Deserting a sinking ship

Greenspan blasts Bush. Isn’t it time someone gave St. Alan his lumps?

Yes, this is the same Alan Greenspan who enabled Bush’s tax cuts with one of the most intellectually dishonest performances ever seen on Capitol Hill. (Yes, I know that’s saying a lot.) Greenspan, if you’ll recall, testified that the tax cuts were A Good Thing because otherwise there was the risk that the federal government would pay off all its debt and have to find a place to invest its spare money. That would then generate the further risk that the government, by owning equities, would wield undue influence over the economy. (No, dammit, I am not making this up!)

Even assuming arguendo that there was some real risk that the debt was going to be paid down to zero, and further assuming that for some reason taxes couldn’t be cut then, rather than now, Greenspan’s argument was hogwash. The government could buy some of the buildings it now leases. It could buy state debt. It could divide the surplus among the states on a per capita basis, replacing regressive state taxes. It could buy foreign sovereign debt. It could deposit money in banks (pro rata to their shares of private bank deposits) and let the banks do the lending. I still can’t imagine how Greenspan said it, or how the Senators on the Finance Committee listened to it, without giggling.

As a macroeconomic manager, Greenspan was either very good or very lucky; maybe both. He carries more than his share of responsibility for the tech bubble and the housing bubble, but the long boom of the Clinton years, which even began to move wages at the bottom of the labor market, was a major blessing. Greenspan’s policy preferences, on the other hand, haven’t really changed since he was an adolescent Randite. If his testimony in support of the tax cuts that made the rich richer and left the government broke was “politically careless,” as he now claims, that reminds me of the old “Chance” card from Monopoly: “Bank error in your favor. Collect $200.” I suppose it’s easier when you run the bank.

It’s a disgrace that the press treated Greenspan as an oracle, and still treats him that way after his advice that homebuyers take adjustable-rate mortgages has helped generate what may be a major economic disaster.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com