogus.