Greenspan's history askew

Alan Greenspan was a successful chairman of the Federal Reserve Board. During his tenure, which lasted from 1987 to 2006, the American economy rode out several financial crises and grew 70 percent in real terms, with only modest inflation.

Greenspan is now enjoying a well-earned rest, but he also devotes some of his newly published memoirs to fine-tuning his reputation at the expense of fellow Republicans. He blasts Republican Congresses for failing to rein in federal spending, thus turning the surpluses of the Clinton years into deficits and, ultimately, earning the GOP's defeat at the polls in 2006. "They deserved to lose," he writes. Greenspan also chides President Bush for not vetoing spending bills, as Greenspan advised.

But, as Greenspan well knows, irresponsible discretionary spending explains only some of the red ink that Washington has spilled during the Bush years. Two wars, a devastating hurricane and entitlement growth had something to do with it, too — as did huge tax cuts. And those tax cuts enjoyed the support, or at least the non-opposition, of Chairman Alan Greenspan.

In January 2001, Greenspan told Congress that the country could afford a large tax cut. He did not endorse Bush's $1.6 trillion plan specifically, but he did back marginal rate cuts, as the president did. Everyone took his comments as a tilt in favor of Bush. Greenspan insists in his memoir that he did not support tax cuts to stimulate the economy but rather to foreclose the possibility — implausible, in hindsight — that government surpluses would eventually swallow up large chunks of the private economy. He did indeed make that point in 2001; no doubt he did so in good faith. But, as Greenspan notes in his book, he was told by two leading Democrats, Sen. Kent Conrad, D-N.D., and former Treasury Secretary Robert E. Rubin, that his testimony would be treated as an endorsement of the Bush plan — and he went ahead with it anyway.

In November 2002, when Bush was pushing to make the tax cuts permanent, Greenspan told Congress that "it would probably be unwise to unwind the long-term tax cut, because it is already built into the system." In 2003, Greenspan did not speak out in favor of additional tax cuts when the White House proposed them. Nor, however, did he oppose them. Rather, he offered something for everyone: kind words for President Bush's plan to eliminate "double taxation" of dividends and obligatory warnings that the lost revenue should be offset by tax increases or spending cuts elsewhere.

Fortunately, the worst of Greenspan's fears about the deficit have not been realized. According to the Congressional Budget Office, the fiscal 2007 deficit will come in at a less than previously estimated $158 billion, or just 1.2 percent of gross domestic product, thanks to higher than expected tax receipts. The CBO shares Greenspan's oft-stated worries about federal entitlement spending in the longer term. Still, the current, moderate deficit picture is another reason that Greenspan might have tempered his criticism — along with the fact that he was not entirely blameless for the rough fiscal ride of the Bush years.

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