Alan Greenspan -- Stopped Clock of the U.S. Economy
Even a stopped clock, the saying goes, is right twice a day. Taken figuratively, it means that even the people who have been most disastrously, abysmally wrong can occasionally get something damn near right. In that sense, former Fed chairman Alan Greenspan may be well on his way to being the stopped clock of the American Economy.
Greenspan's latest foray into mainstream media relevance is an interesting departure from conservative messaging on economic matters. The oracle apparently has more to say, this time on extending the Bush tax cuts.
Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being "disastrous" for the economy.
In an interview on NBC's "Meet the Press," Greenspan expressed his disagreement with the conservative argument that tax cuts essentially pay for themselves by generating revenue and productivity among recipients.
"They do not," said Greenspan.
"I'm very much in favor of tax cuts but not with borrowed money and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money," he said. "And at the end of the day that proves disastrous. My view is I don't think we can play subtle policy here."
This is on the heels of a Bloomberg interview in which Greenspan said that he would end the Bush tax cuts, and Congress should do the same.
This man was awarded the Presidential Medal of Freedom in 2005 by George W. Bush. Somehow I doubt President Obama is going to be quite as grateful for Greenspam now acknowledging the obvious, instead of telling Congress in 20001 what Bush wanted him to say (Tax cuts? Great idea!) so that Greenspan would ensure his reappointment as Chairman of the Federal Reserve. I wonder if he now thinks groveling at the feet of that walking photo op was worth insuring that the surpluses Clinton generated would turn into the largest deficits in US history.
Oh wait. I forgot. After he left the Fed he went to work for "Paulson & Co. as an adviser on economic issues and monetary policy", the firm that made billions of dollars betting that the market for collateralized debt obligations (i.e., mortgage backed securities) would collapse.
Paulson & Co. was the Hedge Fund that shorted the infamous ABACUS CDO deal which it created amd that Goldman Sachs marketed. Goldman settled fraud charges brought by with the SEC yesterday in connection with that transaction. Paulson has made billions of dollars for his fund since Greenspan became an economic adviser. I wonder what Greenspan got paid for his "advice," don't you?
Right. The Bush tax cuts passed at least in part because Greenspan assured lawmakers the policy would improve the economy and that the nation could afford them. Republicans heralded his genius and followed his advice. We now know he, and they, were wrong.
Now, however, comes the fun part. Nearly a decade after following his guidance and passing reckless tax cuts that failed to produce, Republicans on the Hill get to scramble to tell us that Alan Greenspan has no idea what he's talking about.
Does Alan Greenspan have any idea what he's talking about now? Did he then? If he were on trial, this might be the point at which a prosecuting attorney would ask "Which Alan Greenspan should we believe?"
As progressive, I'm not inclined to believe either. And I'm even less inclined to hail Greenspan, however right he may be this time. After all, based on his record, he's been wrong most of the time, much like the aforementioned clock — which leads me to think he's either wrong not, right in the wrong way, or up to something.
- In 1994, according to economist Robert Kuttner, Greenspan failed to enforce the Home Ownership Equity Protection Act of 1994, which would have prevented the subprime mortgage disaster had he bothered.
- Instead, during his long run at the Fed, Greenspan backed subprime mortgages and variable rate mortgages, and defended derivatives against regulation.
- In 1997, Brooksley Born, then a lawyer for the Commodity Futures Trading Commission, warned that unregulated derivatives trading could "threaten our regulated markets or, indeed, our economy without any federal agency knowing about it," and called for greater transparency. Greenspan, along with Robert Rubin, dismissed Born and her concerns saying that the regulations she recommended would cause a crisis, and traders would merely take their business overseas.
- Greenspan saw the subprime meltdown coming, ignored warnings about the impending implosion,and decided to let the bubble run its course.
- In the midst of the Enron, Global Crossing, Greenspan and other members of the Bush administration, sat down on February 22, 2002, met to restructure the financial landscape of the country. Greenspan slapped the table and declared "There’s been too much gaming of the system... Capitalism is not working! There’s been a corrupting of the system of capitalism."
- In 2002, Greenspan, along with Treasury Secretary Paul O'Neill and SEC chairman Harvey Pitt, wrote letter to two members of Congress declaring that not only where derivatives not a danger, but that they "have been a major contributor to our economy's ability to respond to the stresses and challenges of the last two years."
- In 2004, Greenspan urged Americans to take advantage of adjustable rate mortgages, and suggested to banks "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage." Inside of a year banks made interest-only adjustable-rate mortgages available to subprime borrowers.
- Paul Krugman notes Greenspan has been singing baritone in the austerity choir this year, blending his voice with those warning that "bond vigilante" investors will pull the plus on the economy if Americans aren't suffering enough ... er ... serious about our debts.
- In 2005, Greenspan claimed he raised concern that the "protracted period of underpricing risk" would have "dire consequences," but made no effort to head off those dire consequences.
- Even as Fed officials debated the housing bubble and what to do about it, Greenspan argued that dissent within the Fed should be kept secret.
- Long before becoming the Fed chair/oracle, Greenspan was a follower of Ayn Rand, who praised her tome Atlas Shrugged, saying, "'Atlas Shrugged' is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should."
- Years later, sitting before the House oversight and government reform committee, Alan shrugged, expressing shocked disbelief that banks could not regulate themselves, that markets could not self-correct, and that bankers behaved less than honorably with billions of dollars at stake.
Krugman, again, reminded us that Greenspan was among those cheering on conservative's "starving the beast" approach to fiscal policy.
But there has always been a political problem with this agenda. Voters may say that they oppose big government, but the programs that actually dominate federal spending — Medicare, Medicaid and Social Security — are very popular. So how can the public be persuaded to accept large spending cuts?
The conservative answer, which evolved in the late 1970s, would be dubbed 'starving the beast' during the Reagan years. The idea — propounded by many members of the conservative intelligentsia, from Alan Greenspan to Irving Kristol — was basically that sympathetic politicians should engage in a game of bait and switch. Rather than proposing unpopular spending cuts, Republicans would push through popular tax cuts, with the deliberate intention of worsening the government’s fiscal position. Spending cuts could then be sold as a necessity rather than a choice, the only way to eliminate an unsustainable budget deficit.
If nothing else, Greenspan's latest economic epiphany gives congressional conservatives yet another opportunity to put up or shut up. As Krugman said in the column quoted above, "O.K., the beast is starving. Now what? ...It should be time, then, for conservatives to explain which parts of the beast they want to cut." It should be time for conservatives to explain to the American people — in the midst of a grinding economic crisis for the many and recovery for the few — to explain what painful cuts they will make in order to extend tax cuts for the wealthy, instead of explaining how they don't intend to pay for those cuts. That, or justify the lost revenue at a time when millions of Americans are unemployed, and vital infrastructure is crumbling. Let them take their pick.
It's jarring, considering all of the above, to hear Greenspan mouthing what progressives have been saying about the Bush tax cuts he once approved. Considering his Randian roots, Greenspan should be among the conservatives assuring us that everything will be rosy once the beast is starved, the government is drowned in the bathtub, and several unfortunate-but-necessary rounds of mass die-offs take care of the "Parasites who persistently avoid either purpose or reason perish as they should." As he was before, he probably will be again.
A stopped clock is indeed right twice a day, but only for a minute each time. Then it goes back to being wrong the other 23.9666667 hours. In fact, if we're being precise, it's only right for about a second each time, if it displays seconds. (Let's just say, for argument's sake, that we're talking a digital clock.) Then it quickly goes back to being wrong the other 23.9994444 hours of the day