Saturday, September 15, 2007

Greenspan's revisionist history

Alan Greenspan is revising history and the role he played in supporting the Bush administration's irresponsible fiscal policies.

In his new memoir, Age of Turbulence: Adventures in a New World, he is harshly critical of President Bush, Vice President Dick Cheney and the Republican-controlled Congress, as abandoning his party’s principles on spending and deficits. "My biggest frustration remained the president's unwillingness to wield his veto against out-of-control spending." Greenspan wrote.

Either Mr. Greenspan is suffering from amnesia or he is purposefully rewriting history to conform to his libertarian views! Either way, Greenspan ignores that it was the Bush tax cuts which he aggressively supported, that are primarily responsible for the era's deficits, not "out-of-control spending."

Congressional Budget Office data illustrates that the $1.3 trillion 2001 tax cuts, 45% of which went to the richest 1%, have been the single largest contributor to the reemergence of substantial budget deficits in recent years.

According to the CBO, legislation enacted since 2001 added almost $2.3 trillion to deficits between 2001 and 2006, with half (51%) of this deterioration in the budget due to the tax cuts (about a third was due to increases in security spending, and about a sixth to increases in domestic spending).

Mr. Greenspan played a crucial role in getting this legislation passed.

President Bush initially proposed tax cuts during his presidential campaign in response to a projected $5.2 trillion surplus.

Opponents argued that it was folly to base tax cuts on projections and that any surpluses that might materialize should be used for necessary social investments (repairing New Orleans levies and the nation's ailing infrastructure, investing in education, etc.) and to pay down the national debt.

By the time Bush was inaugurated, the bubble which Greenspan had helped create through his support for capital gains tax cuts in the 1990's, had burst and the economy was slowing. The recession officially began in March 2001.

President Bush appeared to lack the Congressional support necessary to enact his high end tax cuts. He had lost the popular vote, his installation as President was controversial, and the Senate was divided.

But Greenspan, seemingly more concerned with providing political cover to the new president than the nation's economic health, aggressively supported the tax cuts.

In late January 2001, Greenspan said: "It is far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases," assuring Congress that the tax cuts would not endanger future Social Security benefits.

In response to White House spokesman, Ari Fleischer, praised the Federal Reserve Chair, "We are very heartened to see that Chairman Greenspan has weighed in on the importance of cutting taxes, and hope that the Congress will join President Bush and Chairman Greenspan in cutting taxes, in passing the Bush tax cut, so we can protect the strength of our economy."

Greenspan's support was crucial mustering the votes to get the tax cut legislation passed.

In 2003 with deficits soaring, the Federal Reserve Chair supported yet another round of deficit-creating high end tax cuts proposed by President Bush.

These tax cuts created large deficits rivaling those Greenspan had insisted must be closed in the early Clinton years. But now Greenspan supported making Bush's tax cuts permanent at a cost that was more than five times the amount necessary to close the projected shortfall in Social Security over the next 75 years.

Then in a truly remarkable bait and switch, Mr. Greenspan called for cuts in social security to restore fiscal discipline. Not surprisingly his conversion to cutting social security benefits coincided with President Bush's ultimately unsuccessful effort to dismantle the system through privatization.

Despite current protestations, Mr. Greenspan was not a critic of the Bush administration's fiscal irresponsibility. When it mattered, at every key junction, Mr Greenspan aided and abetted the Bush administration's reckless economic policies. Buy the book, if you must. But don't believe the hype.

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