Alan Greenspan’s monetary policy, Brad DeLong now steps
up to the plate to defend his notorious 2001 testimony in favor of the Bush
Administration’s sweeping tax cuts. If you actually read the testimony,
he says, it’s full of hedges and cautions and triggers and whatnot – it’s
far from the green light that it was painted as.
Greenspan even says that Bob Rubin found nothing objectionable in the testimony
Bob Rubin phoned…. With a big tax cut, said Bob, "the risk is, you
lose the fiscal discipline."…
"Bob, where in my testimony do you disagree?"
There was silence. Finally he replied, "The issue isn’t so much what
you’re saying. It’s how it’s going to be perceived."
"I cant be in charge of people’s perceptions," I responded wearily.
"I don’t function that way. I can’t function that way."
Greenspan goes on to say that he’d "have given the same testimony if Al
Gore had been president". But you’ll excuse me if I’m skeptical of that
For one thing, by Greenspan’s own admission he was full of optimism at the
beginning of 2001 that George W Bush would recreate the Ford Administration
(Cheney, Rumsfeld, O’Neill, Greenspan himself). He genuinely believed that Bush
was a fiscal conservative who would protect budget surpluses – and, as
a lifelong libertarian Republican, he was excited to be able to sign on to the
But more to the point, how can we take seriously Greenspan’s assertion that
he would have given the same testimony under a Gore administration, given that
he never hinted at anything similar during the Clinton administration? Here’s
some of the Greenspan testimony:
Continuing to run surpluses beyond the point at which we reach zero or near-zero
federal debt brings to center stage the critical longer-term fiscal policy
issue of whether the federal government should accumulate large quantities
of private (more technically nonfederal) assets. At zero debt, the continuing
unified budget surpluses currently projected imply a major accumulation of
private assets by the federal government. This development should factor materially
into the policies you and the Administration choose to pursue.
In January 2001, it seems, the prospect of the goverment paying down the federal
debt to zero is and should be at "center stage", and "should
factor materially" into the decision whether or not to cut taxes. But if
that was really the case, how come we heard almost nothing along such lines
from Greenspan in 2000? And in any case, wasn’t Greenspan’s job meant to be
monetary policy, not fiscal policy? I suspect that had Gore been president,
a less ideologically excited Greenspan would have been much more circumspect
about treading outside of his economics-and-monetary-policy domain to advise
the Congress that they should cut taxes. After all, even central bankers are