Monday, June 07, 2004
Krugman, must read
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The time has come, in my judgment, to consider a budgetary strategy that is consistent with a pre-emptive smoothing of the glide path to zero federal debt or, more realistically, to the level of federal debt that is an effective irreducible minimum.'' Translation: Go ahead and cut taxes.
With those words, delivered in Senate testimony on Jan. 25, 2001, Alan Greenspan -- revered during the 1990's as the nonpartisan architect of America's prosperity -- inserted himself decisively into politics, on the side of George W. Bush. The chairman of the Federal Reserve didn't specifically endorse Bush's plans, but his words were exactly what Bush needed. Before Greenspan's testimony, many political observers questioned whether the victor in a disputed election could get an enormous, controversial tax cut through Congress. After Greenspan spoke, much of the resistance collapsed.
Yet in retrospect we know that Greenspan's ''judgment'' -- that tax cuts were needed to prevent excessive budget surpluses -- was a misjudgment of Rumsfeldian proportions. In fact, the United States is headed for a budget deficit of more than $400 billion this year, more than half of it a result of tax cuts passed since Greenspan gave Bush his support.
Greenspan is still a figure of enormous prestige and power; he is to economic policy what J. Edgar Hoover once was to law enforcement. After 17 years as Fed chairman, Greenspan has become an icon, and it's hard to imagine America without him; indeed, last month the president nominated him for a fifth term. Yet his reputation is not what it once was. At the height of the boom, he was the monetary maestro whose advice was sought on many aspects of economic policy. Now his record as a monetary leader has been called into question, and his judgment on fiscal policy has been proved disastrously wrong. Worse, he seems to have abandoned the long tradition that places the Fed above the political fray.
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