Krugman Savages Greenspan’s Revisionist History

Alan Greenspan made the mistake of resorting to a tired and increasingly ineffective move from the Bush playbook. Specifically, tell a big lie long and loudly enough, and quite a few people will come to believe you. But in Greenspan’s case, this tactic may be backfiring.

Greenspan seems to have forgotten that some of the people in his audience not only have good memories, but also loud voices of their own. Paul Krugman in “Sad Alan’s Lament” pillories Greenspan’s efforts to depict himself as an old school Republican, a fan of small government, and as the financial media broadcast this weekend, strongly opposed to the Bush budget deficits.

Krugman tells us, au contraire, the Bush tax cuts looked doomed until Greenspan spoke in their favor before the Senate Budget Committee. While some claim that Greenspan was upset as how his remarks were interpreted, he could easily have corrected any mispereception. The most charitable reading one can make is that Greenspan wanted to placate the Bush administration by not appearing to oppose the cuts, but was unable to craft an effective fence-straddling statement. Thus, the whole point of his strategy was not to cross swords with the Bushies; coming out and saying he wasn’t keen about the tax cut proposal would have precisely that effect.

Krugman makes clear that he wasn’t fooled even then.

From the New York Times:

When President Bush first took office, it seemed unlikely that he would succeed in getting his proposed tax cuts enacted. The questionable nature of his installation in the White House seemed to leave him in a weak political position, while the Senate was evenly balanced between the parties. It was hard to see how a huge, controversial tax cut, which delivered most of its benefits to a wealthy elite, could get through Congress.

Then Alan Greenspan, the chairman of the Federal Reserve, testified before the Senate Budget Committee.

Until then Mr. Greenspan had presented himself as the voice of fiscal responsibility, warning the Clinton administration not to endanger its hard-won budget surpluses. But now Republicans held the White House, and the Greenspan who appeared before the Budget Committee was a very different man.

Suddenly, his greatest concern — the “emerging key fiscal policy need,” he told Congress — was to avert the threat that the federal government might actually pay off all its debt. To avoid this awful outcome, he advocated tax cuts. And the floodgates were opened.

As it turns out, Mr. Greenspan’s fears that the federal government would quickly pay off its debt were, shall we say, exaggerated. And Mr. Greenspan has just published a book in which he castigates the Bush administration for its fiscal irresponsibility.

Well, I’m sorry, but that criticism comes six years late and a trillion dollars short.

Mr. Greenspan now says that he didn’t mean to give the Bush tax cuts a green light, and that he was surprised at the political reaction to his remarks. There were, indeed, rumors at the time — which Mr. Greenspan now says were true — that the Fed chairman was upset about the response to his initial statement.

But the fact is that if Mr. Greenspan wasn’t intending to lend crucial support to the Bush tax cuts, he had ample opportunity to set the record straight when it could have made a difference.

His first big chance to clarify himself came a few weeks after that initial testimony, when he appeared before the Senate Committee on Banking, Housing and Urban Affairs.

Here’s what I wrote following that appearance: “Mr. Greenspan’s performance yesterday, in his first official testimony since he let the genie out of the bottle, was a profile in cowardice. Again and again he was offered the opportunity to say something that would help rein in runaway tax-cutting; each time he evaded the question, often replying by reading from his own previous testimony. He declared once again that he was speaking only for himself, thus granting himself leeway to pronounce on subjects far afield of his role as Federal Reserve chairman. But when pressed on the crucial question of whether the huge tax cuts that now seem inevitable are too large, he said it was inappropriate for him to comment on particular proposals.

“In short, Mr. Greenspan defined the rules of the game in a way that allows him to intervene as he likes in the political debate, but to retreat behind the veil of his office whenever anyone tries to hold him accountable for the results of those interventions.”

I received an irate phone call from Mr. Greenspan after that article, in which he demanded to know what he had said that was wrong. In his book, he claims that Robert Rubin, the former Treasury secretary, was stumped by that question. That’s hard to believe, because I certainly wasn’t: Mr. Greenspan’s argument for tax cuts was contorted and in places self-contradictory, not to mention based on budget projections that everyone knew, even then, were wildly overoptimistic.

If anyone had doubts about Mr. Greenspan’s determination not to inconvenience the Bush administration, those doubts were resolved two years later, when the administration proposed another round of tax cuts, even though the budget was now deep in deficit. And guess what? The former high priest of fiscal responsibility did not object.

And in 2004 he expressed support for making the Bush tax cuts permanent — remember, these are the tax cuts he now says he didn’t endorse — and argued that the budget should be balanced with cuts in entitlement spending, including Social Security benefits, instead. Of course, back in 2001 he specifically assured Congress that cutting taxes would not threaten Social Security.

In retrospect, Mr. Greenspan’s moral collapse in 2001 was a portent. It foreshadowed the way many people in the foreign policy community would put their critical faculties on hold and support the invasion of Iraq, despite ample evidence that it was a really bad idea.

And like enthusiastic war supporters who have started describing themselves as war critics now that the Iraq venture has gone wrong, Mr. Greenspan has started portraying himself as a critic of administration fiscal irresponsibility now that President Bush has become deeply unpopular and Democrats control Congress.

Update 9/17, 6:00 PM: Brad DeLong argues that Krugman overstated the difficulty of getting tax cuts passed: “Presidents who propose tax cuts almost invariably get them.” Probably true, but my recollection (based on David Stockman’s memoirs) is that the Reagan tax cuts were a hard-won battle.

And Cassandra has managed to get her hands on unpublished excerpts of Greenspan’s book. Amusing indeed.